Politics & Policy

Freezing Conditions

Even before Scott Brown’s remarkable election to the Senate, the Obama administration was making noises about the need to get serious about the deficit. Last year’s shortfall was $1.4 trillion. This year’s is projected to be $1.35 trillion. The Congressional Budget Office (CBO) has projected that cumulative deficits over the next ten years will reach $9.3 trillion, and the amount of federal debt held by the public will reach 82 percent of GDP. Economist John Taylor has noted that without deep spending cuts, taxes would have to go up by 60 percent in order to bring the debt-to-GDP ratio back down to a “manageable” 41 percent, which is where things stood when Obama took office.

A “freeze” on spending of any kind in Washington is a welcome first step toward repairing the nation’s balance sheet. Nevertheless, the freeze that Obama has proposed would do very little to avoid the tax disaster that awaits us. The freeze would exclude spending on defense, homeland security, Social Security, Medicare, Medicaid, interest on the national debt, and the stimulus. It would only apply to non-defense discretionary spending — or, as the green-eyeshade types at CBO like to call it, one-eighth of the total budget. Obama estimates that this will save $250 billion over the next ten years, which will almost save the CBO the trouble of rounding down from $9.3 trillion to $9 trillion.

The president might also try to game the freeze by returning to the apparently bottomless well of repayments from the Troubled Asset Relief Program (TARP). Obama announced last year that he wished to use these repayments to fund another stimulus program, instead of using the money to pay down the deficit, as the law requires. The House followed suit, coupling yet another extension of unemployment benefits with a grab-bag of transportation funds in a $156 billion so-called jobs bill. Should such a bill pass the Senate, Obama would be hard-pressed to veto it, even though signing it would make a mockery of his “spending freeze.”

The proposal serves to highlight the real sources of concern in the federal budget. Demographic factors have placed a large and growing strain on Social Security and Medicare, which our political class does not seem inclined to address. (Democrats would argue that their health-care bill would have tackled the Medicare problem; we addressed in a previous editorial the flaws in their approach, but it should suffice to say that these savings would be overwhelmed by making government-subsidized health insurance an entitlement for more than 90 percent of the populace.)

To address these concerns, the president has also proposed establishing a bipartisan commission to look at ways to shrink the deficit. A similar commission, proposed by Senators Kent Conrad and Judd Gregg, was rejected on Tuesday. Whatever shape any putative commission might take, Democrats will control it, meaning we are looking at calls for large tax increases, with real entitlement reform more of an afterthought.

That doesn’t mean we shouldn’t control discretionary spending, obviously. A true freeze on non-defense discretionary outlays would be more than the previous administration was able to accomplish, to say the least. President Bush proposed a spending freeze late into his first term, but he failed to back up his words with his veto pen until the GOP lost control of Congress. It is not easy for a president to stand up to his own party in Congress, especially when he needs unified support for controversial initiatives — yet another reason why Obama should shelve his health-care reform bill if he is serious about getting the deficit under control.

We will support the president if he truly wants to pursue that goal with spending restraint. But we remain wary that he could be using the spending freeze and the budget commission to set the table for large tax increases and to duck responsibility for the structural changes that are needed.

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