Since President Obama released his proposal for the federal budget for 2012 last week, Washington has been caught up in a debate about the future of our ballooning national debt and the spending that many see as responsible for it. But this debate can get really complicated really fast. So what are the basic contours of the debate? What effect does this budget have on our national debt? And if the President doesn’t actually write legislation himself, why do we care what Obama wants out of next year’s budget?

The Basics

Obama’s proposal is just that – a proposal. It isn’t a law, nor even a bill. It’s just a document that the White House has released for consideration. Congress must actually write up a bill, so the White House is hoping to use the President’s influence to steer them in their direction. Putting a set of specific proposals out there also covers the President should Congress propose something the public doesn’t like. He can always point to his proposal and say, “This is what I wanted, but Congress went in another direction.”

Numbers-wise, the budget is so-so (the NY Times has a terrific breakdown of where the money is going). It calls for the federal government to spend $3.73 trillion next year, down about $100 billion from last year. That sounds like a lot, but most of it is spending Obama doesn’t have much of a say about. Over $2 trillion of the budget is made up of so-called “mandatory” spending – things like Social Security, Medicare, interest on the national debt, etc – that can’t be adjusted for next year without rewriting existing laws, and pissing off a whole lot of old people.

The rest is made up of “discretionary” spending, where Congress directly sets spending levels each year. By fare the biggest spender here is the military. Obama is proposing to send $730 billion to the Pentagon next year, about in line with previous years. That leaves about $600 billion for everything else the government does. Roads, schools, inspecting food, feeling you at the airport, death panels – everything else.

The Debt

While Obama is proposing that the government spend $3.7 trillion next year, it is only expected to bring in $2.6 trillion in taxes. That leaves us with a gigantic deficit of $1.1 trillion for next year, which gets added on to the $14 trillion of debt the government already owes. That sounds pretty scary, and it certainly is a long-term problem. But it’s relatively modest compared to the debt taken on by the government during World War II, so don’t rush to buy those gas masks, hunting rifles, and GOLD you’ll need after the financial apocalypse.

There’s actually some good news debt-wise in this budget. The President is proposing changes to the way the government spends money – some spending cuts and some new sources of revenue – that would add up to $1.1 trillion in deficit reductions over 10 years. That’s certainly not going to fill the $14 trillion hole we’ve dug for ourselves, but it’s something. And, the Bush tax cuts, which were recently extended with Obama’s approval, are set to automatically expire in two years. If they are not extended, that would be a BIG new source of revenue on top of the savings in this budget. We’ll see how that pans out.

The Debate

Obama was obviously looking to balance two concerns in this budget – deficit reduction and job creation. The government can spend more money and boost the economy, or can spend less money and reduce the deficit. Obama tried to do a little of both, so it left him open to GOP attack from both angles.

Speaker of the House John Boehner and other Republicans are hitting Obama for leaving entitlements – Social Security and Medicare – untouched. In fact, Boehner has gone so far as to say that cuts in these programs are needed even if they cost jobs, a serious turn away from his campaign slogan – “Where are the Jobs?”

Republicans are likely looking to use the budget process as a way of embarrassing Obama and weakening his bipartisan cred in the run-up to the 2012 elections. Republicans control the House, so they will pass their own budget, which is likely to “defund” programs like the new financial regulation law and health care reform. By “defund” I mean they will vote to deny the funding necessary to enforce laws they don’t like. The SEC can’t monitor banks if they are understaffed and can’t buy printers; that sort of thing.

Obama will obviously veto any budget like that, and that’s where it gets interesting. Ultimately they have to agree on some budget or the government will have to shut down. This happened before during the Clinton administration, and the public ended up blaming the Republican Congress. No one knows how that would turn out now, but it’s definitely a risky move for Republicans.

In the budget battle we’re likely seeing the first real political combat of the 2012 election season. Republicans are looking to set Obama up as a big spender, while Obama is hoping to keep up his improving poll numbers. If Republicans think Obama isn’t tough enough to endure a government shutdown, but end up mistaken, you can bet Obama will sail to re-election in 2012. But if he isn’t, or the public doesn’t take his side during a shutdown, then Obama will have serious electoral problems. It all depends what sort of budget does or doesn’t end up on Obama’s desk.