POLITICS APRIL 15, 2011
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After mostly satisfying the base of his party with a forceful restatement of the liberal creed on Wednesday, President Obama invited the co-chairs of his fiscal commission to the White House the next day, symbolically embracing an approach to deficit reduction that the Democratic base had rejected last December. Has the president managed to thread the needle and satisfy the principal elements of the coalition that he needs to reassemble to win reelection? What is the relationship between political optics and policy substance? Because the first wave of commentary on the president’s speech has emphasized the former, it’s time to look at the latter. While it’s hard to know for sure, evidence and logic suggest that President Obama’s budget is far less aggressive about deficits than his embrace of Messrs. Bowles and Simpson would suggest.
The president proposed a clear target: $4 trillion in deficit reduction over twelve years (or less). Although he did not specify the baseline from which reductions would be made, the language of the speech suggests that he took his FY2012 budget proposal as his point of departure. According to the CBO, that proposal would produce aggregate deficits of about $9.5 trillion over ten years. A back-of-the-envelope projection suggests that the total deficit over twelve years would be in the neighborhood of $12 trillion. In effect, then, the president is proposing to reduce his budget’s total deficit by about one-third between now and 2023. The remaining two-thirds would be added to the national debt.
The debt-to-GDP ratio is a key measure of the country’s actual debt burden. Under the president’s FY2012 budget proposal, according to the CBO’s projections, that ratio would rise from 69 percent in 2011 to 87 percent in 2021. Another back-of-the-envelope analysis suggests that it would rise to a bit more than 90 percent by 2023. If the projected overall debt burden is reduced by $4 trillion, as the president now proposes, the debt-to-GDP ratio in 2023 would be about 75 percent. By contrast, the proposal of the president’s National Commission on Fiscal Responsibility and Reform (A.K.A. the Bowles-Simpson commission) yields a debt-to-GDP ratio of 60 percent in 2023. Relative to the CBO estimate of the president’s FY2012 budget, then, the plan proposed in his speech would reduce the debt-to-GDP ratio about half as much (15 points) as would his fiscal commission’s plan (30 points).
This conclusion presupposes that I’ve gotten the analysis right. The evidence is less than conclusive, in part because there are multiple competing baselines, and in part because the fact sheet backing up the president’s speech can be charitably characterized as sketchy. But here’s a hint that I’m on the right track: In describing its proposed “failsafe” trigger, the White House fact sheet states that “[a] debt failsafe will ensure that our nation’s debt is on a declining path as a share of our economy. If by 2014, budget projections do not show that the debt-to-GDP ratio has stabilized and is declining in the second half of the decade, the failsafe will trigger an across the board spending reduction, including on spending through the tax code.” This leaves it unclear exactly when the president’s plan would put the ratio on a downward course (anytime between 2015 and 2019 would be consistent with the language). Under Bowles-Simpson, the debt to GDP ratio peaks in 2013 and declines every year thereafter.
That’s one piece of evidence that the president’s plan is less fiscally demanding than Bowles-Simpson. Here’s another: The president is described as confident that with a “robust economic recovery” working in tandem with a bipartisan deficit reduction agreement, the debt-to-GDP ratio will be declining by the second half of the decade, obviating the need to trigger the failsafe. It’s natural to wonder about the economic growth assumptions supporting this confidence. We already know that the OMB is significantly more bullish than the CBO. That doesn’t mean the administration is wrong, of course. But it does suggest that the president’s bottom line is more driven by growth projections, and less by policy-driven deficit reductions, than is Bowles-Simpson’s.
Nor is it clear that the debt failsafe would prove equal to the task. The White House says that it would not apply to Social Security, Medicare benefits, or “low-income programs.” It’s not clear whether this phrase is meant to include Medicaid as well as programs like food stamps. But even if it doesn’t, the cuts triggered by the failsafe would fall mainly on discretionary spending and tax expenditures, from which the president is already proposing to wring about $2.2 trillion in deficit reduction over the next twelve years. Cutting more from that pot, and not entitlements, seems unrealistic.
It’s easy to dismiss all these eye-glazing technicalities as politically beside the point. After all, the commentariat’s verdict is already in: The president didn’t have a plan, and now he does. That’s true, and the debate will shift accordingly. But if and when the bicameral, bipartisan negotiation the president called for in his speech actually convenes, the numbers and details will start to matter more than perceptions. There’s nothing necessarily wrong with putting deficit reduction on a shallower glide path than Bowles-Simpson recommends. But rebuilding the public’s confidence requires all parties to the negotiations to be as transparent as possible about the consequences of their plans.
William Galston is a senior fellow at the Brookings Institution and a contributing editor for The New Republic.
Follow @tnr on Twitter.
9 comments
But Bowels-Simpson offers no guidance on how to achieve the required reductions in health care spending other than to say, "Let it be done." Anyone can say, "We'll cap spending at X% of GDP and work out the particulars later" and if you give the CBO those numbers to work with, the proposal will look good. Doesn't mean it can or even should be put into practice.
- AaronW
April 15, 2011 at 1:55am
Agree with Aaron. Bill Galston's columns range from sensible to whiny, and this one is on the whiny side. Demands that the President put forward a "real" plan, and that Congress pass one, ignore the fact that the voters simply won't accept substantial cuts. Congress will never pass meaningful budget cuts without a crisis, and we aren't there yet. The President's record in foreign affairs, particularly Afghanistan, is wretched, and on civil liberties he's even worse, but on the economy he's fairly shrewd and effective. For a Wall Street lackey, I mean.
- AlanVann
April 15, 2011 at 7:59am
1. We're in a very shaky recovery from the largest recession since the Big One. Right now is NOT the time to be cutting spending on social programs. 2. Ryan's plan hits the House today, and all signs indicate the loony Republicans will approve it. It cuts spending, cuts taxes FURTHER, and privatizes Medicare/Medicaid. 3. Obama needed to say he would NOT renew the Bush tax-cuts. 4. The solution to the long term debt is to NOT renew the Bush tax-cuts, END both wars, and have the ACA control medical costs. Our current medical system costs *4 TIMES* what our nearest neighbor pays, I think there's some savings there without cutting services. 5. Whining about plans being "not specific" enough is missing the point. The Republicans will howl to the skies over what Obama HAS said, giving them more fodder to complain about will not help.
- AllanL5
April 15, 2011 at 10:10am
"President Obama invited the co-chairs of his fiscal commission to the White House the next day, symbolically embracing an approach to deficit reduction . . ." This is very silly, and it makes most of the rest of the article irrelevant. He's not "embracing their approach"; he's talking to them. If anything is going to get done, the president is going to have to talk to a lot more people with whom he disagrees, and convince some of them to go along with him. Symbolism be damned.
- K_Wilson
April 15, 2011 at 10:39am
I think this article should soldify relief among liberals about Obama, if nothing else.
- miceelf
April 15, 2011 at 10:46am
The key is indeed the baseline. Recent budgets have featured an enormous increase in spending, ostensibly to mitigate the consequences of an economic crisis (I use the word ostensibly simply to note that reasonable people can differ on whether the increased spending has had the intended economic effect). If we were to agree that the present budgetary course is unsustainable, as reasonable people we could still argue whether the crisis is over, and thus a return to prior budgeting norms is now appropriate, or whether the crisis lingers on and "emergency" levels of funding should continue. This conservative Republican retiree is unhappy with everybody. I have some problems with my group's aversion to any rise in any tax at any time. But, I see the Democrats saying the emergency should be permanent and "the rich" should have the exclusive privilege of funding it. Bowles-Simpson may not be perfect, but it is a great improvement over either Ryan or Obama.
- lsernoff
April 15, 2011 at 10:58am
I don't think this is really about specifics. O goaded the Repubs into producing the Ryan Plan, which will be an albatross around their neck through 2012. He just needed to come back with a riposte that makes them look bad, while holding out the (vague) hope of increased revenues through tax reform and entitlements cuts a la Bowles/Simpson. Sound politics. We'll see about the policy.
- Robert Powell
April 16, 2011 at 6:01am
Galston's columns on the deficit range between garbage and inane. Job number one for the president is decisively to win the public relations war and to avoid addressing the deficit until such time as the centerpiece of deficit reduction is a dramatic increase in tax revenues, the opposite of Bowles-Simpson which is not meaningfully different from Ryan. Ryan just filled in the specifics. Absurd tax reductions over the past thirty years are how we got onto this mess. Reversing them is the only way out: At present the deficit in the operating budget is four to five times the deficit in social security and Medicare. The operating deficit is the current problem, entitlements the future problem. Con men like Galston are exploiting the current problem of the operating deficit as an excuse to gut Medicare while simultaneously making the revenue shortfall in the operating budget worse. Shame on you Galston! You are a moral and intellectual disgrace. Stop pretending and just admit you have become a Boehner Republican. Ryan did everyone a favor by making clear that there is no way to "solve" the problem of Medicaid other than gutting the program or solving the general problem of medical costs. This seems to be a surprise to Galston although understood by any sentient observer. There is nothing fundamentally wrong with Medicare other than that it is funded by payroll taxes rather than income taxes. It is not administratively top heavy, just the reverse. It is not over-paying relative to the private sector. One waits eagerly for Galson's plausible solution to medical costs. In the meantime, whatever rhetoric Obama uses to beat down the Republicans and prevent any deficit reduction that those savages would agree too should be judged by one standard only: does it help to achieve just that? If there is a contradiction between embracing BS (the bullshit plan) and scourging Ryan, so what? BS is a useful rhetorical cudgel with which to beat up Ryan and the Republicans. It is such crap as a plan that that is indeed its only utility. Let's hope that Obama is not listening to wonks like Galston.
- roidubouloi
April 16, 2011 at 10:38am
Upon reflection, there is something pretty wretched about Galston describing Obama's budget rhetoric as disingenuous because Galston's are much worse. Obama has the excuse of having to fight and win a political battle against Republicans who will utter any lie and make preposterous and contradictory claims in pursuit of their agenda of destroying the New Deal, the Great Society, and the last vestiges of progressive taxtion. What's Galston's excuse?
- roidubouloi
April 16, 2011 at 12:01pm