The Budget Summit: A Missed Opportunity
Whatever his intentions, President Obama’s missed an opportunity at his fiscal summit yesterday.
It is critically important for Washington to finally confront the long-term deficit. And Obama sent an important symbolic message by throwing this shindig. But the timing was all wrong. Right now the public and financial markets are obsessed with only one economic issue: the recession. With those fears so dominant, whatever was said at the White House yesterday will be quickly forgotten.
The invited participants did not need to be reminded that deficits matter. But they do need to be convinced that the public will reward painful steps to control spending and raise revenues. Presumably, Obama called yesterday’s session as part of an effort to win that support. Unfortunately, hardly anyone outside the Beltway was paying attention.
The timing had another downside as well. Team Obama is still struggling to fix the nation’s dysfunctional credit markets, and top Administration economists would have been far more useful spending the day refining their plan to restore the banking system rather than debating long-term budget reforms.
Obama’s promise to cut the deficit in half had an unfortunate echo of the similar vow President Bush made at the beginning of this second term. Obama may succeed, especially since in five years the recession should be a memory. A healthier economy will boost tax receipts and reduce the need for massive countercyclical spending. In five years, Washington may even be earning a bit of money from the sale of all those toxic assets it is buying today.
But making promises about the five year budget misses the point. The real issue is the deficit 10, 20, or 50 years from now. And that gloomy story is drearily familiar. We can’t sustain health care costs that continue to grow two percentage points faster than the rest of the economy, year after year. Demands on Social Security will continue to grow as the Baby Boomers age into retirement. And Medicaid, which is more of a long-term care problem than one of acute medical care, will keep draining state budgets even as it increases the federal deficit.
Health reform will not fix the deficit, especially if by health reform you mean just covering the uninsured. As OMB director Peter Orszag continues to remind people, controlling health costs will require somebody to curb unnecessary care, even if patients want it and doctors and hospitals want to deliver it. And that is a challenge few are prepared to confront.
It is the same with tax reform. Those words were used often yesterday. But tax reform doesn’t mean cutting taxes for those making less than $200,000 and raising taxes on those making more than $250,000. It also means more than closing alleged international loopholes or making hedge fund operators pay more. It does mean building a efficient revenue system that will support a government that is likely to spend at least 22 or 23 percent of Gross Domestic Product for a long time to come, even if we can control health costs.
Obama deserves credit for beginning to take ownership of the deficit issue. But he’ll have to do a lot more than yesterday’s photo op to move the fiscal reform ball forward.