STEVE INSKEEP, HOST:
An annual ritual comes on Monday. President Obama unveils his budget for the next fiscal year. Of course, it's an election year, so this is a political document as much as a fiscal document - which, to some degree, it always is.
David Wessel, economics editor at The Wall Street Journal and a regular guest on our program is here to talk about this.
David, good morning.
DAVID WESSEL: Good morning, Steve.
INSKEEP: So how much does this really matter, given that President Obama and Congress have had difficulty agreeing on anything in the last year or more?
WESSEL: Well, actually, it matters less than usual this year. Some of the big budget decisions for the coming year have already been made. And the president has already previewed a lot of the proposals he's going to make in the Monday budget when he offered the so-called supercommittee of Congress - the deficit reduction panel - a whole set of ideas for reducing the deficit. So it's unlikely that any of his big ideas - tax increases or benefit cuts - will really be adopted this year.
INSKEEP: So why not call off this budget process?
WESSEL: Well, for one thing, every president since Warren Harding has been required by law to submit a budget. It is the one place where a president has to make all his promises add up, and there's some value in forcing a president to do that. But I think more important, beneath the big, mind-numbing totals, there is a lot of detail that will influence what Congress will actually do this year.
The budget, for instance, will actually show us precisely how the Pentagon plans to live within its new slimmed-down diet that Congress has prescribed. It'll show us where the president wants to cut spending in order to live within these new caps that Congress has set and where he wants to increase it. So it will influence a lot of the small decisions that really matter to companies and people, even if the big picture numbers are already set.
INSKEEP: Well, you mentioned that the president did make some proposals in his State of the Union speech the other day. Is Congress likely to take any of them up?
WESSEL: Well, Congress is unlikely to take up the big one, which is to raise taxes on people who make more than a quarter of a million dollars a year, as the president proposes. But it could very well take some of the spending cuts that he has endorsed and use them for other things - for instance, to offset the cost of extending the payroll tax holiday, which is going to expire at the end of February unless Congress does something.
It gives the Republicans a bit of political cover to embrace a spending cut that the president has already approved.
INSKEEP: So that battle will be going on in Capitol Hill. How much will the financial markets pay attention to what Congress and the president do?
WESSEL: There's always individual companies that are interested in one part of the budget or another - what'll happen to their defense contract, what'll happen to this set of housing loan guarantees or something. Two big questions, though. One, will Congress and the president find a way to avoid this end-of-the-year catastrophe, where taxes will go up and across-the-board spending cuts will take place, which would hurt the economy? The Congressional Budget Office says that'll add one percentage point to the unemployment rate in 2013.
INSKEEP: And under current law, that's what will happen right now.
WESSEL: Exactly. Under current law, taxes are going to go up at the end of the year, and there's going to be an across-the-board spending cut. The markets are wondering: Will Congress find a way to avoid this, which everybody says they want to do. And secondly, at some point, the markets want to know: Does the U.S. have a consensus to do something about its deficits and debt? We know that's unlikely to happen before the election, but the tone of the debate, the willingness to compromise, what people actually say, what they do will affect what markets think about that.
INSKEEP: What's the deficit likely to look like this year?
WESSEL: Last year's deficit was $1.3 trillion. The White House is likely to project - the CBO already has - that the deficit this year will come in closer to $1 trillion. Why? Because the economy's doing a little better, so tax receipts are doing better as a result, and some of the stimulus spending is beginning to wear off. Of course, the ultimate deficit number for this fiscal year depends on a lot of things, how well the economy does, and whether Congress does indeed extend that payroll tax holiday, extend unemployment compensation after February.
INSKEEP: David Wessel of The Wall Street Journal, thanks as always.
WESSEL: You're welcome. Transcript provided by NPR, Copyright NPR.