It has been an interesting day for us fiscal policy wonks. Over my morning muffin, I digested President Obama’s plan to freeze some domestic spending for the next three years as well as his package of aid to the middle-class. Then, I spent a few hours chewing over the CBO’s latest budget projections. Finally, I watched the Senate trash the bipartisan budget commission.

Add it all up, and we are pretty much where we started, although some important issues are becoming clearer.

To take things slightly out of order, In today's budget update, CBO figures the 2010 deficit will be about $1.35 trillion, or 9.2 percent of GDP. We could cut the deficit in half by 2012 if Congress allows the Bush tax cuts to expire, lets the Alternative Minimum Tax bite 30 million middle-class Americans etc.—none of which is going to happen.

Obama, who has heard the growing public concern about federal red ink, has proposed an updated version of Mike Boskin’s old “flexible freeze” from the days of George H.W. Bush. Obama would hold overall domestic discretionary spending at today’s levels for three years, although he’d increase the budgets of some programs while cutting spending for others. Administration officials say this would save $15 billion in FY 2011 and about $250 billion over 10 years.

There are several problems with this: $15 billion is pocket change in a $3.5 trillion budget, and it is foolish to focus deficit reduction on 13 percent of the budget while ignoring the rest. For instance, at $528 billion, the Medicare program alone far exceeds all of the spending--$447 billion--that would be subject to Obama’s freeze. In addition, since the pressure will be enormous to “catch up” on domestic spending once the freeze ends, it is hard to believe it will save $250 billion over 10 years.

The freeze will also drive still more social policy to the tax code. Obama’s package of middle-class relief already includes expanded tax credits for child care and retirement saving. There will be plenty more where they came from. 

For all of its shortfalls, however, the freeze would be a start. You know the old joke: When you’re in a hole, the first thing you do is stop digging. At least Obama would be digging with a smaller shovel.  

Finally, the commission: I doubt it would have ever accomplished much, but it was at least a vehicle to raise the profile of the fiscal problem. And its death does clarify some things.

We know now—if we ever had any doubt—that Republicans will oppose any serious deficit reduction as long as Obama is president and they are in the minority in Congress.  This was clear last year when the GOP remarkably opposed Obama’s efforts to slow Medicare growth as part of health reform. Today, 23 Senate Republicans opposed the commission, mostly because it might, gasp, recommend tax increases. Thus, the GOP view is we should balance the budget without touching Medicare or raising taxes. I’d like to see how.

At the same time, for all of Obama’s rhetoric about fiscal responsibility, liberals and unions are not going to let him mess with Social Security. The lesson they learned from getting outflanked by Republicans on Medicare is they will never, ever, let the GOP get between them and angry old people.

So we are still in the hole, and we are still digging.