If you’re confused by President Obama’s speech/”budget”, Keith Hennessey deciphered it for you. I’ll skip to the quick, but I encourage you to read the whole thing:
Here are four broad reactions to the new proposal.
First, this is a short-term budget, not a long-term budget. There are three forces driving our long-run government spending and deficit problem:
- demographics;
- unsustainable growth in per capita health spending; and
- unsustainable promises made by past elected officials, enshrined in entitlement benefit formulas.
The President’s proposal addresses none of these forces. It instead spends most of its effort on everything but those factors. His proposed Medicare and Medicaid savings, while large in aggregate dollars, are quite small relative to the total amount to be spent on those programs, and he lets the largest program in the federal budget (Social Security) grow unchecked. While Bowles and Simpson focused their efforts on the major entitlements and also addressed other spending areas and taxes, the President’s proposal does the reverse, focusing on other mandatory spending, taxes, and defense. That’s a short-term focus.
Second, this proposal “feels” to me like the recently concluded discretionary spending deal. It’s the size of a typical deficit reduction bill that Congress usually does every five or so years. I’m sure the affected interest groups are even now preparing to invade Washington to explain how a 3-5% cut will devastate them. The problem is that our fiscal problems are now so big that they require much larger policy changes.
Third, while framed as a centrist proposal, the substance leans pretty far left. It’s deficit reduction through (triggered) tax increases on the rich, plus defense cuts, plus unspecified other mandatory cuts and process mechanisms that might cut Medicare provider payments. Centrist Democrat proposals do all of these things, but they also reform Social Security and Medicare, usually through a combination of raising the eligibility age, means-testing, and raising taxes.
Fourth, the President’s speech was campaign-like in its characterization of and attacks on the Ryan plan.
The President’s proposal could be the opening bid in a negotiation with Congressional Republicans. When you combine this substance with the President’s aggressive partisan attacks and framing of the Ryan budget, however, it’s hard to see how this leads to a big fiscal deal this year or next. A small incremental bill, which “cuts” spending by a couple hundred billion dollars over the next decade, is possible. But the chances of a long-term grand bargain in the next two years just plummeted from an already low starting point.
Bonus must-read – James Pethokoukis found a Goldman Sachs analysis which shows that up to 60% of Obama’s deficit “reduction” over the next decade comes from tax increases, including an unspecified $1 trillion in new taxes (over 12 years) compared to the CBO “alternate baseline”. That does NOT include either the tax hikes on those making over $200,000 or the “trigger” to essentially eliminate itemized deductions when the debt-to-GDP ratio fails to fall.
