JONATHAN COHN APRIL 12, 2011
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President Obama's big speech on the federal budget comes tomorrow. And during that speech, according to the Washington Post, Obama will be "promoting a bipartisan approach pioneered by an independent presidential commission." The commission is the one led by Erskin Bowles and Alan Simpson. The news that Obama might use tomorrow's event to promote their work is a worrisome sign.
To be clear, the Post story doesn't say how specific or meaningful Obama's embrace of Bowles-Simpson will be. It's possible Obama will simply point to the commission's work as one possible alternative to the proposal from House Budget Chairman Paul Ryan, who has called for ending Medicare and Medicaid as we know it while extending massive tax cuts to the wealthiest Americans. The Post also reports that Obama will highlight the ongoing negotiations among six bipartisan senators, which suggests Bowles-Simpson won't be the only option he cites. But even a modest, qualified endorsement of Bowles-Simpson is risky, because it could launch the debate over deficit reduction onto a dangerous path.
The Bowles-Simpson plan has its virtues. Among other things, it would reduce agriculture subsidies and defense spending. It would impose a new gasoline tax, in order to finance the building of infrastructure. It boosts Social Security payments for the some of the very poorest retirees. All of these make it far, far preferable to Ryan's plan.
But the Bowles-Simpson plan also has major flaws. Chief among them: It would limit federal spending to 21 percent of gross domestic product. The only way to do that is to rely more heavily on reducing spending than on raising revenue. Sure enough, spending cuts in the Bowles-Simpson plan outnumber tax increases by about two-to-one. Among the cuts would be a $100 billion reduction in discretionary spending that would affect a wide range of programs for the poor, as well as entitlement reductions (via Social Security, Medicare, and Medicaid) that could take a serious toll on disabled and elderly of modest incomes.
While meaningful deficit reduction will inevitably mean plenty of spending cuts, the Bowles-Simpson plan simply takes this approach too far. As the Center on Budget and Policy Priorities noted in its analysis:
If the co-chairs had not adopted the misguided principle of holding federal outlays in future decades to no more than 21 percent of GDP and had produced a plan that was more balanced--one that did not propose to extract two-thirds of its deficit reduction from program cuts and only one-third from increased revenues and that instead struck an even balance--they could have avoided some or all of the elements of the plan that risk doing the greatest harm and could have done so without raising taxes too much. ... The notion that limiting federal expenditures to 21 percent of GDP in coming decades represents an extreme position--and will require draconian cutbacks and produce undesirable results--is broadly shared among budget analysts (except those on the Right end of the political spectrum). At a recent Brookings Institution event on deficit reduction, panelists in or near the center of the political spectrum concurred that to meet the nation’s needs 20 years or so from now, revenues will need to be in the 23 percent to 25 percent of GDP range.
The idea of finding a better balance between revenue and expenditures, in order to bolster government programs for the poor and middle class, is hardly fanciful. A proposal from former Clinton Administration adviser Alice Rivlin and former Senator Pete Domenici, put together through the Bipartisan Policy Center, envisions federal spending rising to 23 percent of GDP by 2030 and beyond that afterwards. It does so by calling for a rough, one-to-one balance between spending cuts and new revenues. The Our Fiscal Future proposal from the Century Fund, Demos, and Economic Policy Institute also envisions larger government spending by relying more heavily on new revenues. (For more on the merits of this approach, see the lead editorial from this week's edition of TNR, which makes this argument explicitly.)
A danger of endorsing Bowles-Simpson, even implicitly, is that it could marginalize these sorts of options, perhaps removing them from the debate altogether. And it would do so preemptively, making it more likely that any final deal is even worse. As Paul Krugman notes today, "by endorsing an already right-leaning document, Obama will of course define the center as being somewhere between the right and the far right." The president and his advisers are sensitive to the accusation that they negotiate with themselves. But plunking down a big presidential marker on Bowles-Simpson might be tantamount to doing that.
What should the president do instead? He obviously can't avoid mentioning Bowles-Simpson. It's his commission, after all. And, again, the plan has real virtues worth highlighting. But Obama could do the country, and himself, a big public service by citing a few of these other plans--and making sure they stay part of the conversation.
15 comments
Hmmm. I wonder if the mentions of simpson bowles are simply a patina. here's how it is being reported elsewhere: http://www.chicagotribune.com/news/nationworld/la-na-obama-spending-20110412,0,2958392.story "President Obama will call for shrinking the nation's long-term deficits by raising taxes on wealthier Americans and requiring them to pay more into Social Security, drawing a barbed contrast with a Republican plan to save money by deeply slashing Medicare, Medicaid and other domestic spending. Obama will offer some spending cuts, including trims to the Pentagon's budget, but his speech Wednesday is likely to provide Americans with a vivid choice between higher taxes or fewer benefits, issues that will color the national debate straight through the 2012 election."
- miceelf
April 12, 2011 at 11:24am
Maybe if you keep saying it enough times micelf, someone around here will actually hear you. I keep hoping.
- WandreyCer
April 12, 2011 at 11:34am
Bowles Simpson (as with Ryan's proposal) is inherently flawed in that it includes a large reduction (and compression) in marginal income tax rates supposedly in exchange for the elimination of tax expenditures that mostly benefit wealthier taxpayers. I say supposedly because we have been down this road before, in the 1980s, when Reagan proposed and passed a large reduction in marginal income tax rates supposedly in exchange for "broadening the base" (i.e., elimination of tax expenditures). And we know how that worked out: lower marginal tax rates have stuck but not the elimination of tax expenditures. Anybody who argues for this exchange should be laughed off the stage. Of course, the unspoken goal these proposals have in common is the elimination of progressive taxation, which is what has been happening anyway over the past 30 years; the proposals would merely make the flat tax official policy.
- rayward
April 12, 2011 at 11:37am
A great post. Everyone is so caught up (as usual) in parsing what a sell out/wuss/poor poker player (the very worst metaphor so far) Obama supposedly is, there is very little acknowledgement of what he seems to be actually doing. Looking forward to tomorrow.
- WandreyCer
April 12, 2011 at 11:38am
I feel like I'm taking crazy pills. We have essentially two possibilities: 1. Obama is literally using Simpson Bowles as his model for moving forward and the rest of the reporting on the substance of what he is proposing is wrong. 2. Obama is citing Simpson Bowles in very general terms ('we need to look at both spending and revenue") to give political heft to what his actual proposals are which are much more amenable to those of us who are liberal (i.e., biggest cuts to the pentagon, entitlement reform making social security less regressive, raise taxes on the wealthy). The cited article is accurate as far as it goes AND the rest of the reporting on the substance of Obama's is also accurate. I understand why those predisposed to do so assume that #1 is correct, and obama isn't shading anything political in any way and every single thing he says that is a nod to bipartisanship should be taken completely literally while everything he says that is actually liberal should be discounted or ignored. It's exactly the approach that the right wing takes toward Obama vis-a-vis foreign policy. But can one at LEAST consider the possibility that #2 is correct? And rayward, when you combine the republican attempts to gut medicare AND restore taxes to their 1931 levels, what you have is an attempt to elininate the new deal.
- miceelf
April 12, 2011 at 11:50am
Looks like the authors at TNR are devolving into another kvetch-fest, not that I disagree with their view of how bad things could get if Obama screws up and does what they're afraid he'll do, I just think it's not nearly as likely as they do. Thanks for the additional reporting, miceelf. That report is more along the lines of what I suspect Obama is doing.
- GSpinks
April 12, 2011 at 12:46pm
Don't thank me, GSpinks, I just read the papers. :-) This sturm and drang about the mentioning of simpson bowles strikes me as similar to nothing as much as the tempest about the fact that Obama mentioned that Reagan changed the arc of American politics or somesuch. It is a big piece of evidence for those who already "know" how much of a wuss/closet fascist Obama is.
- miceelf
April 12, 2011 at 12:50pm
He can't lose to the unelectable repulsive Republican demagogues in 12, especially with increased banking bribes for the campaign (combine Clinton's $415,595 in Goldman Sachs contributions to her 2008 presidential campaign with Obama's from the firm and the total is 10 times what President George W. Bush got from Enron) but he's really going out of his way to piss the base off. He lost Krugman a long time ago but I've never seen TNR so...agitated as the last few days. As TNR goes...so goes (please insert suggestion here) Meanwhile, American workers are to Sweden what Chinese workers are to America: http://www.salon.com/technology/how_the_world_works/2011/04/11/ikea_s_third_world_outsourcing_adventure_in_the_united_states
- IggyPop
April 12, 2011 at 1:28pm
http://www.salon.com/technology/how_the_world_works/2011/04/11/ikea_s_third_world_outsourcing_adventure_in_the_united_states
- IggyPop
April 12, 2011 at 1:29pm
What Chance needs to do Wednesday is his best Chauncey Gardiner impersonation. A simple brand of wisdom will appeal to most Americans, especially during this time of changing seasons. First comes spring and summer, but then we have fall and winter. And then we get spring and summer again. There will be growth in the spring! I admire his good, solid sense. That's precisely what we lack on Capitol Hill.
- rayward
April 12, 2011 at 5:26pm
Ah rayward, you gave me a chuckle.
- JackR
April 12, 2011 at 5:52pm
Obama, like the intellectual coward he frequently is, made a big mistake by treating the Bowles-Simpson report like it was produced by a bunch of insane lepers. The report had some good ideas in it, and Obama could have appropriated it and them and then tried to wheel and deal. But as usual, he dithered, and now Ryan and the Repubs have assumed the mantle of Bowles-Simpson even though their version is like the original one on crack cocaine. And Obama is left with nothing to call his own except what his staff of geniuses have come up with over the weekend. He should have had a plan for reducing the debt, even a B.S. plan, two years ago instead of just ignoring everybody who said we were spending too much money. Now he is left with nothing except raising taxes on a few rich people, which doesn't actually save much money, and raising the retirement age by a year or two, which is a fine idea especially since it won't kick in until most of us are dead.
- mlottman
April 12, 2011 at 9:28pm
Mlottman: You can actually get a lot of money out of getting rid of the junk deductibles, even if you leave rates alone (by which I mean, let them go back to their Clinton-era levels). Not enough to do the job on its own, but, when combined with Healthcare delivery reforms, and modest cuts to the Pentagon and modest adjustment of entitlements, you can get there. Talking about raising upper income tax rates without mentioning deductibles is a straw man.
- Curran1
April 12, 2011 at 11:04pm
Wandrey, while I appreciate your frustration with the tendency for preemptive criticism of Obama on evidence in Cohn’s post and on too many occasions in the past to be counted, I must take issue with your assertion that the poker analogy is “the worst analogy ever.” Speaking as someone who, over the past ten years or so, has devoted an embarrassingly large amount of time and thought to poker, I submit to you that the poker metaphore is entirely apt, all the more so because we know that Obama is himself a poker player and moreover that, as described in these very pages, his style of poker play directly mimics his defensive, safety-minded, passive negotiating style. In poker, players make bets on a future result whose likelihood they can judge only incompletely. They play hoping to accrue goods, i.e the chips in the pot. In the analogy to the present political moment, a government shutdown equals a showdown of poker hands; nobody knows for sure which of the two parties to the game would come out worse in such an eventuality. The analogy to betting isn’t quite as close as that, but still it serves. In poker a bet is simultaneously a threat—to call a bet you have to put more money at risk—and an inducement—a big bet means more money to be won. The Republicans’ “bet” is their assertion of their willingness to shut the government down. Such a bet reflects either their assessment that Obama and the Democrats would fare worse than they in an actual shutdown, i.e. they believed they held the stronger hand, or else their judgement that Obama would capitulate prior to any shutdown coming to pass, i.e they were bluffing. In response to this “bet” Obama had really only two options. He could call their bet which would mean answering their shutdown threat with a balancing shutdown threat of his own, after which the Repubs could either shut the government down and let the chips fall where they may (another poker-influenced idiom, possibly, though more likely the “chips” here are wood chips), or else back down. Alternatively, he could do what he did and back down himself, i.e. fold. You could well argue that Obama didn’t give up very much, that he didn’t leave many chips on the table, and that had he “called” he risked a disastrous loss. But what we’re seeing is a pattern of Obama’s repeated underestimation of the strength of his own position and his confusion of his opponents’ bluster, noise and intransigence with actual strength, and a reflexive willingness to hedge against future disaster by accepting small losses even when a win was likely on the cards. This, in fact, is very much like a well-described style of poker play known as tight/passive. It’s not the worst way to play poker—loose/passive is the worst possible phenotype, tight/aggressive the best and loose/aggressive, somewhere in between—but it’s not a winner either.
- AaronW
April 12, 2011 at 11:47pm
It seems Obama is all over those deductibles, Curran.
- GSpinks
April 13, 2011 at 4:57pm