POLITICS FEBRUARY 10, 2011
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When President Obama sends his latest budget proposal to Congress on Valentine’s Day, how will we know whether he is floating a serious proposal or just playing politics? I’ve written a guide to help TNR’s readers figure it out.
In its latest long-term budget and economic estimates, the CBO looks at our fiscal future in two different ways. Its “baseline” budget assumes that current law does not change. Under that scenario, the deficit declines to about 3 percent of GDP by mid-decade and remains there until the end of the ten-year budget window. Debt held by the public rises from $10.4 trillion to $18.3 trillion, net interest payments increase from $225 billion in 2011 to almost $800 billion in 2011, and debt held by the public reaches 77 percent, the highest level since the end of the Truman administration.
And that’s the good news—too good to be probable, in fact. It presupposes steady growth without a recession between now and 2021, a longer uninterrupted period of growth than we have ever experienced. Moreover, in following current law, as it is required to do in constructing its baseline, the CBO assumed that all the Bush tax cuts expire in 2012, that the alternative minimum tax would expand to hit many more households than ever before, and that sharp reductions in Medicare payment rates for doctors take effect at the end of 2011. For those assumptions to come true, Congress would have to make decisions that it has steadfastly rejected for many years, and Obama would have to abandon his pledge not to raise taxes for families with annual incomes below $250,000.
The CBO’s second projection uses more realistic assumptions. It forecasts that the deficit would average more than 6 percent of GDP over the next decade, and debt held by the public would skyrocket by $12 trillion to 97 percent of GDP, a level that few economists contemplate with equanimity. This prospect, not current law, defines our real baseline for the next decade. And it gets much worse in the decade after that. It has become a cliché to suggest that we are on an “unsustainable” course. It is also the truth.
This framework gives us a metric for evaluating the claims and counter-claims, proposals and counter-proposals, with which we are about to be deluged. It is expected, for example, that the president’s budget will propose a five-year freeze on non-security related discretionary spending, which senior officials estimate would reduce the deficit by about $400 billion over the next decade. As they say, that’s real money. But it’s only 6 percent of the total baseline deficit we’ll incur during that period, and only 3 percent of the deficit projected using more realistic assumptions.
Is the White House taking these projections seriously? As OMB director Jack Lew said last week in an op-ed titled “The Easy Cuts Are Behind Us,” because non-security discretionary spending amounts to little more than a tenth of the federal budget, “cutting solely in this area will never be enough to address our long-term fiscal challenges.” When the administration releases its FY2012 budget, we’ll be able to compare it to these numbers and see if Obama’s priorities tackle this basic truth.
The signs so far are not encouraging. Based on what Lew said and on other straws in the wind, it seems unlikely that Obama will offer concrete and significant proposals—to raise revenues (even in the context of fundamental tax reform), to make more than marginal cuts in security-related spending, or to begin the task of adjusting entitlement spending to reality. If so, he will have missed an opportunity to exert truly transformative leadership. And if he doesn’t lead, Congress won’t do it for him.
The conventional wisdom is that proposing such drastic cuts would be horrible politics because the American people are simply not prepared to entertain, let alone accept, the kind of measures needed to put the country on a sustainable course. There’s a lot of solid survey evidence to back up that belief. But as the president contemplates his options in the fiscal debate that begins next week, he might want to consider the findings of another survey released by Gallup just yesterday. Only 27 percent of the people approve of his handling of the federal budget deficit, by far his lowest grade in any sector of public policy. Worse, only 19 percent of Independents approve. Obama may be hoping that these unaffiliated voters, 52 percent of whom supported him in 2008, don’t care very much about fiscal issues. Pretty soon, we’ll find out.
William Galston is a contributing editor at The New Republic and a current senior fellow at the Brookings Institution.
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11 comments
Here is my continuing quiotic quest to undo the theft from social security. The deficit projections take into account the income tax collections (which is to say more borrowing) to repay the roughly $2.6 trillion that was "borrowed" (I say stolen) from the social security trust fund over the past 25 years, borrowed because income tax collections were dimished greatly by the income tax cuts that were enacted during the same period, cuts that primarily benefitted the upper income groups. Or put another way, those upper income groups were borrowing from the trust fund in order to support their current income tax cuts. Now it's time for the same income groups to repay that borrowing. Thus, I suggest an income surtax, apportioned among income groups in roughly the same proportion as the income tax cuts were apportioned. This would have two salutary consequences. First, it would impose the burden of repaying the trust fund "borrowing" on the same folks who benefitted most from it. Second, it would cut the future projection of deficits by roughly the same amount ($2.6 trillion, before even considering the lower (compounded) interest cost each time the past borrowing is rolled-over). We will never get the US house in order unless and until we come to grips with the biggest theft in history, one that occurred in plain sight.* *CBO projects that social security outlays will exceed social security receipts in 2010, and then be roughly equal until 2016, after which outlays will "regularly" (whatever that means) exceed receipts.
- rayward
February 10, 2011 at 8:27am
I'm afraid that the President can't tell the truth until after 2012. We can't just say we made mistakes and have to pay for them. A firestorm would result. Instead we have to stay on the same path of pretending that the economy is better off if the top soars and the bottom rots.
- Nusholtz
February 10, 2011 at 9:19am
As long as the Bush tax-cuts are off the table, no realistic progress can be made in reducing the deficit. So, once you've obligated yourself to a trillion-dollar or so deficit, trying to carve an additional 100 billion out of that, during a recovery from a recession, is stupid and short-sighted. That 100 Billion represents jobs, support services from all 50 states, educational supports for students (investement in our future), price supports for agriculture, tax-cuts for small business, funding for NASA research and development. It makes a HUGE difference there. As a talking point "we saved 100 billion!" it has WAY less impact than the jobs lost.
- AllanL5
February 10, 2011 at 9:29am
The 5-year solution to the deficit problem is: 1. Revoke the Bush tax-cuts. 2. End the war in Iraq. 3. End the war in Afghanistan. 4. Cut the military budget back to 300 to 500 billion dollars. 5. Implement the ACA cost control features. Done.
- AllanL5
February 10, 2011 at 9:30am
Please stop referring to 'entitlements' in your writing. It's GOP shorthand for 'welfare.' These payments are earned pensions. And despite the rhetoric of the 'tea baggers,' they are not serious about reducing the deficit or the debt. They only want to return the country to the 19th century and the accompanying financial panics every 20 years.
- ozzie48
February 10, 2011 at 11:00am
Allkant is correct as far as he goes. The rest of the Keytnesian economic proscription is really reform health care and immediately stimulate the economy by appropriated targeted stimuls spending. As for Galston, he's a Hooverian economist 80 years out of date in the science of economics. Listening to Galston on the science of economics is like listening to Will, or Paul, or Palin on the science of climate change. It's really rather embarassing for tnr in what it says about the quality of some of its editorial staff.
- drofnats1
February 10, 2011 at 11:23am
file:///Users/louissernoff/Documents/Deficit/Budget%20Deficit%20Reduction.webarchive With luck, I have managed to paste in a fascinating interactive tool published in the New York Times a short time ago, which allows the reader to perform his or her own budget balancing maneuvers. A few minutes exercise with this tool is instructive. A liberal will make one set of "adjustments", a conservative will do something else. The one concept that stands out for me is that we could take a healthy whack at our fiscal problems if only we had the will. But, everyone thinks his or her way is the only way, and everyone else's way is anathema. Give and take is out of fashion. And, all of our politicians have one trait in common: they are more than ever in the pocket of the special interests that finance them and that they, in turn, finance. We used to have our differences, but kinda liked each other. No sure that is still the case.
- lsernoff
February 10, 2011 at 11:47am
The link didn't work, lsernoff. I'll try again, because the exercise is worth it: http://www.nytimes.com/interactive/2010/11/13/weekinreview/deficits-graphic.html My first try at this in November led to a $300 billion surplus in 2015 and a $10 billion shortfall in 2030. Zillionaires and people who favor unlimited military spending would not be pleased, and nobody would be very happy (I'd let all Bush tax cuts expire, for example). Most of my deficit reduction would come from tax increases, because the vast majority of actual Federal spending is either totally pre-programmed (Social Security, Medicare, paying interest on the debt), for the military, or for things that people really want. I would not be elected or re-elected on these choices, but the budget would balance. Next cuts after this would have to be in Medicare and Social Security to make the budget balance after 2030. It would be nice if both sides in the debate would start from honest, reality-based proposals that actually balanced the budget and then seek some middle ground. I suspect that would not be so hard to find, because while honest, reality-based proposals that actually balanced the budget will be different depending on your political perspective, the requirement to actually make the numbers add up means that the differences can't be so radical. The problem is that it is better politics to pretend, and the voters reward that.
- JEFF FREY
February 10, 2011 at 12:16pm
I kind of agree with drofnats. I don't think Galston knows what he is talking about, and Hoover is a pretty good analogy for him.
- roidubouloi
February 10, 2011 at 7:16pm
Thanks Jeff Frey for posting the link correctly.
- lsernoff
February 10, 2011 at 8:09pm
What an awesome tool. Why there isn't a government-made version of this I don't know. A representative system made sense when everyone was days apart and most read at a 7th grade level, etc. Today, why not allow each side to make a 30 second movie for each line item, have an independent group fact check each 30 second movie, and let everyone click the budget into place. Each year, everyone votes, and the budget slowly changes to take into account voter sentiments. So, after several years of voters voting the same, we'd see the budget exactly reflect voter intent. You'd probably want voter intent to require several years to sink in so that people could see how things were changing over time, rather than over night.
- seattleeng
February 10, 2011 at 11:05pm