An editorial headline in today’s Washington Post captured it well: “Late to the Game – Again.”
President Obama gave what was billed today as a major speech on fiscal policy. The speech, more a partisan campaign blast than an attempt at non-partisan leadership, comes two months after he released his Fiscal Year 2012 budget, which aside from $2.2 trillion in phony policy was largely silent on the near- and long-term budget picture.
President Obama was driven out of hiding largely by the Path to Prosperity plan released last week by House Budget Committee Chairman Paul Ryan (R-WI). The Ryan plan is chock full of major policy initiatives, all duly scored by the Congressional Budget Office, describing a sound strategy for a sustainable fiscal policy without raising taxes.
Critics said it couldn’t be done. Ryan did it. Obama’s budget proved he wanted to remain silent. The credibility of the Ryan plan forced the President to engage, late, again.
The International Monetary Fund (IMF) was exactly right when it observed recently that the United States lacks a “credible strategy” to stabilize mounting public debt. The President’s own deficit commission last December observed much the same. Yet the President ignored his commission’s report, released a budget in February ignoring the problem and his commission, and would continue to ignore the growing deficit threat highlighted by the IMF and his own commission if he could. But he cannot, and today’s speech is the first step in his reluctant engagement toward a credible strategy for stabilizing the national debt. Unfortunately, it still remains far short of being even a wisp of a credible strategy.
The President’s Stated Strategies
The surest sign that the President is not serious is that he sets as his defining goal a steady reduction in government debt as a share of our economy beginning in the second half of this decade. In case anyone is curious, that would be beginning in 2016, the last year of the second term the President aspires to gain. The deficit reduction path needs to begin today, not five years from now.
“Shared Sacrifice” (of a Few). Another sign that he is more interested in partisan jabs and running for re-election than addressing the budget deficit is that he emphasized raising taxes on job creators. A strong economy is not a sufficient condition for adequate deficit reduction, but it is certainly a necessary condition. Higher taxes weaken the economy. So as deficit reduction, his tax policy is pure politics. He talks about “shared sacrifice” but targets a few for special attention.
Worse, calling for higher taxes on savers, investors, and job creators also means the President hopes to demagogue the deficit, rather than address it. The reason is simple. Raising taxes can do little to reduce the deficit, and raising taxes on “the rich” cannot raise enough to matter to the deficit, even aside from the economic effects.
Disguising Tax Hikes. The President also called for tax reform that lowers tax rates and raises tax revenues. So, after calling for higher tax rates on upper-income citizens, he then calls for lower tax rates. That’s a neat trick. There’s a simple test to determine whether tax reform is intended to fix the tax system or just to disguise a tax hike: Is it revenue-neutral? Obama is calling for a tax hike in drag.
It’s almost as neat as his call for Social Security reforms to strengthen the program for the long run while providing more benefits for some and taking benefits “for future generations” off the table. It is very hard to cut spending by taking spending cuts off the table.
Defense. The President wisely said he would not accept cuts in defense spending that compromise our homeland security or the ability of our military to defend America’s interests around the world. This is a good start, as providing for national security is not just another line item in the federal budget. Yet his budgets would reduce military spending in every way: as a percentage of our economy, as a size of the federal budget, and in real dollars. Spending on defense must be determined by first asking what is required to protect the nation and then determining what capabilities are needed to carry out those missions.
Medicare. The president’s approach to addressing Medicare’s huge unfunded obligations is, he says, to “strengthen” the power of the unelected Independent Payment Advisory Board (IPAB), created under Obamacare. In addition to its current power to cut the salaries of Medicare physicians, which will decrease the number of doctors willing to see seniors as patients, the IPAB would now be able to make decisions over what kinds of benefits will be favored or discouraged under Medicare. The President also claims he would achieve savings in Medicaid, but actually punts by saying he will ask the Republican-led National Governors Association to figure out the solution.
Next Step: A Real Plan?
The President is again late to the party, and he arrives not to help but to blow a great partisan raspberry. The nation needs a serious adult conversation on the deficit this year, the medium term and the long term, resulting in a credible strategy. That debate cannot take center stage as it must without the President’s active and persistent engagement.
Unfortunately, the President has answered the leadership challenge posed by his own deficit commission, by the Ryan plan, and by the voters and once again gave a partisan speech before voting present. More calls for action are not action. Partisan swipes are not constructive. Ducking is not leading, and orating is not choosing.
To get to a real long-run solution, the President has called for a grand conclave of political chieftains to hammer out a deal—so much for transparency and accountability. Instead, he should advance his own plan, which should have the detail and credibility of the Ryan plan. That is leadership.
Then, let the debate begin. But the debate should also have an end. Congress should enact strict spending caps or even debt caps, as the President mentioned, applicable beginning in 2012 (not 2016). Debate should lead to a concrete strategy, which leads to real action, which gets federal deficits and debt under control. The plan will require the “credibility” the IMF says now is missing and that credit markets will demand.
That strategy should not involve tax increases. The problem is too much spending, not a paucity of revenues. Taxpayers should not bear the punishment for the offense of overspending. The punishment should fall on the offender. Fortunately, we have elections for that.
Rather than leadership that can rally the country and lead to the confidence necessary to work toward an adult conversation and ultimately to real results, the President’s big economic speech was laced with partisan barbs. He rejected outright the ideas in the Ryan proposal, while offering almost none himself. And, ultimately, he accomplished little more than to pick an open battle with Ryan and House Republicans.
The problem is fundamentally a simple one: Projected budget deficits are unsustainable. The voters have already voiced their objections. At some point, credit markets are going to object as well, and express their objections through higher interest rates that will increase the deficit further and weaken the economy. Taxes are projected to resume normal levels and grow from there. The problem is that spending has soared and is projected to soar much further in just a few years as the entitlements wave finally crashes upon us. The problem is spending. Don’t punt, don’t orate—fix the problem, Mr. President.