Why Obama Punted on Deficit Reduction

By :: February 22nd, 2011

The latest Republican talking point is that President Obama is “punting” on his fiscal responsibilities by not proposing deep cuts in Medicare and Social Security. It is true that Obama’s 2012 budget was exceedingly timid when it came to deficit reduction. But Obama’s GOP critics ooze hypocrisy when they accuse him of fiscal irresponsibility.

This, after all, is the party that just last year, in its zeal to defeat “Obamacare,” demonized as “death panels” the president’s modest effort to constrain future cost growth in Medicare. And it is the party that continues to demand the 2001 and 2003 tax cuts be made permanent for all.  

As usual, Republican message discipline is impressive: "We got a punt," said House Budget Chairman Paul Ryan (R-WI) of the Obama fiscal plan. “When it comes to the real issues facing our country, he just punted,” said House Speaker John Boehner. “Obama Punts the Debt to the GOP” read a headline in the GOP mouthpiece The Weekly Standard. And so on.

The Republican death panel argument has taken on a curious double-meaning. Initially, it was their criticism of a provision in the 2010 health law that allowed Medicare to pay doctors for end-of-life discussions. Then, it morphed into the GOP's objection to an independent board created to recommend Medicare cost savings to Congress.    

The combined messages were  a huge political winner for the GOP in 2010. In the non-presidential election year of 2006, voters 65 and older split evenly between Republican and Democratic congressional candidates. In off-year of 2010, GOP candidates won this group by 21 percentage points. The major reason according to pollsters: seniors’ fear of Medicare cuts under Obamacare, a worry aroused by the same GOP leaders who now criticize the president for not proposing Medicare cuts.  

Obama is no fool. In the wake of 2010 election debacle, it is absurd to expect him or congressional Democrats to stick out their necks again on Medicare—to say nothing of Social Security. By choosing to trash the health law’s Medicare constraints for short-term political gain, Republicans dealt a serious blow to deficit reduction efforts.

How steep a hill must those who want to trim Medicare climb? According to a recent poll by the Kaiser Family Foundation, nearly half of those surveyed oppose any reductions to the program, which accounts for one-sixth of all government spending.

Obama may have a bit more room to maneuver on taxes, but not much. Polls suggest Americans support tax increases on high-earners to reduce the deficit. But the public opposes other new revenues. And last December, of course, Obama seemed unwilling to engage on the tax issue at all. The president, who vows to never raise taxes on individuals making less than $200,000 (or couples making less than $250,000) agreed with the GOP to extend the Bush-era tax cuts for all for two more years.

The GOP leadership, boxed in by its own “no new taxes” pledges and pressure from the tea party, shows no sign of budging on revenues. Obama has boxed himself in on taxes. And why would any but the most naive Democrat unilaterally propose unpopular Medicare cuts without so much as a hint of GOP movement on revenues?

Thus, Obama and the GOP do budget battle on the exceedingly narrow ground of non-security domestic spending—roughly 12 percent of government. In this environment, small-government, anti-regulatory Republicans get what they want: big cuts in highly visible (though relatively small) programs. And Hill Democrats get what they want—the opportunity to rip the GOP for allegedly increasing the suffering of those in need.  

A small bipartisan group of senators is struggling mightily, with quiet White House backing, to find a way out of this maze. But given recent political history, it is hard to see how they’ll succeed.

12Comments

  1. Michael Bindner  ::  3:29 pm on February 22nd, 2011:

    Medicare (and for that matter, Medicaid) may have some room for cuts if it is turned into a managed care program – but even then there is a risk that doctors will simply opt out. All that is left is an increase to the payroll tax or its broadening into a VAT or Business Revenue Tax, which would both increase the base and allow rate increases to be undertaken with less impact on wage earners and competitiveness.

    Impossible? Hardly. If Lawrence Lindsey and Neil Boortz can come to agreement on a Business Revenue Tax but call it a Fair Tax – and consent to a separate VAT for visibility and a separate income surtax for the sake of taxpayer privacy (so that wealthy people don’t have to share all of their financial information with their employers or investments), then we have a winner.

  2. Michael Bindner  ::  3:30 pm on February 22nd, 2011:

    As you can see, such a deal must have nothing to do with Obama, since if he touches it, the Tea Party would reject it – since they have a vicsceral hatred for him personally.

  3. AMTbuff  ::  4:10 pm on February 22nd, 2011:

    Howard, I agree with your entire post. Death panels were the only cost reducing component of what was incorrectly labeled Health Care Reform. Serious deficit hawks should have instead admitted that rationing is essential, and that the political argument is between death panels and self-rationing by price with patients spending their own money. Experts can face that brutal issue squarely, but this is an argument that no politician wants to have.

  4. Mark  ::  7:20 pm on February 22nd, 2011:

    Michael, let me get this straight — you want Boortz to agree to something, some mixture of his moronic “Farce Tax” and a “separate income surtax”.

    Quick, get me a couch, craziness makes me faint.

    You do realize, don’t you, that Boortz is advocating the goofiest and most most deceptive “tax plan” possible. It’s as if he told you were were going to tax moonbeams a baby farts, and you say “Okay, but can we get a separate income surtax with that”.

    It’s hard to know if you are in on the Boortz farce, or you just don’t know.

    Fairtax, in case you didn’t know, has a massive hidden tax on city and state government. California state government, for one example, would owe 14-16 billion, Texas state government, 10-11 billion, and so forth.

    Cities and counties would get in on the fun too – LA city government would owe 900 million, Dallas city government, 300 million.

    Fairtax spokesmen not only admit this, they BRAG about it. Jim Bennett, official spokesmen for Fairtax, said this tax on government is one of the pilars of Fairtax. David Kendall said he sees “nothing wrong” with city and state governments “being asked” to pay their fair share (Which is a riot, because they don’t ask, they hide this as a given in their fine print)

    Ross Calloway claims the plan is transparent, even though they don’t tell city and state governments about this tax, because “we will give them reciepts” when they buy something or pay wages (Yes, wages are taxed by Fairtax, when thegovernment pays them)

    So it’s hard to know which Alice In Wonderland tunnel you fell into. Yes, that’s it, have Boortz lead you to the promised land. Right after he makes California state government pay 16 billion in taxes they never were told about.

    http://fairtaxfineprint.blogspot.com/

  5. Sid F.  ::  7:24 pm on February 22nd, 2011:

    As far as deficit cutting is concerned,

    1. Social Security is Not Relevant. The SS system for the most part is running a surplus, although it will soon start to be in a deficit position as the boomers retire. Cutting benefits in say, 2040 will not help the deficit until, uh, 2040. Increases in payroll taxes are simply not politically feasible. (Did you folks not notice that two months ago payroll taxes were decreased! Yes, the Fed will make up the difference to the SS Trust Fund this year). Going forward it is no better then 50-50 that the 2% point cut in taxes in 2011 will not be made permanent (whoever allows that provision to lapse will be blamed for raising taxes on working people)

    2. Medicare and health care costs in general can only be brought under control when pay-for-procedure is changed to a fixed payment system whereby health care organizations are paid a fixed amount for providing care. Under PFP the incentive is to raise costs (more income for providers). Under a fixed payment system the incentive is to reduce costs. Unfortunately there is no movement to this type of system under consideration.

    3. VAT and other tax schemes are not going to happen. Lawrence Lindsey and Neil Boortz are irrelevant.

    You are dealing with a Radical Conservative Republican Party whose disconnect with reality is staggering. They sincerely believe that increased economic growth is a direct result of cutting government spending. While this delusion is normally harmless, Radical Conservatives are moving into a position whereby they can implement their agenda.

    Rep. Ryan strongly criticized Obama for not supporting the Deficit Commission recommendations that Ryan himself voted against. Unfortunately, this disconnect with reality is spreading to the public, who believe, based on the biased news reporting of Fox and others that the problem is too much government spending on social programs and that taxes are too high.

    Unless public awareness and opinion changes, ultimtely there will be a Repubican President who will implement the program of the Radical Conservatives. After the economic disaster, the public may well change its views, but of course, by that time it will be too late.

  6. AMTbuff  ::  8:41 pm on February 22nd, 2011:

    Ryan voted against the commission report because it failed to address medical cost growth. In other words, because he agrees with your item 2!

    As to item 1, SS is indeed relevant unless you falsely assume that its taxes and benefits live in an economy that is isolated from the one containing everything else. In the real world squeezing other areas will have an effect on SS, probably meaning lower SS benefits rather than higher SS taxes. SS will have to balance, but probably at a lower total level than would be the case without outside fiscal pressure.

    On item 3, once the government has a strong and durable handle on spending growth, I expect to see majority support for a VAT if that’s what it takes to close the gap. This support will not come unless and until government promises to the middle class are scaled way, way back from current levels. Middle class voters will not be inclined to trust promises of future benefits once the possibility of government default becomes real to them. They will prefer to limit those promises to the extremely needy.

  7. Sid F.  ::  10:47 pm on February 22nd, 2011:

    Rep. Ryan voted against the Commission report because it contained tax increases. When Rep. Ryan puts tax increases on the table for deficit reduction I will change my conclusion, but I will also have to duck those pigs flying outside my house.

    SS is relevant, but changes in the SS system to fix the long term potential lack of resources to meet statutory benefits will not aid budget deficit reduction in the short term. Raising the SS tax rate, raising the contribution limits and changing the age for full retirement benefits will not happen. Not now, probably not ever. Changing the Cost of Living Index for future benefits might be appropriate and provide some deficit reduction in the short term, but that again is unlikely to happen. Of course, if raising the earnings limitation, the payroll tax rate and the age for full retirement were limited to only members of unions, that would be supported by Republicans.

    A VAT is not going to be enacted. It sounds too European and Members of Congress do not understand it. In fact most cannot even spell VAT if you spotted them the V and the A.

    What is likely to happen will be modeled after Gov. Christie’s approach to budgeting and taxes in NJ. Basically what he said today was cut government spending, particuarly benefits to state workers and I will cut your property taxes (and maybe even make the required pension contribution which he has refused to do in the past). Expect a similar approach in 2012 by the Republican candidate; cut spending on all those wasteful social programs that only benefit lazy poor people and I will cut income taxes. Hey, possibly a winning formula, and remember, you read it here first.

  8. AMTbuff  ::  12:41 pm on February 23rd, 2011:

    >Rep. Ryan voted against the Commission report because it contained tax increases.

    No Sid, Ryan voted no because of health care costs. He liked the tax reform. You have been misinformed. See http://thehill.com/blogs/healthwatch/health-reform-implementation/131635-ryan-says-debt-plan-would-entrench-obamacare-

    If you’re going to claim that Ryan was lying about his reasons, I can’t disprove your belief. However if there’s one person in Congress who I willing to state his beliefs openly, it’s Paul Ryan.

  9. Tweets that mention TaxVox » Blog Archive » Why Obama Punted on Deficit Reduction — Topsy.com  ::  12:59 pm on February 23rd, 2011:

    […] This post was mentioned on Twitter by Tax Policy Center, James DuBois. James DuBois said: TaxVox » Blog Archive » Why Obama Punted on Deficit Reduction: If Lawrence Lindsey and Neil Boortz can come to… http://bit.ly/dSgM2b + […]

  10. Sid F.  ::  4:57 pm on February 24th, 2011:

    Here is what Ryan is quoted as saying in the article

    “He (Ryan) did say he would look to incorporate some of the plan’s tax and budget process ideas into future legislation, including placing caps on discretionary spending that could only be overturned by a supermajority vote.

    He also praised the direction of the commission’s tax reform, which would eliminate tax expenditures while lowering individual rates.”

    and he did say he was opposed to the Commission not because there was no mechanism for reduction in overall health care costs, but because in his opinion the Obama Plan would create more subsidies by the Feds.

    I do not think Ryan was lying about his opposition, but I do think it was a convenient method to oppose the Plan and still leave the impression he has an open mind on increasing taxes, which I do not believe he does. Mr. Ryan is known for his “language tricks”. If you remember last year he came up with a budget balancing plan that actually balanced the budget according to CBO and other analysts. Of course, that was because he instructed them to leave out his proposed tax reductions, which of course resulted in his plan having huge deficits.

    Praising the direction of tax reform is not endorsing tax increases. If you can point to actual quotes or votes of Mr. Ryan endorsing a plan that includes tax increases to reduce the deficit I will gladly admit to being in error. Right now, actions speak louder than words, and his action was to vote against the Commission Plan.

  11. Sid F.  ::  7:12 pm on February 24th, 2011:

    Oh, and sorry about beating the dead horse but here is quote from the most recent post on this site.

    “Norquist, the Tomás de Torquemada of tax policy, accepts no breach of his “Taxpayer Protection Pledge,” a vow to never raise taxes under any circumstances.”

    Mr. Ryan is a signer

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