Transformational? Not Yet

Pundits and press alike are declaring President Barack Obama’s budget “transformational.— Some of his Democratic supporters proclaim that government has dramatically increased its involvement in doing “good things,— while Republican opponents exhort that the new administration has abandoned limited government. Administration insiders are more careful with their claims, knowing that the hard work remains to be done.[IMGCAP(2)]Cries of “transformation— abound at the start of every new administration. They feed our psychological need to feel important: that in this year, in this moment, in this budget or in this set of proposals, we are making fundamental changes that all future generations will applaud or curse. Someday, and that day may come during this administration, the claims may prove to be true. But the numbers nearly always belie such claims, and they do again today. Oh, the growth in the deficit for the next couple of years is certainly beyond anything we’ve ever seen outside of world wars, though it’s not so far from the degree of change between surplus and deficit that we witnessed under President George W. Bush. The amounts of financial bailouts and monetary intervention are similarly without precedent. • A large deficit may be required to deal with a recession, but neither political party should view it as somehow “transforming— government. Look a little closer at the numbers for the longer haul. If one looks at changes that the administration itself portends by the 10th year, they suggest that the chief additional legacy of this budget, considered in isolation from other legislation, would be a semi-permanent increase in the amount of federal expenditures that go simply to interest payments. That’s why many believe that the administration will soon be making — or be compelled to make — longer-term budget proposals. As of now, by the 10th year close to three-fifths of the projected increase in total spending (as a percent of gross domestic product) would go to cover interest alone, making it the largest of all the proposed budget changes. • Paying a lot more to bondholders for a while may be necessary, but it is not what this administration wants to call its “transformational legacy.—Aha, you say, what about all those increases for infrastructure and education and other spending items? Well, the proposed budget shows that by the 10th year, domestic spending other than Social Security, Medicare and Medicaid would be lower as a percent of GDP than it is now. Don’t believe me? Peter Orszag, the president’s director of the Office of Management and Budget, stated that the “president’s budget proposes a gradual reduction in NDD [non-defense discretionary] spending as a share of the economy ... [to] the lowest since the data began in 1962.— How did this come about? Again, most of the spending increases proposed by this administration are temporary in nature. For now, the administration projects their future dramatic decline as a major way to get the budget under control. • Reductions in the share of national income devoted to items like infrastructure, justice, community development, education, housing and other non-health, non-retirement programs are not what liberals proclaim or conservatives fear as “transformational.—[IMGCAP(1)]So where is the long-term growth in government headed? Projected growth in Medicare, Medicaid and Social Security—almost all of which goes to the elderly and near elderly — dominates the charts, just as it did under Presidents George W. Bush, Bill Clinton, George H.W. Bush and Ronald Reagan. Of the total projected growth in government spending of 3.5 percent of GDP from 2008 to 2019, these three programs, along with the rising interest costs, would get more than 100 percent.• The administration’s commitment to future entitlement reform of health and retirement programs derives partly from recognition that it cannot “transform— government otherwise.How about taxes on the rich? Now we’re talking real historic change, aren’t we? Well, I challenge you to consult any historian of taxation (or, if you’re really bored, get my book on the history of modern taxation, “Contemporary U.S. Tax Policy,— 2nd edition, Urban Institute Press, www.urban.org/publications/211511.html). Raising a top rate back to 39.6 percent, for instance, is hardly revolutionary; it’s been at that level or higher for most years since 1940.• Few, if any, historians would view restoring some portion of the previous tax rates that applied to the rich, whatever their merits or demerits, to be “transformational.—What about health reform? Haven’t new, bold, steps been initiated? Again, the administration has chosen in this budget to simply stick its toe in the water. It does propose to put aside some money ($70 billion by 2014) from another set of tax increases and hoped-for efficiencies to pay for more universal coverage. The amount of extra money, by the way, is about 3 percent of the total government health budget, counting tax subsidies. • Setting aside a moderate amount of money for more universal health care may be laudable, but remains a long way from “transforming— our health care system. This column is not meant as a criticism so much as a plea. Transformation of government requires fixing and dramatically changing very complex systems. After only a few weeks in office, many of the administration’s proposals, including in the health and tax arenas, are necessarily incomplete and undeveloped. The jury isn’t just out — the trial hasn’t even begun. Calling this budget transformational runs the danger of deterring us from the much larger reforms to fundamentally restructure government so that it better serves the public. Eugene Steuerle is vice president of the Peter G. Peterson Foundation.