Cold War Over U.S. Budget Priorities Turns Hot: Albert R. Hunt

For more than three decades, each U.S. political party has possessed a rhetorical nuclear weapon: for Democrats, it’s the opposition’s threat to dismantle popular health-care or social-safety net benefits; for Republicans, it’s the other camp’s desire to boost taxes.

It usually works. Many Republican politicians owe their job to the specter of higher taxes, while Democrats have flourished when the focus is on cutting entitlements or spending for education and health care. This has produced a fiscal mutually assured destruction, where both sides eagerly use their weapons; kept national U.S. politics closely divided, and generated a lot of budgetary red ink.

Rarely are the two issues joined, offering a clear choice in national elections. When Medicare or Social Security seems threatened by Republican initiatives, that’s the dominant issue; in other cycles, higher taxes and big government are the focus.

Next year, initiatives put forth by House Budget Committee Chairman Paul Ryan of Wisconsin and his Republican colleagues, and those presented by President Barack Obama and the Democrats, may offer the opportunity for a much needed debate and a choice of priorities.

Ryan and Obama, with their deficit-reduction road maps, end up in about the same place, though they travel dramatically different avenues to get there.

Debt-Ceiling Fight

The current venue for a fight over spending and tax priorities is the necessary lifting of the $14.3 trillion debt ceiling sometime over the next two months. Both sides are carefully positioning themselves, realizing it would be calamitous not to raise the cap on the government’s ability to borrow; this is an archaic practice that began in 1917, when Congress set a statutory ceiling on U.S. debt obligations and only temporarily allowed it to be increased so politicians can use it as leverage.

Nevertheless, the most likely outcome of the current battle is either a cosmetic or procedural agreement to address longer- term fiscal issues; no one argues there’s a near-term crisis. Alternatively, lawmakers could settle on a serious but limited down payment, which could be a predicate for thrashing it out in 2012.

The contours of the debate include whether the problem comes down to spending or deficits, will require shared sacrifice, and, more broadly, the appropriate size and shape of government.

Taxes and Entitlements

The lines are clearly drawn by Ryan and Obama. The Republican’s budget plan, adopted April 15 on a partisan vote in the House, would dramatically reduce discretionary spending, almost certainly forcing cutbacks in areas such as education, scientific and medical research, and law enforcement. It also ultimately would turn Medicare into a government-assisted private system, cut spending for Medicaid and lower taxes for corporations and wealthier Americans.

Obama would trim Medicare and Medicaid costs and discretionary domestic spending considerably less than Ryan, while making targeted spending increases in areas such as education, infrastructure and alternative energy. The president’s plan also would cut back on defense spending more than Republicans and increase taxes on wealthier Americans and their estates.

That’s the stuff of big trade-offs: Medicare cutbacks or the end of the Bush-era tax cuts? Curb Medicaid or increase estate taxes, or as Republicans say, the death tax? Scientific and health research or more security and arms?

Having It Both Ways

If the debate is real, it will make it easier to dismiss political prescriptions like those of Donald Trump, a would-be contender for the Republican presidential nomination, who says the debt ceiling shouldn’t be raised, Medicare and defense spending shouldn’t be cut, while taxes should be. This isn’t a new phenomenon; in the 1970s, an old-style Democratic congressman, James Burke of Massachusetts, used to brag to a young reporter that the secret to his political success was to vote for every spending bill and tax cut and oppose every increase in the debt ceiling. When asked to explain the logic, his response was: “You think this place is on the level?”

Politicians who do think the place and the problem are on the level believe that these days such evasion may be harder to get away with.

“The stage has been set for a more literate and informed debate,” says Tom Daschle, the former Senate Democratic leader. “We haven’t had such a stark and clear-cut choice in a long time.”

‘Substantive Action’

Former New Hampshire Republican Senator Judd Gregg agrees and says he is reasonably optimistic there will be “substantive action” this year. The Bowles-Simpson National Commission on Fiscal Responsibility and Reform, of which he was a member, has provided a template, and if Congress doesn’t act in 2011, Gregg says the markets are likely to force the issue in the 2012 elections.

Each side has its challenges. As details of Ryan’s budget become clear, there may be more party defections; already Montana Representative Denny Rehberg, who’s running for the Senate next year, voted against it, and former Minnesota Governor Tim Pawlenty, a front-runner for his party’s presidential nomination, expressed reservations. Democrats such as Senator Joe Manchin of West Virginia and Congressman Heath Shuler of North Carolina are likely to break with Obama on tax increases.

Deep Cuts

Substantively, Ryan’s cuts in domestic programs are so deep that the subsequent specifics could be lethal. Much of the focus has been on his Medicare proposals; far deeper cuts would be made in the Medicaid program for the poor, creating a block- grant to the states with less funding. More than 43 percent of Medicaid’s spending goes to people with disabilities, most of whom have little leverage with private insurance companies or at the ballot box.

On taxes, Obama has put himself in a bind with his campaign pledge not to take aim at anyone making less than $250,000 a year. To meet his budget priorities, and to address the long- term deficit gap, there simply aren’t enough rich people to pay more taxes.

Still, Obama and Ryan offer compelling contrasts: Two articulate politicians, equally versed in fiscal policy, with decidedly different approaches, whose initial forays have a partisan coloration and who are convinced the other has offered a prescription for economic suicide. Ultimately, any big-time fiscal fix, given the U.S. system, will have to be bipartisan. A partisan national debate could help pave the way.

(Albert R. Hunt is the executive editor for Washington at Bloomberg News. The opinions expressed are his own.)

To contact the writer of this column: Albert R. Hunt in Washington at ahunt1@bloomberg.net.

To contact the editor responsible for this column: Max Berley in Washington at mberley@bloomberg.net.

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