Big Issues the Budget May Miss

The president's budget is a ritual in which rhetoric crowds out reality, comparisons are tailored to provide talking points rather than illumination and issues of significance drown in a sea of details. But the budget is one time a president must reveal choices and priorities, even if one has to look at the tables at the back to find them.

As President Obama prepares to hand down his budget, WSJ's David Wessel says Congress can't afford side-steps if it wants to make any headway into a record deficit.

When Barack Obama's budget arrives on Monday, the thoughtful will look for responses to two issues: The U.S. government budget is on an unsustainable course. The U.S. economy, despite recent encouraging signs, is not growing fast enough to bring down unemployment and raise incomes.

There are three ways to reduce future deficits. The quickest is for the economy to grow faster, but that won't suffice. The others are to raise taxes or cut spending. Mr. Obama will propose that recently renewed Bush upper-income tax cuts expire in 2013, but otherwise won't push revenue increases. Neither Republicans nor voters will contemplate higher taxes until they're convinced spending has been cut, he figures.

On spending, today's debate in Congress is about annually appropriated domestic spending, everything from paper clips to public health experts. Congressional Republicans are focusing on this fiscal year as Mr. Obama proposes a budget for next year. (One tip: Ignore five-year freezes and spending cuts in 2013 and beyond. These decisions are made year-by-year.)

For all the noise, this spending, about $1 of every $6 the government spends, isn't driving up deficits. "I'm waiting for the politician to get up and say: There's only one way to do this. You dig into the big four: Medicare, Medicaid, Social Security and defense," former Sen. Alan Simpson (R., Wyo.), co-chairman of a deficit commission Mr. Obama appointed, said Sunday on CNN. "Anybody giving you anything different...you want to walk out the door, stick your finger down your throat, and give them the green weenie." (I looked it up: The "green weenie" was a plastic hot dog that Pittsburgh Pirates fans once waved to bestow good luck on their team and jinx opponents.)

Last year, the president said he wanted to get the annual deficit down to 3% of gross domestic product by fiscal 2015 to stabilize federal debt as a percent of GDP, perhaps the single best measure of fiscal health. He didn't say how and fended off questions by pointing to the report from Mr. Simpson's commission, which was issued in December.

This year? Well, the target is going to slip a bit. The commission? The White House argues there's no point in the president proposing anything serious on big health- and retirement-benefit programs until Republicans are ready to deal. "If the president just gets up and says this is what I want to do and it's not bipartisan...then he's blasted, and we're back to ground zero," White House economist Austan Goolsbee said this week. So the president likely will stick to suggesting ways to offset the cost of must-do legislation (such as blocking scheduled cuts in Medicare doctor fees) and proposing fixes to smaller benefit programs, a trust-building exercise of sorts.

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President Barack Obama will deliver his budget on Monday.

By casting the budget as a bargaining chip in a two-year poker game with Republicans rather than showing gutsy leadership and offering ways to slow benefit spending, the president runs the risk that no one will take his rhetoric about taming the deficit seriously. Here's the tough reality: Even if defense spending goes from 4.7% of GDP to 2.8% by fiscal 2021, if stimulus spending ends, if domestic spending is cut and then frozen andif taxes are raised on upper-income Americans, the debt-GDP ratio still keeps climbing, Goldman Sachs projects.

"Endless borrowing is not a strategy," Federal Reserve Chairman Ben Bernanke told Congress Wednesday, noting Congressional Budget Office projections show debt rising from 60% of GDP last year to nearly 90% by 2020 and 150% by 2030.

What about economic growth? Republicans argue government is an obstacle to growth and want to shrink it. Mr. Obama counters that government can foster growth with spending on education, innovation and infrastructure, nearly all in the hotly contested domestic-spending bills.

The president's critics say all spending is bad. His challenge is to argue convincingly that some spending is worthwhile and to identify cuts to maintain or increase this higher priority investment spending. His allies are puzzled by White House reluctance to push a notion he has endorsed: A national infrastructure bank, a revolving fund that would leverage taxpayer money with private money and yank decisions about which projects to fund from the political process. That is, of course, the rub: Congress won't readily surrender control.

Monday's budget is just the opening act. When Republicans finish this year's spending bills, they will have to write an alternative script for 2012.

"Sooner or later, the American political system will rise to the responsibility to be serious: to complete the job of fiscal policy correction. It may do it in small steps or large. It cannot do it with side-steps." That was the late White House budget director Dick Darman, writing 21 years ago in his introduction to George H. W. Bush's budget.

Write to David Wessel at capital@wsj.com