Obama Assails Ryan Budget Without Long-Term Alternative
President Barack Obama has rebuked Republicans for their “radical vision” of a scaled-down government and says it’s time to “get serious about the deficit.” His own budget fails to do that over the long term.
White House projections show federal debt as a proportion of gross domestic product growing by more than three-quarters under Obama’s plan to a record 124 percent in 2050, well above the 90 percent danger zone identified by economists Carmen Reinhart and Kenneth Rogoff. And the government’s share of the economy climbs to levels not seen since World War II, largely because of surging spending on health care.
That concerns Rogoff, a professor at Harvard University in Cambridge, Massachusetts, who co-wrote with Reinhart the book “This Time is Different: Eight Centuries of Financial Folly.” Countries with excessive government liabilities historically have suffered “very long periods of tepid growth,” he said.
“You don’t have to have a financial crisis” for that to occur, yet one is often “lurking” in the background, he said.
The conflict over the budget underscores how far apart Republicans and Democrats are in solving the nation’s fiscal challenges heading into an election. The fight will only intensify at the end of the year when the administration and Congress must decide whether to extend income-tax cuts, raise the debt ceiling and allow automatic budget cuts to be enacted.
Beyond 10 Years
In the short term, Obama brings down the deficit to manageable levels while stabilizing publicly held debt at about 76 percent of GDP in 2022, the Congressional Budget Office said in a report last month. To do that, the president raises taxes on households making $250,000 or more while cutting spending on defense and other “discretionary” programs, or those whose budgets Congress sets each year.
It’s beyond the 10-year budget window that the troubles begin to pile up. The growing ranks of retired baby boomers -- the approximately 76 million Americans born between 1946 and 1964 -- and the rise in health-care costs will drive government outlays, the deficits and debt higher.
As a share of GDP, federal spending increases to 27 percent in 2050 and keeps on rising, according to projections by the White House Office of Management and Budget. That would be up from 24 percent in 2011 and would be the highest level since 1945, when the military build-up during World War II pushed it to 42 percent.
The president’s proposal “is not a long-term solution to our problem,” said former Congressional Budget Office Director Robert Reischauer. “It gets us through what he hopes is his second term, but it doesn’t do much for the second term of his successor.”
Senate Democrats Punt
Senate Democrats, for their part, haven’t even put out a proposal of their own: They’ve already announced they have no plans to pass a budget this year, which means Congress will go without a tax-and-spending blueprint for the third consecutive year.
The Office of Management and Budget said in a statement that the president’s budget would bring down deficits in the short term to where they are at sustainable levels.
So far, investors have shrugged off forecasts of mounting U.S. government debt. The yield on the 10-year Treasury note stood at 2.22 percent at 5 p.m. in New York yesterday, compared with an average of more than 4 percent since 2000.
The U.S. looks attractive to investors when compared with Europe, where the debt in a number of countries is higher, said Reischauer, a Medicare public trustee. “We’re the best-looking horse in the glue factory,” he said.
Republican ‘Trojan Horse’
The budget passed by House Republicans last week has also drawn criticism from Reischauer and other analysts.
Long term, the budget is more aggressive than Obama’s in tackling the debt, reducing it to 10 percent of GDP by 2050, according to the CBO. Yet the plan, sponsored by Budget Committee Chairman Paul Ryan, a Wisconsin Republican, does that by lowering government’s share of the economy to a level not seen since 1951, before Medicare (USBOMDCA), the Environmental Protection Agency and the space program. And it raises no extra revenue.
Still, “The president’s budget is more realistic than Ryan’s,” said Bob Bixby, head of the Concord Coalition, whose Washington-based nonprofit group advocates for balanced budgets.
Obama this week attacked the Republican blueprint, charging that it would slash vital government programs to pay for tax giveaways for the wealthy. The plan “is a Trojan horse, disguised as deficit-reduction plans,” the president said at an Associated Press luncheon in Washington on April 3. “It is thinly veiled social Darwinism.”
‘Duck and Run’
Ryan took Obama to task. “History will not be kind to a president who, when it came time to confront our generation’s defining challenge, chose to duck and run,” he said in a press statement.
The White House budget submission in February noted that the administration hadn’t put forward a long-term fix for the U.S.’s fiscal problems.
“The policies in this budget stabilize the deficit at less than 3 percent of GDP,” according to a budget document. “Beyond 2022, however, the fiscal position gradually deteriorates mainly because of the aging of the population and the high continuing cost of the government’s health-care programs,” it said. “The policies in the 2013 budget will allow more time to develop long-term policies to address the persistently rising debt.”
Treasury Secretary Timothy Geithner told Ryan at a budget committee hearing in February that the administration didn’t have a “definitive solution to that long-term problem -- but what we do know is we don’t like yours.”
Bixby of the Concord Coalition likened the president’s approach to “leading from behind” -- a reference to the strategy an unnamed administration adviser told The New Yorker magazine last year that Obama was following in Libya.
“If we’re going to break through to the public and actually make some changes on health care and tax reform, I think you do need to put out a bold proposal and get people talking about it,” said Bixby. “There really aren’t any bold proposals in the president’s budget.”
Obama defended the administration’s budget this week, saying it puts “annual domestic spending on a path to become the smallest share of the economy since Dwight Eisenhower” was president more than 50 years ago. That reflects spending caps agreed to with the Republicans last year as part of a deal to raise the debt ceiling and covers discretionary outlays on everything from military equipment to school lunches.
The president also told the AP luncheon that he had put forward “a detailed plan that would reform and strengthen Medicare and Medicaid.” His proposals include requiring wealthier beneficiaries to pay higher premiums for health care beginning in 2017, and giving a board of experts more power to wring savings out of the programs.
Even with those steps, Medicare and Medicaid expenditures continue to climb as a share of the economy, though not as much as they would if they were left untouched, the White House budget shows. Medicare outlays increase to 5 percent of GDP in 2050 from 3.25 percent in 2011 while Medicaid spending increases to 3 percent from about 2 percent.
Ryan takes a different approach. He wants to provide fixed subsidies to seniors to either buy private health insurance or participate in Medicare, a move designed to harness competition to drive down costs. He would also lop $800 billion off Medicaid over the next decade.
Those cuts would reduce Medicaid’s share of the economy in the coming decades, but not Medicare’s, according to the CBO.
Waiting for Elections
Lawmakers probably won’t make any substantive progress toward taming the deficit until after the November elections, when the across-the board income tax cuts enacted under President George W. Bush will expire, the automatic spending reductions will be set to kick in, and the government once again nears the debt limit.
Both sides are focused instead on wooing voters, seeking to gain a stronger hand in the elections for negotiations.
It won’t be easy. More than 4 out of 5 Americans oppose scaling back Medicare benefits to help narrow the federal budget deficit, according to a Bloomberg-Washington Post national poll conducted last October.
The two parties are taking opposite approaches, with Republicans betting voters’ concern with government red ink will outweigh their desire to maintain popular programs at current levels. Democrats are gambling it’s better to avoid spelling out what they’d do to reduce long-term deficits.
To contact the editor responsible for this story: Clark Hoyt in Washington at firstname.lastname@example.org