Editorial: The Budget

President Obama laid out an ambitious plan to transform the economy for decades, if he can pull it off.

If the pieces of the budget come together as Obama envisions, the United States will be on a path to universal health care, clean energy independence, and expanded access to higher education.

Those goals put the nation's fiscal emphasis where it belongs - on strengthening the middle class and building a more competitive economy of the future.

But even people who want this agenda to succeed must question the nation's ability to pay for it. Obama's plan forecasts staggering deficits for years to come.

While the president says he understands the peril of more red ink, his budget doesn't reflect enough discipline.

There's no quarrel here with the president's most significant priorities. He would create a $634 billion "reserve fund" over 10 years to help pay for an overhaul of the health-care system, providing coverage for many but not all of the 47 million people who lack insurance.

Obama's philosophy of how to pay for that fund is consistent with his campaign promises. He'd essentially raise taxes on households earning more than $250,000 per year by reducing the itemized deduction rate for those taxpayers. That would raise $318 billion over 10 years.

The president would raise the other half of the fund with savings from reforming Medicare, including an end to subsidies for some private insurance companies.

Similarly, Obama would, as promised, end the Bush tax cuts in 2011 for households earning $250,000 or more. And he would find more "savings" in the budget by limiting agricultural subsidies for farms earning more than $500,000.

The rich benefited the most under George W. Bush. But it makes sense fiscally and as a matter of fairness to raise revenue first from those with the greatest ability to pay.

Obama's budget proposes to raise taxes on hedge-fund managers, eliminating a ridiculous tax loophole that allows them to pay only 15 percent tax on their compensation, instead of the much higher rates they would normally be charged.

The president would raise $353 billion mainly by closing loopholes for the oil and gas industry and companies that move operations overseas.

It's also sensible to slow the growth in the budget of the Defense Department, which saw record spending hikes in the Bush years.

Even with these additional revenue sources, mammoth deficits loom. The Obama team blames his predecessor for the predicament, and it's true that the national debt nearly doubled on Bush's watch. But that doesn't mean Obama should have free rein to make it far worse.

The deficit for the fiscal year that ends Sept. 30 is expected to be $1.75 trillion, or about 12 percent of the nation's gross domestic product. That's the highest level since World War II.

Even assuming that Obama can raise enough money from his plan to auction greenhouse gas permits, and even if he can cut the deficit in half in four years, the nation would be swimming in a truly frightening level of debt. Under his most optimistic scenario, the national debt will have nearly doubled again in 10 years, to $23 trillion.

The president's goals are more than admirable; they're needed. He has set the right course for this nation. But Washington can't abandon all sense of fiscal discipline, or those goals will remain out of reach.