Obama Must Lead in Cutting ‘Lethal’ Debt
Having failed to take the lead on deficit and debt reduction in his State of the Union address, President Barack Obama had better do so in his budget next week — or risk his whole “win the future” agenda.
The danger is not only that Republicans will oppose his plans to increase education, infrastructure and research investment as mere “spending,” but that, over time, the federal debt will eat America’s ability to manage its future.
Republicans have a responsibility, too — to stop pretending that budgets can be anywhere near balanced with cuts in domestic discretionary spending alone, without tackling Social Security, Medicare, Medicaid, farm subsidies and tax loopholes.
Any number of Republicans and Democrats in Congress are working — often together — to contain the mounting debt burden comprehensively, but they don’t have the blessing of either Obama or GOP leaders.
The case for both sides to step up was made to me by one of this town’s most lucid budget hawks, Maya MacGuineas of the Committee for a Responsible Federal Budget.
“The president is going to have to get specific on the hard choices needed, and it’s going to take a lot more than symbolic discretionary cuts that save only millions when we need to save hundreds of billions,” she said.
“And on the Republican side, whatever happened to entitlement reform? As they argue for spending cuts, Republicans seem to have wiped the words entitlements from their vocabulary — not exactly a profile in courage.”
MacGuineas’ jab at the Obama administration for going after mere “millions” was a reference to an opinion piece in the New York Times on Sunday in which White House Budget Director Jacob Lew cited only community service and community development block grants, plus the Great Lakes Restoration Initiative as being on the paring (not chopping) block.
The cuts, which Lew described as “painful,” will save just $775 million next year. The deficit this year is $1.5 trillion, and Republicans are talking about cutting $45 billion from current expenditures, with more to come next year.
In his State of the Union, Obama proposed to freeze discretionary spending for five years, saving $400 billion over a 10-year period, but he gave short shrift to the work of his own debt commission, which proposed savings of $4 trillion.
But as MacGuineas and others point out, this estimate is optimistic, given the likelihood that Bush tax cuts will be extended after 2012, the alternative minimum tax will be adjusted and Medicare doctor payments won’t be cut, as the Congressional Budget Office had to project.
Her estimate is that the debt will surpass 90 percent of the gross domestic product, the highest level since after World War II.
Such projections are commonly referred to as “unsustainable” or “alarming.” But at a hearing of the Senate Budget Committee last week, economist Mark Zandi termed the trend “lethal.”
“I think, if you don’t change those forecasts in a substantive way, our nation’s living standards will be diminished for generations to come. I think it absolutely, positively has to change.”
Senate Budget Chairman Kent Conrad (D-N.D.) and Sen. Tom Coburn (R-Okla.), both members of the Obama debt commission, are calling for a bipartisan summit to begin putting its recommendations into effect.
Another bipartisan pair, Sens. Mark Warner (D-Va.) and Saxby Chambliss (R-Ga.), are making similar recommendations.
A different approach is advocated by Sens. Bob Corker (R-Tenn.) and Claire McCaskill (D-Mo.). They are proposing a bill to put a “straitjacket” on federal spending, drawing it down from its current 24.6 percent of GDP to 20.6 percent over 10 years.
Corker told me that his proposal has “brute force elegance.” If Congress did not meet statutory spending limits, the Office of Management and Budget would automatically impose across-the-board cuts in all federal programs.
Corker described his approach as superior to attempting to dictate specific cuts now because that would likely lead to endless haggling and no agreement. His plan, he said, would demand planned cuts in the future — including entitlements — and save $7.6 trillion over 10 years.
As MacGuineas points out, though, two flaws in the Corker proposal are that it deals only with spending, not tax loopholes, and it puts the spending lid on at 20.6 percent of GDP, which is a 40-year historical average, but not enough in view of the retirement costs of the baby-boom generation.
Still a third approach, contained in nine different bills, would amend the U.S. Constitution to require a balanced budget each year — a drastic step that would not only take time to be adopted, if at all, but would make it difficult to fight recessions either with stimulus spending or tax cuts.
So, there’s lots of activity in Congress on the budget front, but so far Obama has not weighed in to influence it.
Ideally, he would have laid out guidelines in the State of the Union message, perhaps calling for a bipartisan “grand bargain” of spending cuts and revenue increases. The time for doing so is getting short.