When the Obama-McConnell-Boehner tax bill was put forward in mid December, I described it as "hiding the pea," for despite the lofty rhetoric of the three named individuals about fairness and progressive taxation, at least 25 percent and up to a third of the earned income tax savings from the bill will go to the wealthiest 2 percent.
President Obama clearly wanted to score points with moderates and independents, but as I wrote then, these are points that will likely never be tallied. For the tax bill, agreed to with little or no input from Congressional Democrats, was not only bad policy and smashed to smithereens one of the key promises of Obama's 2008 campaign, it was also very bad politics -- and bad timing. In agreeing to the tax bill deal, President Obama's bet was that by the time of the 2012 elections he would be able to resist Senator McConnell's demand that these tax benefits for the wealthiest Americans be permanently extended -- at a staggering cost of $807 billion over the next decade. Now here just in February, the president's new 2011 budget already portends that his "bet" will be lost.
In an effort to score some temporary political points, Mr. Obama first significantly enlarged our deficit. And now, with his recent budget proposal, he has essentially adopted the Republican fallacy that it's credible to focus only on discretionary spending without addressing all of the issues associated with it. This is just more bad politics, and again, equally bad timing. Conservatives and those in the Tea Party will never think he has cut enough, while progressives rightly deplore the ongoing "cavings in," which seem to reward only the wealthy while cutting, in the midst of a continuing economic downturn, vital programs for millions of Americans.
To put this concern in perspective, White House officials contend that the president's budget proposal would reduce by $1.1 trillion accumulated federal deficits over 10 years. The deficit would presumably peak at 10.9 percent of output in 2011 and then drop to 7 percent in 2012 and 4.6 percent in 2013. By 2014, they argue, the federal debt would presumably be stable at about 75 percent of GDP.
However, as Robin Harding detailed in the Financial Times , this is very unlikely to come to pass -- which is problem or obfuscation number one. While the short-term deficit reduction is the most plausible, because it largely rests on a recovery in tax revenues that are projected to rise in 2012 and 2013, it nonetheless assumes that Mr. McConnell will actually let those tax benefits for the wealthy finally expire, which of course he has vowed never to do. And as for the medium-term deficit reduction, most of it similarly hinges on spending cuts that will be hard to put into effect and revenue increases that will struggle mightily to pass Congress.
Maya MacGuineas of the Committee for a Responsible Federal Budget calls all of this using "magic asterisks," coupled with an over reliance on "rosy assumptions." Assumptions indeed about underlying economic, revenue and spending growth that are more "rosy" -- by hundreds of billions of dollars -- than the non-partisan Congressional Budget Office uses.
Back to Mr. Harding, who continued, "the most probable outcome is that not all of the tax cuts will be passed, the envisaged cuts to health spending will not be found, and the long-run squeeze on discretionary spending will be too severe for either the public or Congress to endure."
Expressed another way, to get even close to Mr. Obama's projections, whoever is president "must persuade Republicans in Congress to agree to $1.1 trillion in tax increases over the next decade, including, again, the $807 billion from terminating the Bush-era estate and income tax cuts for the wealthy (emphasis mine)."
It's this embedded -- one would have to say intentional -- further "hiding of the pea" that fuels the cynicism that is now so prevalent among the electorate. If informed journalists in just a day or two can call out the blatant misrepresentations in the administration's assumptions -- those so-called "magic asterisks" -- then why isn't the administration more forthcoming right up front?
At least as concerning and distressing, however, are (1) the Congressional Republicans' knee-jerk and cruel response to the budget proposal and (2) what the entire exercise left out.
Starting with the Republicans, one can only assume that they have committed themselves to cutting expenditures purely for cutting's sake, with little or no thought given to the consequences. With the White House and the Rs dueling just over the domestic discretionary programs -- only about 12 percent of overall federal spending -- then how else to explain the Rs demand for $100 billion of further cuts from an administration budget that is already so cruel as to seek to kill or shrink some 200 programs, including a program as humane as heating subsidies for the poor? If these additional cuts -- so arbitrary in their targeting -- come even close to passing in their arbitrariness, the outcome will be a smear on the ethos of this country for years to come.
And it will be a smear for which there is almost no meaningful public support. Paul Krugman has written about a new survey by the Pew Research Center in which Americans were asked whether they favored higher or lower spending in a variety of areas. It turns out that they want more, not less, spending on most things, including education and Medicare. Per Krugman, "the public opposes cuts in programs it likes -- and it likes almost everything."
Also, how dare House Speaker Boehner contend that these further cuts can be effected without any potential job losses? When economists honestly looked at the labor statistics underpinning Mr. Boehner's claim, they quickly found that when a country is mired in a jobless recovery, as ours is, programs of the sort the Republicans are targeting simply can't be slashed without further job losses.
All the while, what it is being completely left out of the 2011 budget debate are the real drivers of our deficits and thus the greatest long-term threats to America's well being and future prosperity. These are the three big entitlements of Social Security, Medicare (for the elderly) and Medicaid (for the poor).
President Obama has said he's open to making changes in these programs, but he wants cooperation from Republicans before he will begin. While there is some legitimacy to this tactic -- even within the Democratic Senate and House Caucuses there is not yet consensus as to when they should be addressed -- nevertheless this is when I suggest that, "It's Time to Speak to a Larger Audience."
President Harry S. Truman said that the ultimate test of any presidential decision is "not whether it's popular at the time, but whether it's right... If it's right, make it, and let the popular part take care of itself."
New projections from the Congressional Budget Office show that factors such as the payroll tax cut that the Obama-McConnell-Boehner tax bill agreed to last year mean that Social Security will come up short every year from now on -- at least $45 billion this year, and a staggering half a trillion dollars over the next decade. And since the 2011 budget exercise is required to look out ahead over the next decade, this massive shortfall suggests to many of us that it's time, indeed past time, to face the music.
Yet on Feb. 15, when asked whether his approach on entitlements was "too timid," President Obama offered no details about what measures he could support, or about how talks between Republicans and Democrats might come about. Rather, he said only that he expected these matters to be addressed in the coming months, thus leaving standing the criticism from progressives and independent budget watchdogs who say it's irresponsible not to tackle the long-term challenge of reforming entitlements.
Even stranger, White House Budget Director Jacob Lew told advocates of reform that the White House thinks any significant plan offered by the president would simply become a target for partisan attack. As if, Mr. Lew, there aren't "partisan attacks" already universally underway in Washington?
In leaving these criticisms unanswered, unlike how Mr. Truman would have approached the issue, the president also leaves standing all of the insensitive recommendations of his own Simpson-Bowles Deficit Commission concerning entitlements, recommendations which no committed progressive should ever find acceptable.
The Deficit Commission's seminal recommendation was to increase the Social Security retirement age from 65 to 69, a recommendation that may sound OK if you sit at a desk on Wall Street, but which is beyond cruel to those women and men working in factories, doing physical labor, standing on their feet in service industries, or toiling in agriculture. The premise behind this proposed change -- namely, that average life expectancy is rising -- is flawed in the extreme. While life expectancy is indeed rising, it's doing so mainly for high earners who need Social Security least. For the bottom half of the income distribution, it hasn't budged for fully 30 years. And of course, this is just one example.
Rather than once again penalizing the hardest-working Americans, I suggest eliminating or materially raising the cap on taxable wages (now just $113,700). This single change, perhaps coupled with "means testing" the recipients, would forever bring the nation's retirement system into financial balance.
Similarly fair and progressive solutions exist for the challenges confronting Medicare and Medicaid, if we will just pursue them.
So, it seems we are left with Governor Chris Christie (R-NJ) to "call the question," as they say. While his solutions will likely never be mine precisely, on Feb. 15 he told the American Enterprise Institute with Truman-like conviction that, "If you don't deal with Social Security, Medicare and Medicaid, you are participating in a failing proposition," he said. "The old playbook says lie, deceive, obfuscate, make it to the next election." But dealing honestly today with people about these massive entitlement problems will be rewarded because Americans are eager to know the truth.
Gov. Christie then closed his remarks by saying that "American exceptionalism has to include the courage to do the right thing." While the phrase "American exceptionalism" is for many progressives unacceptable "code talk" by conservatives, I think in this instance the governor was simply calling on President Obama and this Congress to be more Trumanesque.
At least then the debate will be joined regarding the three most important and vexing fiscal issues confronting the nation. And by broadening the debate to include genuine entitlement reform, President Obama can have his turn to "call the question," this time on Republicans' claims that they're the real deficit hawks.
(P.S. The same courage that I and others are calling for from President Obama on the 2011 budget needs to be manifest right now as well on the volcanic issue of the bargaining rights of state and municipal employees. Back on November 3, 2007, in Spartanburg, SC Candidate Obama promised to "walk on that picket line" if workers are denied the right to bargain (watch here). Later, throughout 2008, he pledged to advance the Employee Free Choice Act as a first presidential priority. But now as the president, after an initial trepid response to Wisconsin and elsewhere, he has decided that organized labor is no longer "critical to his political ground game," according to the Wall Street Journal. This is simply insulting.)
Leo Hindery, Jr. is Chairman of the US Economy/Smart Globalization Initiative at the New America Foundation and a member of the Council on Foreign Relations. Currently an investor in media companies, he is the former CEO of Tele-Communications, Inc. (TCI), Liberty Media and their successor AT&T Broadband. He also serves on the Board of the Huffington Post Investigative Fund.
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