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The President’s ‘Balanced Plan’



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The fiscal-cliff debate is in full roar, with the president and his allies daily insisting that the rich pay more taxes. But to what end?

Surely there is no reason to believe that these tax hikes, layered on top of the end of the payroll-tax holiday and the new taxes in the Affordable Care Act, will actually help an economy that is struggling to stay above stall speed.

Or, it could be pure politics.  But it is risky for the president to let political desires trump economic common sense and start his second term with a self-inflicted recession. 

But the most oft-stated claim is that these higher taxes are a necessary component of a plan to control the current level of, and projected rise in, federal indebtedness. But where is the plan? Should not the president, fresh off an electoral victory, be in a position to lead on this pressing national concern?

When pushed on this issue, the administration argues that the president has put out a plan — his detailed and fully-scored budget. Unfortunately, that is not a plan for the necessary entitlement and tax reforms.

Let’s review the facts. According to the president’s budget current-law spending on Social Security over the next ten years will total $10.7 trillion spending on Medicare will total $7.1 trillion; spending on Medicaid will total $4.4 trillion;  “other mandatory” spending will total $6.9 trillion; and the total mandatory bill will amount to $29.2 trillion.

That’s the vast majority of the baseline spending of $47.1 trillion.  The president’s budget contains 258 specific proposals to change taxes and mandatory spending programs.  Of those 258 proposals:

  • Exactly zero proposals apply to Social Security, changing the $10.7 trillion or 37 percent of mandatory spending by exactly $0.
  • Exactly 15 — 5.8 percent of the proposals — apply to reducing Medicare, which accounts for 24 percent of baseline mandatory spending. Those proposals would amount to $292 billion over the next ten years, a reduction of 4 percent. One proposal — drug rebates that would destroy the successful Part D program — accounts for $156 billion of the reductions. That means the realistic reductions total only $137 billion, or under 2 percent of baseline spending.
  • Exactly 5, or 2 percent of the 258 proposals, would reduce the Medicaid spending that is 15 percent of baseline mandatory spending. The reductions total a mere $49 billion, a cut of 1 percent.

That’s it. Of the three programs that constitute over 75 percent of the baseline mandatory spending — over $22 trillion in the next 10 years — the president’s “plan” realistically reforms entitlements by a grand total of $186 billion.

That’s not a plan. It’s abdication of leadership.

It is also not “balanced” to choose the president’s favorite adjective. According to the same budget, the “upper-income tax provisions” would raise $1.4 trillion in new taxes. That means that there is over $7 of tax hikes for every $1 of entitlement reforms.

The president’s top economic priority is a grand bargain that avoids the fiscal cliff and the resultant recession, tames the debt, and dodges the downgrade that would trigger an economic catastrophe. The necessary components are a balanced plan of entitlement reform and tax reform.  Real leadership requires that the president produce such a plan and stop hiding behind his woeful budget.



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