Orszag noted, however, that the Making Work Pay tax credit to low-income households — to be raised from cap-and-trade revenue in President Obama’s proposal — has already been funded for the next two years by the stimulus. He also expressed confidence that cap-and-trade could be passed in a standalone bill.

“We have the tax credit for two years,” he said. “We’ve got two years to figure this out. I mean, I think it’s been little remarked that we actually got that tax proposal into law [in the stimulus] within the first month. With regard to climate change, there’s already legislation that is being considered on the House side. The Senate is also active. The fact that it’s not treated in the budget resolution the same way that we proposed in no way means that the House and Senate can’t take the legislation up. And in fact, I think some may argue that the political economy of getting climate change done this year may actually be better outside of the — outside of the budget resolution than inside of it.”

Indeed, both political analysts and environmental activists have argued that climate change legislation would be more feasible and effective if it’s not rushed in early 2009. Still, the reluctance of some congressional Democrats to sign onto cap-and-trade now could be a preview of things to come.

“As estimated by CBO and the Joint Committee on Taxation, the President’s proposals would add $4.8 trillion to the baseline deficits over the 2010–2019 period,” CBO Director Douglas Elmendorf wrote on his blog this afternoon. “CBO projects that if those proposals were enacted, the deficit would total $1.8 trillion (13 percent of GDP) in 2009 and $1.4 trillion (10 percent of GDP) in 2010.”

On a conference call just now with reporters, Office of Management and Budget Director Peter Orszag explained how the higher projected shortfall came about.

“As expected, it reflected a worsening of both the economic and fiscal picture since the CBO’s January report,” Orszag said. “I think one thing that’s often underappreciated is how sensitive the budget is to small changes in assumptions.”

As a hypothetical example, he said, if initial projections had spending at $1,050 and revenue at $1,00,  and then revenue decreased 10 percent, the deficit would rise from $50 to $150 — a 200 percent increase.

But he insisted that the new projections will have no impact on the administration’s commitment to its four top priorities in the budget: health care, education, clean energy and cutting the deficit in half by the end of Obama’s first term.

Asked about the possibility of using the controversial budget reconciliation process to circumvent a possible GOP filibuster of cap-and-trade legislation, Orszag said, “With regard to reconciliation, I’ll again say, it’s not where we want to start, but it would be premature to take it off the table.”

The budget will now head to Congress, where Orszag anticipates there will be significant adjustments.

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But Obama might have actually taken a significant step today to take on that entrenched apparatus.

Obama today issued a memorandum to the heads of all the executive departments agencies directing them to restrict no-bid contracts; to rein in outsourcing of “inherently governmental activities”; and to, if necessary, cancel wasteful contracts outright. The crucial paragraph, even if it’s written in bureaucratese, particularly calls out the Defense Department:

I hereby direct the Director of the Office of Management and Budget (OMB), in collaboration with the Secretary of Defense, the Administrator of the National Aeronautics and Space Administration, the Administrator of General Services, the Director of the Office of Personnel Management, and the heads of such other agencies as the Director of OMB determines to be appropriate, and with the participation of appropriate management councils and program management officials, to develop and issue by July 1, 2009, Government-wide guidance to assist agencies in reviewing, and creating processes for ongoing review of, existing contracts in order to identify contracts that are wasteful, inefficient, or not otherwise likely to meet the agency’s needs, and to formulate appropriate corrective action in a timely manner.  Such corrective action may include modifying or canceling such contracts in a manner and to the extent consistent with applicable laws, regulations, and policy. [My emphasis]

Clearly, this has applications far beyond the Pentagon. But the list of big-ticket defense items that have experienced huge cost overruns is a long one. Future Combat Systems in the Army; the Littoral Combat Ship in the Navy; the Joint Strike Fighter in the Air Force — all of these programs, near and dear to the services, have run massively over budget. If I was a lobbyist for Lockheed or Boeing, I’d be dialing my contacts in the Pentagon and the Hill to figure out what the prospective damage to my company was. And then I’d come up with a strategy to fight this forthcoming Office of Management and Budget review.

Obama went further in remarks at the White House, calling it a “false choice” to say that protecting the country requires acquiescence to Pentagon waste. “In this time of great challenges,” he said, “I recognize the real choice between investments that are designed to keep the American people safe and those that are designed to make a defense contractor rich.” He also lent support to Sens. Carl Levin (D-Mich.) and former presidential rival John McCain’s (R-Ariz.) legislation to create new procurement oversight positions at the Pentagon. “The days of giving defense contractors a blank check are over,” Obama said.

This effort hardly seems perfect. One of the people Obama specifically tasked to work with OMB for procurement reform is Bill Lynn, the deputy secretary of defense whose last job was lobbying for defense giant Raytheon. Perhaps Lynn is here because he knows how defense lobbyists work, and can come up with strategies to beat them at their own game. Or perhaps Lynn will find it difficult to overcome his background — and the sure-fire job waiting for him in the defense-lobby sector when he leaves government. And, of course, the defense lobby is one of the most powerful in Washington.

But Obama has now placed defense-contracting reform at the center of his efforts at cutting wasteful spending, and he’s put cutting wasteful spending at the core of his deficit-reduction approach; and both the press and the Republican Party will watch that deficit-reduction approach as a test of his presidency. That line from his YouTube address on Saturday about being ready for a fight with lobbyists over his budget? He might mean it.

After President Obama outlined an ambitiously reasonable cap-and-trade program for reducing carbon emissions in his budget proposal last week, the White House made the mistake of sending an accountant to defend it on the Sunday chat shows.

After former House Speaker Newt Gingrich attacked the idea as an “energy tax,” Office of Management and Budget Director Peter Orszag mounted the economist’s defense, saying there would be costs and benefits — but never mentioned the words “global warming” or “climate change” — as if the costs imposed by cap and trade had no purpose. Orszag explained that energy costs would rise to offset health reforms, which is right in a big picture sort of way — but not as appealing or precise as the details in the Obama’s plan. The budget summary says $192.5 billion of the estimated $237 billion from auctioning off the right to emit carbon will go toward funding a permanent version of the “Making Pay Work Pay” tax credit (pdf; see p. 115) in the stimulus bill. In other words, higher energy costs would be offset by middle-class tax relief.

Yes, reducing carbon emissions is a complex subject to reduce to a sound byte. But is it so hard to say, “We’re doing something about global warming?”

The new topline figure is $10 billion greater than guidance President Obama’s administration gave to the Pentagon only last month. The increase reflects the effort to incorporate some items previously found in supplemental war funding budgets, the sources said, but does not cover the cost of ongoing operations in Iraq and Afghanistan, which will still require additional funding above the base request next fiscal year.

A bunch of defense-budget experts observe to Rogin that the Obama administration doesn’t want to be accused of being soft on defense. But that would presume its adversaries are interested in intellectual honesty, which this budget debate has demonstrated to be a faulty premise. The Obama administration could jack its Pentagon budget request to $583,999,999,999.99 and you’d see a flurry of op-eds bemoaning a defense cut. What’s more, the stimulus package includes several billion dollars for facilities construction and maintenance on military bases, as Jason Sigger helpfully itemizes. But don’t expect, say, advocates of the F-22 fighter plane that isn’t used in Iraq or Afghanistan to stop their campaign to tie F-22 purchases to economic recovery. That’s just how these debates go.

In any event, Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, is going to have a hard time persuading the administration to chop the defense budget, as he’s advocated.

Update: InsideDefense’s Jason Sherman reported the $537 billion figure on Friday, but since it was behind ID’s subscriber firewall, I didn’t see his piece. Apologies, though.

Basically, OMB told the Pentagon late last week that it wasn’t going to accept the fiscal 2010 budget request, written during the final hours of the Bush administration, as it came in a bloated $60 billion over the previous’ year’s tab. OMB — whose defense-spending office is headed by a sharp defense wonk named Steven Kosiak — told the Pentagon that it had to cap spending at $527 billion (excluding war costs!), which represents an eight percent budget increase over the fiscal 2009.

But, Rogin reports, that’s where the chicanery lies!

Defense budget experts have said the draft by the Joint Chiefs, which was never publicly released, was designed to pressure the Obama administration to drastically increase defense spending or be forced to defend a reluctance to do so. Defense officials in past outgoing administrations have left inflated budget estimates for incoming officials in the hope of raising the spending baseline. In fact, the draft budget was never scrubbed by Bush’s OMB, which had told federal agencies to submit draft budgets based on “current services.”

Here’s where it helps to have Defense Secretary Bob Gates impose some discipline. Getting eight percent more, outside the costs of the wars (!), during a time of global economic distress is, you know, really generous. An OMB official told Rogin that the Bush-drafted request was a “wish list” for conceivable defense spending — a classy little sayonara to the incoming Obama team — not a realistic budget. Gates has been telling anyone who will listen that the budget is coming down, hard choices are going to have to be made, and people are going to have to stop whining and reconcile themselves to this new reality. So it’ll be interesting to see if he starts with this budgetary gem.

But! I hear that he may send OMB a letter objecting to the $527 billion (outside of the wars!) ceiling. I’m trying to learn more about that now. Could it be that despite the resource-shift talk, Gates doesn’t mind a little budgetary good-cop-bad-cop?

During a news conference at the Obama-Biden transition office in Washington, Obama named Nancy Killefer, a former Treasury official in the Clinton administration, to fill the new post of chief performance officer.

From Obama’s prepared remarks:

For nearly thirty years – as a leader at McKinsey & Company, and as Assistant Secretary for Management, Chief Financial Officer, and Chief Operating Officer at Treasury under President Clinton — Nancy has built a career out of making major American corporations and public institutions more efficient, effective and transparent.

Nancy is an expert in streamlining processes and wringing out inefficiencies so that taxpayers and consumers get more for their money. And during her time at Treasury, she helped bring the Department into the twenty-first century, modernizing the IRS and preparing systems for Y2K.

But Nancy also understands that at the end of the day, government services are delivered by people. That’s why she’s always worked tirelessly to empower employees to take matters into their own hands: to rethink outmoded ways of doing things, to embrace new systems and technologies, and to take initiative in developing better practices.

When Nancy was offered her first position at Treasury, she responded, “If you’re willing to embrace significant change, then you’re looking at the right person. But if you just want to keep the trains running on time, don’t ask me to do this job.”

When I heard that, I knew I’d chosen exactly the right person for the challenges we face.

The Associated Press points out the first-glance irony inherent in today’s announcement.

Yet, even as [Obama] announced the post that’s also aimed at spending taxpayer money more efficiently, Obama was spending his first week in Washington promoting his mammoth economic stimulus plan that could total as much as $775 billion over two years — much of the new spending aimed at creating jobs and stoking the troubled economy.

But, I guess if the plan is to blow money like its going out of style to get the economy moving again, bringing on a specialist to maximize government efficiency probably isn’t the worst idea in the world.