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February 22, 2011

Obama’s Budget Chooses Gimmicks Over Reform

By

In 2009, upon taking office, President Obama promised that his administration would confront difficult challenges and not “kick the can down the road.”

In 2010, under pressure to honor this promise, he created a bipartisan deficit commission to address the unsustainable spending growth in programs such as Social Security, Medicare and Medicaid. “This can’t be one of those Washington gimmicks that lets us pretend we solved a problem,” he said at the time. “I refuse to pass this problem on to another generation of Americans.”

In 2011, after the commission reported specific entitlement reforms, Mr. Obama … kicked the can down the road. Faced with permanent trillion-dollar deficits, he produced a budget that abandoned the reforms of Social Security, Medicare and Medicaid necessary to prevent an eventual fiscal and economic calamity.

Instead, he offered a budget that would add $66,000 per household to the national debt over the next decade. Two years after the recession hit bottom, the 2011 budget deficit would surpass $1.6 trillion for the first time in American history. More than 43 cents of every dollar spent by Washington would be borrowed, and the national debt would continue on a path to double. Even the president’s large tax increases would fail to keep up with his historic spending spree.

In response, deficit commission co-chairman Erskine Bowles concluded that the president’s budget is “nowhere near where they will have to go to resolve our fiscal nightmare.” Senate Budget Committee Chairman Kent Conrad, North Dakota Democrat, added that the budget proposal “puts at risk the economic security of this country” and “cannot be the answer for this country’s fiscal future.”

Countries that finance U.S. debt certainly noted that Mr. Obama’s budget includes no plan for long-term fiscal sustainability. The question is how long they will continue lending to a government that refuses to confront budgetary reality.

In the absence of entitlement reform, Mr. Obama touted his proposed five-year freeze of non-security discretionary spending — a freeze that he says eventually would reduce this spending to 1950s levels as a share of the economy.

This claim is pure gimmickry. He “reduces” discretionary spending’s share of the economy by reclassifying highway spending and a portion of Pell Grants as entitlement spending. It’s like a family claiming to have reduced its spending by no longer including its grocery costs. By this logic, we could slash entitlement spending immediately simply by deciding to no longer count Medicare as an entitlement.

Furthermore, the five-year freeze of non-security discretionary spending (which makes up just one-tenth of the total budget) is not a given. Discretionary spending is written from scratch each year. So unless the president also proposes a statutory spending cap, future Congresses and presidents will still be free to spend as much as they wish on these programs.

Even if they do choose to continue this freeze, it would merely lock in the 25 percent increase these programs received from 2007 through 2010. (They also received $311 billion in one-time stimulus funding.) A truly responsible budget would actually reduce spending and eliminate programs that no longer justify their cost.

Discretionary spending “cuts” are not the only gimmick in the president’s budget. Nearly all of the $2.2 trillion in claimed deficit reduction over the decade is based on smoke and mirrors.

It proposes $315 billion in savings from eliminating “certain tax expenditures” — but doesn’t list which ones. It finances a $328 billion transportation trust fund without specifying what taxes would be raised. It takes credit for $321 billion in spending cuts to offset the Medicare “doc fix” from 2014 through 2021 — yet never specifies any cuts. It claims more than $150 billion in “program integrity” savings so vague that the Congressional Budget Office could not even score them in last year’s budget estimate.

The budget also takes credit for $700 billion in “cuts” by comparing the long-planned drawdown of Iraq and Afghanistan spending against a base line that implausibly assumes those costs would rise forever.

Throw in $200 billion in net interest savings from the above “cuts,” and it means that $2 trillion of the $2.2 trillion in claimed savings are pure gimmicks and magic asterisks rather than specific, measurable policy proposals. Only a few real cuts remain.

Of course, the proposed spending increases — the Medicare doc fix, new transportation spending, high-speed rail and another round of $250 checks for senior citizens — are all real and scoreable.

The gimmicks don’t even stop there. The budget hid an $800 billion tax increase and a $118 billion Pell Grant entitlement increase in its base line. Its rosy economic assumptions added $1.7 trillion in projected tax revenues over the decade. So much for the president’s promised “return to honest budgeting.”

Strip away all the magic asterisks and gimmicks, and what remains is a budget too similar to the president’s previous tax-borrow-and-spend budgets. It raises taxes by $1.6 trillion, keeps spending at its highest sustained level since World War II and doubles the national debt.

Instead of addressing the runaway costs of Social Security, Medicare and Medicaid, the president keeps these programs on a path to bankruptcy. More than just a missed opportunity, his budget represents a failure of leadership.

Brian Riedl is Grover M. Hermann Fellow in Federal Budgetary Affairs at the Heritage Foundation

First appeared in The Washington Times

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