WASHINGTON - The President's budget represents a bold and
courageous proposal to make progress in restoring fiscal discipline while
addressing two central problems of our time - a broken health care system and
the threat of catastrophic global warming - and other national needs.

Particularly courageous are several proposals that take on vested interests to
fully pay for the costs of health care reform and tackling global warming,
including:

• Instituting major cost-saving reforms in Medicare that also hold promise for
  slowing private-sector health care costs and are consistent with
  recommendations of Congress' expert advisory body, the Medicare Payment
  Advisory Commission. Faced with intense opposition from insurance companies
  and other interests, Congress has shied away from such proposals, but the new
  Administration has embraced them. The budget also includes a sound,
  longstanding Republican proposal - to increase the premiums that affluent
  Medicare beneficiaries pay for the prescription drug benefit that Medicare
  provides them.

• Limiting various tax subsidies to the most affluent Americans to 28 cents on
  the dollar. Currently, middle-income Americans receive a tax subsidy equal to
  10 cents or 15 cents for each dollar of their deductible expenses (if they
  itemize deductions at all), while affluent Americans get a subsidy of 35 cents
  for each dollar of the same expenses. The budget would cap the subsidy at 28
  cents on the dollar for those with incomes over $250,000, the same rate at
  which those expenses could be deducted in the final Reagan years, when the top
  tax rates were lower. As a result, incentives to incur those expenses would be
  the same as under President Reagan.

• Auctioning all emissions permits under the Administration's proposed
  cap-and-trade system to address global warming, rather than conferring
  windfall profits on energy companies and others that pollute by giving them
  tens of billions of dollars' worth of permits for free. The proposal would
  then use auction proceeds to offset the impact on working families of the
  resulting increases in energy prices, by extending the Making Work Pay tax
  cut. (This tax cut is similar to tax-reduction proposals of recent years by a
  number of analysts, including those here at CBPP, to efficiently provide
  middle-income consumers with relief from the increased energy costs that an
  emissions cap would trigger.) Additional measures will be required to provide
  adequate relief to low-income consumers; the budget envisions using some of
  the remaining auction proceeds for that.

The budget also makes a significant commitment to restoring fiscal
responsibility while meeting high priority national needs, by:

• Reducing deficits to 3 percent of the Gross Domestic Product by 2013, about
  the level needed to keep the federal debt from rising much faster than the
  economy and thus leading to an explosion of debt that swamps the budget and
  the economy.

• Pledging to offset the costs over the next ten years of health care reforms
  that initially will raise costs by providing universal coverage but that will
  set the stage for reducing public- and private-sector health care costs in
  subsequent decades by gradually slowing the rate at which those costs grow.
  The high rate of growth of health-care costs is at the root of the nation's
  long-term fiscal problem.

By themselves, these budget proposals would prove insufficient to keep
deficits at 3 percent of GDP indefinitely. Policymakers will need to take
additional steps in subsequent years, as President Obama noted at his "fiscal
summit" on Monday.

The budget also deserves high marks for transparency and honesty. Gone are the
gimmicks that have been an annual feature of both Presidential and
Congressional budgets, under which policymakers pretended to reduce deficits
markedly over time by omitting costs in the "out years" for operations in Iraq
and Afghanistan, natural disasters, and continued relief from the Alternative
Minimum Tax and the scheduled reductions in Medicare fees for doctors - and by
printing in the budget numbers for the costs of discretionary programs in the
out years that everyone knew were unrealistically low.

Those gimmicks, sleights-of-hand, and convenient omissions are absent from
this budget. Its greater realism and transparency makes the President's pledge
to cut the deficit in half in four years a meaningful one; we will now know
each year whether we are on course to meet that goal.

The budget also provides needed investments in key areas for long-term
economic growth, such as energy efficiency and early childhood education. And
it proposes savings from lower priority programs such as bloated agricultural
subsidies and from unwarranted tax breaks, such as one that millionaire equity
fund managers have exploited to pay taxes at lower rates than many
middle-income families and others that benefit oil companies. The budget also
follows in the tradition of the 1990 and 1993 deficit-reduction laws in both
shrinking the deficit and reducing poverty, which is higher in the United
States than in other Western nations.

Predictable but Unfounded Criticisms

The budget already is facing several lines of attack that rest on inaccurate
or misleading charges. Chief among them is the claim that the tax increases
for people who make over $250,000 will seriously injure small businesses.

In fact, small businesses would win under this budget. Tax Policy Center data
show that only 3 percent of people with small business income have incomes
over $250,000, the only group that faces higher taxes under this budget. The
vast majority of small business owners are middle-income individuals who would
receive tax cuts under the budget; many of them would also benefit from its
universal coverage and health care cost containment reforms.

To be sure, many will oppose various proposals to close tax loopholes, the
Medicare and agricultural subsidy reforms, and the cap on itemized deductions
for the most affluent Americans - while saying that they, too, favor universal
health coverage, curbing global warming, improvements in education, and the
like. This budget challenges them to propose their own ways to finance such
measures.