Politics more than economics forms the new budget plan

This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.

In sending his $3.8-trillion budget to Congress, President Obama is proving true the old political adage that a spending plan is more political than economic -- especially in an election year.

Obama has made his political priorities clear, putting money into creating jobs, especially in alternative energy areas, into education to improve the United States’ ability to compete on the world stage, and into fighting the deficit. The latter is designed to appeal to conservatives -- Democrats, Republicans and independents -- while the rest is designed to define a domestic political agenda as the midterm elections unwind.

“This budget details the pillars of the stable and broad economic growth we seek: making long overdue investments and reforms in education so that every child can compete in the global economy, undertaking healthcare reform so that we can control costs while boosting coverage and quality, and investing in renewable sources of energy so that we can reduce our dependence on foreign oil and become the world leader in the new clean energy economy,” Obama noted in his transmittal letter accompanying the budget sent to Capitol Hill.

“In the long term, we cannot have sustainable and durable economic growth without getting our fiscal house in order,” Obama said, a recognition of what polls say is voter anger.

Underlying the spending plan is the broad economic assumption of how the Obama administration sees the economy performing during the next few years.

The administration see the economy heading for a period of above-average economic growth. This year, it expects 2.7% growth in gross domestic product, but by 2011, it expects growth to expand from 3.2% to 4.3% -- more than many independent economists believe. The last time the economy grew that quickly was during the dot.com years in the go-go 1990s.

Most budgets prepared by the executive branch of national -- and usually state and local governments, as well -- are generous in growth assumptions because that implies more tax revenue coming in, hence more money to spend without having to levy new taxes.

But even with sharp growth, the administration is cautious on job creation, saying it expects the unemployment number to average about 10% this year, and easing to above 9% by 2011, meaning the elections will be held during a slow jobs recovery -- never a good sign for incumbents.

On the income side, the Obama administration targeted those it said it would: the rich and the banks -- both good targets for a populist electoral campaign.

The budget plan calls for nearly $1 trillion in tax increases on upper-income families -- largely by allowing Bush-era tax cuts to expire. Banks, bankers and other institutions would face new fees.

There will be $100 billion for investments in small-business tax cuts and spending on infrastructure and clean energy.

Among the big winners is education, in line for another $3 billion in the Elementary and Secondary Education Act plus almost $1.4 billion more for the Race to the Top program, one of the Obama administration’s hallmark issues. Another $17 billion is earmarked for Pell Grant funding for college aid.

Of course, the president budget is just a proposal. Expect Congress to massage the numbers as it considers its priorities.

-- Michael Muskal

Twitter.com/LATimesmuskal