Jonathan Cohn

Our Budgets, Our Selves

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President Obama is catching some grief, because the budget proposal he released on Monday predicts that the deficit will be more than $1 trillion next year. That’s represents a large number, whether you measure it in dollars or as a proportion of the nation’s wealth. It also represents a broken promise, since Obama, after taking office, had promised to cut the deficit in half by the time this first term was over. He’s not going to meet that goal.

Personally, I think it’s hard to fault Obama for that failure, although I’m not sure it was so wise to make the promise in the first place. The economic downturn was deeper, and longer, than anybody had expected in early 2009. That’s forced the government to spend more money, in order to boost growth, while reducing tax revenues. (It’s also reduced gross domestic product, making the deficit larger in proportional terms.)

But this year’s deficit number is pretty unimportant anyway. Until the economy truly recovers, government should keep running deficits. The question is what happens after that – in the years, and decades, to come.

And the verdict on that is probably better than you’ve heard or were expecting. By 2019, according to administration projections, Obama’s budget would reduce deficits to about 2.8 percent of Gross Domestic Product, and keep them there for the next few years. Many respected budget experts believe that stabilizing the deficit-to-GDP ratio at less than 3 percent should be the intermediate goal for fiscal policy, which is why Obama’s budget won qualified praise from a trio of such experts well-known for their concern about deficits: Pete Domenici and Alice Rivlin of the Bipartisan Policy Center; Robert Greenstein, of the Center on Budget and Policy Priorities; Isabel Sawhill of the Brookings Institution.

When the Congressional Budget Office evaluates the Obama budget, it’s likely to project slightly larger deficits, because it uses more conservative, but still reasonable, assumptions of the deficit – so it’s possible that Obama’s budget would not, if enacted, achieve those goals. And in the long term, everybody agrees, the Obama budget does not do enough to stabilize the deficit. Is this a problem? Yes, it is.

But it’s a problem because, as a country, we haven’t come to grips with the society we have become – and how to pay for it. The federal government is growing, primarily because it is taking on increasing responsibility for health care and pensions. Republicans object to this development, deriding the growing “entitlement” state and suggesting, sometimes explicitly and sometimes implicitly, that it’s because so many Americans are going on the dole. But that’s not right. As a new and important report from the Center on Budget shows, more than 90 percent of federal entitlement spending goes to the working poor, the elderly, or the disabled. (See graph at left.) Meanwhile, a story in the New York Times over the weekend pointed out that many of the harshest critics of government spending are, themselves, heavily dependent on government spending or subsidies.

There are good reasons for this. And a lot of them have to do with – you guessed it – the economics of health care. The reason health care spending has grown so much is largely because of rising spending on Medicare and Medicaid. But the government provides insurance for the people these programs service – the elderly and the poor – because the insurance market made clear long ago that it could not take care of these people on its own. Simply put, if government weren't in the business of insuring all of the elderly and (soon) all of the poor, nobody would be.  

But if we want government to assume these responsibilities, we have to find a way to pay for them. Over the long run, that will require some combination of reducing health care costs and raising revenue, and not just on the very wealthy. Here, again, President Obama has done more than his critics ever concede. He pushed through the Affordable Care Act, which official projections suggest will reduce the deficit and which will, more important, put in place institutions and programs that can reduce health care spending by greater increments in the future. He has also proposed, as he does again in this new budget, further cuts to Medicare and Medicaid. At the same time, he has proposed to raise revenues on the wealthiest Americans.

No, these proposals don't go far enough, particularly on the revenue side: At some point, even some middle class Americans are going to have to pay higher taxes. (As Greenstein notes, the Obama budget calls for less new revenue than the Bowles-Simpson plan did. In that sense, it's actually to the right of Bowles-Simpson.) But at least Obama is willing to talk about new taxes. Conservatives won't even entertain the notion. And, don't forget, they spent most of 2009 and 2010 telling seniors to vote against the Democrats because the Affordable Care Act dared to cut Medicare.

They still say that, although they simultaneously call for their own, much larger cuts to Medicare – along with cuts to many other vital programs. That's the essence of what Paul Ryan, Mitt Romney, and Rick Santorum are all proposing: To reduce deficits entirely through vast reductions in spending, to the point where programs like Medicare and Medicaid, not to mention most discretionary programs, provide far less security than they do now. Their ideas, if enacted, would reduce the deficit. They would also cause considerable hardship, not just among the poor but also the middle class.

And that counts for something. Budgets aren’t just about deficits, after all. They’re also about priorities. Obama has signaled that he’s willing to reduce the deficit, but only in a way that preserves the core promises of existing programs. Republican leaders say they’re willing to end those promises. It’s a pretty stark choice – and one we’ll be debating for the next year.

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