Castle made of sand (Tamorlan, Wikimedia Commons)
had what probably was the best concise reaction to President Obama's fiscal speech.
Other than the fact that this speech is being given at all, I didn’t have a major problem with it.
There was much in the speech that should encourage Democrats, but as always with this president, it will be the details that matter. And maybe hidden in the details of the rhetoric was a path toward an even stronger stand on the details of policy. But Dayen was right: there was no reason for such a speech in the first place. Apparently, there is no end to how many times it needs be reiterated, but with the economy barely recovering from a devastating recession Democrats should not be talking about deficits. Democrats should not be initiating conversations about deficits, but that was exactly what President Obama did when he established the Catfood Commission. Democrats should instead be talking about a further stimulus package to establish and accelerate real job growth. That would be responsible economics. It also would fit nicely with public opinion. In various polls, and by large margins, people are much more worried about jobs than they are about the deficit. And that's what a real stimulus package would be about. But instead of promoting that, we are talking about the deficit. And on that Republican field, President Obama did promote Democratic values.
As made clear last week, when Republicans talk about the deficit, they are lying. It's a time-honored tradition for Republicans to hide their agenda of class warfare behind the red herring of deficits. When Republicans talk deficits, you know that their real intent is to transfer even more money from the poor and the middle class to the wealthy, as if the widest income gap ever recorded in this country isn't enough. The history speaks for itself, and it cannot be repeated enough: Ronald Reagan ran against President Carter's deficits, and proceeded to explode them to unprecedented levels; the first Bush added to his predecessor's grand achievement; President Clinton erased the Reagan/Bush record deficits and produced a record surplus, and the Lesser Bush then destroyed that and broke even his father's record deficits. And as President Obama so succinctly explained at the end of the week, even the ostensible chief House Republican fiscal hawk is a blatant hypocrite, having voted for two unfunded Bush wars, the surplus-destroying Bush tax cuts, and the enormously expensive and unfunded Bush pharmaceutical drug plan. Never pretend and never let anyone get away with claiming that Republicans care about deficits.
While President Obama gave a speech that didn't need to be given, on a subject that should not have been raised right now, and about which Republicans have no credibility, he did so in terms that were explicitly within the framework of Democratic Party traditions. This alone was a dramatic change from his approach to the budget resolution. As many have noted, while discussing an issue that is usually raised by the Republicans, the president talked like a Democrat. And this could and should indicate his strategy going forward. Because one of the most interesting details in the speech was a seeming discrepancy in the numbers.
So this is my approach to reduce the deficit by $4 trillion over the next 12 years. It's an approach that achieves about $2 trillion in spending cuts across the budget. It will lower our interest payments on the debt by $1 trillion. It calls for tax reform to cut about $1 trillion in tax expenditures -- spending in the tax code. And it achieves these goals while protecting the middle class, protecting our commitment to seniors, and protecting our investments in the future.
But as Mark Sumner made clear, the three biggest drivers of the deficit are, in order, the Bush era tax cuts, the continuing problems with the overall economy, and the wars in Afghanistan and Iraq. Anyone who is serious about reducing the deficit will focus on its three biggest drivers. As Robert Greenstein of the Center on Budget and Policy Priorities explained:
Because the Obama plan relies on budget cuts for two-thirds of its deficit reduction measures, it goes dangerously far in two areas. It calls for $360 billion in cuts in mandatory programs other than Medicare, Medicaid, and Social Security. The large budget-cut target for this part of the budget risks leading to substantial cuts in core programs for low-income Americans, our most vulnerable people. To the President’s credit, his plan states that “reforms to mandatory programs should protect and strengthen the safety net for low-income families and other vulnerable Americans.” And the Bowles-Simpson plan enunciates the same basic principle. But to achieve $360 billion in savings in this part of the budget without cutting programs for low-income families and thereby increasing poverty and hardship will require very tough choices that entail confronting powerful special-interest lobbyists to a degree that neither party has proved capable of doing in the past.
And in addition to the humanitarian costs, by a reverse multiplier effect increasing poverty and hardship also would hurt the deficit, by slowing or reversing any economic recovery. But Greenstein also made clear that the Ryan plan is much worse, because it shifts health care costs to the beneficiaries, thus adding to overall health care costs, as well, one must add, as hurting people even worse.
Another significant concern stems from the President’s proposal to limit the annual growth in Medicare costs per beneficiary to the per capita rate of growth in the Gross Domestic Product (GDP) plus only 0.5 percentage points and to require automatic cuts in Medicare if this target would otherwise be exceeded. This goal is laudable. But it may be unrealistic. Historically, Medicare costs per beneficiary have risen about 2 percentage points per year faster than GDP growth per capita. The health reform law will launch a series of demonstrations, pilots, and research projects to find effective ways to slow health care cost growth without reducing the quality of care or access to care. But we don’t know yet how much or how quickly we can lower health care cost growth, especially since the principal driver in cost growth is medical advances that improve health and save and prolong lives but add significant costs.
A problem which also would be much worse under the Ryan plan, as all associated costs would fall most heavily on those least able to shoulder them rather than collectively on all of us.
Finally, the President’s plan calls for a mechanism to trigger automatic reductions in programs and tax expenditures if the debt would exceed certain benchmarks (measured as a share of GDP). The goal of stabilizing the debt as a share of GDP is precisely the right one. But all triggers like this that have been designed in the past have suffered from a fatal flaw — they required the deepest budget cuts when the economy was weakest and the smallest cuts when it was strongest — the opposite of what sound economic policy entails. The President’s plan calls for the trigger to “include a mechanism to ensure that it does not exacerbate an economic downturn.” No one has succeeded until now in producing a mechanism that meets this test, and it remains unclear whether it can be done. This new proposal bears some similarities to the trigger in the 1985 Gramm-Rudman-Hollings law, which was not successful and which Congress ultimately repealed.
Greenstein closes by saying that despite these flaws, the president's plan is a step in the right direction, although it is more conservative than the Rivlin-Domenici plan. But there also may be clues in the speech that reveal how the president could play this, politically. After first explaining the unfairness and the devastating human and social costs of the Ryan plan, the President seemingly channeled Joseph Stiglitz in explaining:
In the last decade, the average income of the bottom 90 percent of all working Americans actually declined. Meanwhile, the top 1 percent saw their income rise by an average of more than a quarter of a million dollars each. That's who needs to pay less taxes?
They want to give people like me a $200,000 tax cut that's paid for by asking 33 seniors each to pay $6,000 more in health costs. That's not right. And it's not going to happen as long as I'm President. (Applause.)
This vision is less about reducing the deficit than it is about changing the basic social compact in America. Ronald Reagan's own budget director said, there's nothing "serious" or "courageous" about this plan. There's nothing serious about a plan that claims to reduce the deficit by spending a trillion dollars on tax cuts for millionaires and billionaires. And I don't think there's anything courageous about asking for sacrifice from those who can least afford it and don't have any clout on Capitol Hill. That's not a vision of the America I know.
The America I know is generous and compassionate. It's a land of opportunity and optimism. Yes, we take responsibility for ourselves, but we also take responsibility for each other; for the country we want and the future that we share. We're a nation that built a railroad across a continent and brought light to communities shrouded in darkness. We sent a generation to college on the GI Bill and we saved millions of seniors from poverty with Social Security and Medicare. We have led the world in scientific research and technological breakthroughs that have transformed millions of lives. That's who we are. This is the America that I know. We don't have to choose between a future of spiraling debt and one where we forfeit our investment in our people and our country.
To meet our fiscal challenge, we will need to make reforms. We will all need to make sacrifices. But we do not have to sacrifice the America we believe in. And as long as I'm President, we won't.
What it comes down to is this: if we are to avoid sacrificing the America we believe in, the sacrifices made to reduce the deficit will have to be borne most by those most capable of bearing them. Greenstein is right: revenue enhancements must become the first focus. The president is right: the very wealthy are far from making a contribution commensurate with their capabilities and responsibilities. And that is why the path forward has to focus on economic justice. The president hinted at it. He was specific and pointed in his analysis. And that should be his and our focus as negotiations begin: everything other than Social Security, Medicare and Medicaid are on the table, but first eliminate the Bush era tax cuts.
Cutting budgets takes time. It takes rigorous analysis. Every member of the cabinet and the head of every government office must begin to analyze where they can cut fat. But during that long, painstaking process, let's begin by doing what we already know needs be done: eliminate the Bush era tax cuts.
We're all going to make sacrifices. Most people already have. The very wealthiest mostly haven't. Budget analysis and public opinion polls already make clear where we must begin: eliminate the Bush era tax cuts. Because by eliminating what is by far the largest single driver of current public debt, we may find that the proper fiscal balance suggested by Greenstein begins to take care of itself. As the Congressional Budget Office and other objective budget analysts begin to reveal that eliminating the Bush era tax cuts is reducing the deficit by a much greater percentage than the president has initially suggested, it will become clear that we have less need to cut the types of programs that make this the America we believe in. We must begin by cutting the Bush era tax cuts.
And then we can begin to focus on ending what are by far the largest wasteful government expenditures, with all their horrendous human costs: the wars.