Obama Offers No Fresh Hope of Fiscal Consolidation

The president says that he’s prepared to make the “tough choices” that are necessary to balance the budget. Again.

President Barack Obama delivers his State of the Union address to Congress, January 25, 2011
President Barack Obama delivers his State of the Union address to Congress, January 25, 2011 (White House/Pete Souza)

In his final State of the Union address before he runs for reelection in November, President Barack Obama on Thursday vowed to “fight obstruction with action” and move ahead with policy if Congress didn’t act.

To mend an enormous $1.1 trillion deficit, the president proposed to raise taxes on the wealthy. “The American people know what the right choice is,” he said. “If you make more than $1 million a year, you should not pay less than 30 percent in taxes.” He conditioned his support for entitlement reforms on changes in the tax code to ensure that everyone pays their “fair share.”

Americans who earn more than $1 million per year actually pay 35 percent of their income in federal taxes, on top of state income taxes, except if that income is derived from long-term investment when it’s taxed at 15 percent.

It’s hardly the first time that the president has blamed the opposition for standing in the way of fiscal sanity by protecting the rich. It’s also hardly the first time that the president has said to be ready to “make choices” on entitlements without volunteering concrete plans.

After three years of growing federal budgets and no initiative on the part of the president nor his party to rein in the ballooning health-care entitlement programs that are primarily responsible for driving up public expenditures, who is really at fault?

Recognizing the enormous fiscal challenges the country faced even before taking office, Obama told The Washington Post that it was “not in a position to kick it any further.” Next, he spent nearly $800 billion on economic stimulus and enacted a sweeping health insurance reform act which could add as much as $500 billion to federal spending over this decade. (Although estimates vary greatly.)

The president then created a deficit reduction committee — whose recommendations he summarily ignored in late 2010.

He has repeatedly referred to the deficit committee’s proposals since. In last year’s State of the Union speech, for instance, the president urged a combination of entitlement and tax reforms to restore balance to the federal budget. He repeated this proposal in speeches in February — when he also said Republican budget cutters were “impatient” — and in April and in July — when he said that he had “not seen a credible plan, having gone through the numbers, that would allow us to get to $2.4 trillion [in deficit reduction] without really hurting ordinary folks.”

Throughout it all, federal discretionary spending, excluding defense, has grown by 24 percent and that’s not including the fiscal year 2012 which started last October. The president had asked for $3.7 trillion in spending for 2012. Despite raising taxes on high-income earners, his budget would have necessitated more than a trillion dollars in borrowing.

Both House and Senate overwhelmingly rejected the proposal with even most members of the president’s party voting against it. In August, they enacted the Budget Control Act instead which mandated more than $900 billion in savings to projected spending increases over this decade, $21 billion of which was to be cut immediately.

The Budget Control Act was not in fact a proper budget. The United States have been without one for all of Barack Obama’s presidency. His State of the Union address on Tuesday coincided with the one thousandth day since the Senate passed a budget. The federal government has been financed on the basis of continuing resolutions and emergency measures since.

After winning a majority in the House of Representatives in 2010, Republicans did propose a budget last year but it was not brought up for a vote in the Senate which is controlled by the Democrats.

In a recent interview with Time magazine, the president said that he was still prepared to do entitlement reform as prescribed by his own debt commission. “The only reason it hasn’t happened,” he said, “is the Republicans were unwilling to do anything on revenue.”

Except Republicans, during the negotiations that led to the Budget Control Act, were prepared to raise several hundreds of billions in additional revenue over ten years by eliminating tax deductions and closing loopholes but they wanted to see overall reduction in the rates as well and keep the “Bush tax cuts” in place for all income brackets, including people who make more than $200,000 per year. The president has called on exactly these people to pay their “fair share” and see the reductions that were enacted during the George W. Bush Administration expire.

Even if the president were correct though and Republicans were so intransigent, why shouldn’t he be bold and put out a plan for long-term fiscal consolidation anyway — which, necessarily, would have entitlement reforms?

Republicans at least embraced a plan for Medicare reform which would privatize health support for future generations of seniors, subsidize care with premium support, give choice to consumers and enhance competition among health-care providers.

The president last April complained that this approach would leave seniors “at the mercy of the insurance industry” and proposed to “strengthen” the program’s rationing board instead to achieve $100 billion in savings over the same period that Medicare costs are projected by the Congressional Budget Office to increase by $300 billion. The Medicare trust fund is expected to fall into deficit in 2024. $100 billion in short-term cuts without fundamental reform of the program would only delay its inevitable collapse.

Medicaid, too, will run out of money soon. Its costs are expected to increase by $434 billion this decade yet the president’s signature health reform law has put twenty million more Americans on Medicaid, making it very difficult for the states, which have to pay for the extra people after 2016, to continue to finance education, infrastructure and police spending besides. Already, Medicaid is often their single largest expenditure. Because the program keeps growing, the very bridges and schools the president talked about Tuesday night are crumbling.

That’s a hole he’d like to plug with more “investment” but his investments have a poor track record.

The Associated Press found in 2010 that the several hundreds of billions of dollars which the Recovery Act was supposed to have “invested” in repairing roads and bridges had no effect on local joblessness. In fact, unemployment rates rose and fell regardless of how much stimulus money Washington poured out for infrastructure.

The Economist reported that same year that just $64 billion of stimulus funds was actually allocated to bridges, public transport, rail, roads and wastewater management. Because the bill prioritized “shovel ready” projects, few new initiatives were undertaken.

Federal education spending has continued to rise under Obama’s tenure but education standards are stagnant. The president admitted that there’s little more Washington can spend so he urged states to do “their part to make higher education a higher priority in their budgets.”

Unlike the federal government, states are constitutionally bound to balance their budgets so for them to spend more on schools when they have to spend more on Medicare would force them to raise taxes which inhibits business activity and job growth. That’s a problem the president wants to fix with more “investment” in small business loans and job training, paid for by raising taxes on other businessowners or job creators.

There’s a word for doing the same thing over and over again and expecting different results. Now it has a name too: Barack Obama.