The Corner

Another Punt

Once again, for at least the third time this year, the Obama White House has used its bully pulpit to build up anticipation for a major deficit-reduction package and then proceeded to offer a dud.


As the president delivered his remarks this morning, the White House released the full proposal he is sending to Congress, which you can read here. The 80-page document will clearly merit a careful reading, as even a quick review turns up some extraordinary gimmicks hidden in the usual places. For instance, as Andrew Stiles notes below, to get around the fact that the few and minor Medicare “reforms” he proposes are unlikely to achieve the savings he counts on, Obama proposes a “backstop” to those reforms, involving a further tightening of the mandate of the IPAB (the Medicare cost board created by Obamacare). He gives the board the power to impose an automatic sequester (essentially an immense new price-control authority) in case the rest of his savings do not materialize. This would never actually happen, of course, it would be immensely unpopular. But having such a backstop in the document (without highlighting it) makes it possible to “score” this plan as achieving the cuts it proposes even if the mechanisms it proposes for doing so are very unlikely to work—a familiar budget trick, aimed at avoiding the embarrassment Obama suffered this winter when CBO scored his budget a failure. 


But even on its face, as presented in his speech this morning, the plan is exceedingly underwhelming, consisting of two parts shameless gimmickry and one part liberal fantasy.


First, the gimmickry. The president claims the proposal he made public this morning would reduce the deficit by $3 trillion over ten years above and beyond the debt-ceiling agreement, thus helping the supercommittee beat its $1.5 trillion target. But in fact, the largest single piece of the puzzle consists of counting the elimination of the Bush tax cuts for high earners as $866 billion of deficit reduction, which the supercommittee (bound as it is to CBO’s current-law baseline, which already includes the phasing out of today’s tax rates for everyone) cannot do. Then Obama counts another $1.1 trillion in savings from the Iraq and Afghanistan drawdowns that are already assumed in his budget. The debt-ceiling agreement (from which the supercommittee emerged) avoided counting these drawdowns as savings, since that amounts to a cost reduction without a policy change. The supercommittee could perhaps engage in the same gimmick that Obama does, but it shouldn’t, and it’s likely that Republicans will resist allowing it to. That means that just under $2 trillion of Obama’s $3 trillion package consists of items that do not amount to new cuts.


The rest of the package consists largely of items that will be soundly rejected. The president has repackaged a collection of massive tax increases that even his own party refused to consider when it held large majorities in both houses of Congress and was looking for ways to fund Obamacare—counting on $410 billion from limits to the deductions and exclusions that high-earners can take through the charitable giving deduction, employer-based health insurance exclusion, and others. When he first suggested this very idea in 2009, Democrats revolted and the idea was dropped. It’s hard to see why the president would expect this more conservative Congress to be more open to the idea. The rest of his tax reforms involve closing various loopholes, some of which Republicans might be open to as part of a broader tax reform, but it’s hard to see it happening as part of the kind of package proposed today.


And the president has chosen to punt on entitlement reform. After saying for weeks that he would offer serious Medicare reform, he has declined to do so. His “reforms” in this package consist of more price controls (which, as we have seen for decades, only exacerbate Medicare’s enormous problems) and slightly more means testing in the program (which wouldn’t start until 2017). To assuage liberal groups concerned about even these baby steps on Medicare (and to assuage Democrats eager to run for office on Medicare demagoguery), the White House has let it be known that the president considered calling for increasing the eligibility age for Medicare from 65 to 67 but in the end decided against it, concluding the reform was too radical. That should give us a sense of how meaningless those “reforms” he has called for today are. Increasing the age of eligibility for benefits in an otherwise unreformed Medicare system would make practically no difference—Medicare is not spending its hundreds of billions on 66-year-olds, and eliminating the two youngest age-cohorts from an insurance system does not meaningfully reduce costs. The system needs structural reform. But it would still make more of a difference than what the president actually has proposed today.


Meanwhile, in the case of Social Security, Obama at least saved us the trouble of rounding down to zero by proposing to do literally nothing at all.


That leaves a few items (like modest cuts to farm subsidies, selling some government real estate and the like) with some chance of actually passing and making a difference, but not much of a difference—certainly not enough to even pay for Obama’s “jobs proposals,” so it’s a good thing most of those won’t pass either.


This proposal frankly reads like something that started out a little more aggressive and was pared back out of political fear. We’ve been told for two weeks that Obama would have some major entitlement proposals (like changing how cost-of-living increases are calculated, or increasing the Medicare eligibility age) which aren’t here. This morning’s papers suggested the president would threaten to veto any deficit-reduction proposal that did not include a tax component, but what he actually said in the speech was that he would veto any package that cut Medicare benefits and did not include a tax component (effectively ensuring that the supercommittee will not touch Medicare) but not threatening to veto a package that left Medicare alone.


In other words, all this has very little to do with our fiscal problems. The president appears to hope that his proposals to increase taxes on wealthier Americans will be popular with middle-class voters and so will help rescue his reelection prospects, while the remainder of his deficit-reduction package will just be ignored by Congress so that he can continue to tell voters that he’s trying to solve the country’s problems but Congress won’t cooperate. Maybe such cynicism will work politically—though I doubt it. What it certainly won’t do is meaningfully reduce the deficit or help the economy. In the face of our monumental problems, this proposal represents a loss of nerve, if not a dereliction of duty.

Yuval Levin is the director of social, cultural, and constitutional studies at the American Enterprise Institute and the editor of National Affairs.

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