The President’s Budget

by Yuval Levin


Looking at the overall outline of the budget President Obama proposed on Wednesday makes it easy enough to see why the White House chose to leak in advance the fact that the president would propose to adopt chained CPI, one of the few non-counterproductive entitlement-reform ideas he has been willing to accept. The leak meant that Washington spent the weekend talking about entitlement reform and whether the president would anger his liberal base so that by the time the budget came out some reporters might have felt like it was old news and not actually spent much time on it. The administration must have hoped that this would keep the key points of the budget off the front page: That the president has proposed an almost $3.8 trillion budget for next year which offers less deficit reduction than either of the budget resolutions already passed in Congress and effectively reaches what little reduction it does propose entirely through tax increases (as all spending cuts are offset by spending increases elsewhere).


The idea that this budget as a whole would serve as the basis for some kind of grand bargain talks now looks preposterous. The chained CPI proposal by itself might make for a small bargain–especially since it actually consists of both revenue increases and spending cuts. But it’s certainly not something for which Republicans would trade additional tax increases. There are some other minor bright spots: Additional means testing in Medicare is basically a good thing (though the method used to do it in the budget–higher premiums for wealthier beneficiaries–is not the best), and I think the proposal for a surcharge on Medicare Part B for those seniors who opt for first-dollar Medigap coverage is also a good idea. It’s unfortunate that it only applies to new beneficiaries after 2017, but that’s something Republicans can hardly complain about since their own (far better) Medicare reforms wouldn’t start until even later. I also think the administration is right to propose increasing the amount that federal employees have to pay toward their pensions and to make the expansion of the child tax credit permanent. I would expand it further.


But these are minuscule bright spots in what can only be described as a travesty of a budget. The bottom line is worse than even the Senate Democratic budget, and the little reforms and savings that are proposed are incredibly back-loaded in the out years of the budget window. By my reckoning, 93.8 percent of the claimed savings in this budget occur in 2017 or later. President Obama clearly has a great deal of faith in his successor.


And many of the underlying assumptions (laid out in the accompanying analytical perspectives document) are worse than ridiculous. Some of them (particularly those regarding long-term deficit and debt projections, and the notion that the policies proposed in this budget would bring the federal budget into balance in the mid-2050s) really have to be considered corruptions of OMB’s analytical process, and I imagine the agency’s budget examiners took some real cajoling to make them. The long-term projection table in this budget ends with federal revenues at 23.8% of GDP and spending at 15.8% of GDP. Do you think that’s going to happen? I guarantee you OMB doesn’t either.


On the other hand, the projections of basic economic conditions in the nearer term are actually surprisingly (to me at least) downbeat. The administration now expects unemployment to remain high throughout the remainder of the Obama presidency and expects economic growth over the coming decade to average less than 3% (not even reaching 2.5% in the out years). Their projections for the near future are significantly less optimistic than last year’s.


And this is so despite very rosy projections about the effects of Obamacare, which this budget naturally assumes will roll out perfectly and have precisely the effects its champions assert. There is one surprising concession on that front: The White House proposes to delay another significant element of Obamacare by a year in this budget. Just a couple of weeks after announcing a one-year delay in giving small business employees more than one insurance option in the new exchanges, the budget proposes that the cut in Medicaid payments to hospitals that disproportionately serve the poor also be delayed to 2015 (surely a function of the fact that many states are refusing the law’s Medicaid expansion). It makes very few other concessions to the reality of Obamacare’s increasingly evident flaws, though. And the budget again offers no clue as to how HHS is funding the development of federal exchanges (for which the law provided no funding)–a question the department has been loathe to answer. I think the answer must involve some creative use of a slush fund in the secretary’s office (if you’re an investigative reporter hungry for a challenge, Google “non-recurring expenses fund” and HHS and take what you find to the next HHS press conference.


All told, there is not much that’s surprising in this budget, which is why the idea that it should somehow serve as the foundation for a grand bargain actually is surprising. It’s also very unlikely. I can imagine some small bargains in the coming months, but a trade of major entitlement reforms for significant tax increases remains as unlikely as ever. The president continues to try to ignore the core entitlement problem and to offer gimmicks and ploys rather than needed reforms. 

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