April 13, 2013
It’s facile to say that if the extreme right and left of American politics dislike something, it must be a good idea, but in the case of President Barack Obama’s budget proposal, it may be true.
The president is taking one more stab at a “grand bargain” on the budget that would reduce deficits to a manageable size, through a combination of tax increases and spending cuts — including cuts to Medicare and Social Security. Some liberal groups are promising primary challenges to any Democrats who vote for a reduction in future Social Security benefits. Senate Minority Leader Mitch McConnell called it a “left-wing wish list.” In fact, it’s hard to find much of anyone in official Washington — the president included — who is particularly excited about this proposal. But Mr. Obama was right to make it, on both policy and political grounds.
In its broad outlines, the proposal is what we need in order to avoid either an excessive buildup of the national debt or the kind of economic downturn that would follow an abrupt turn toward austerity. It includes new investments in infrastructure and pre-K education and replaces the indiscriminate cuts of the sequester. It pares annual deficits to 1.7 percent of the gross domestic product within 10 years, down from 10 percent at the worst point in the recession. It acknowledges the need for reforms to the entitlement programs that are the drivers of the nation’s deficit, but it also calls for a balance between cuts and revenue so that the cost of reform is not borne entirely by the poor and the middle class.
There is reason for some concern about the particular mechanisms the president has chosen to shore up the nation’s entitlement programs. Mr. Obama is seeking to adopt a new method of calculating inflation that would, over time, reduce annual increases in Social Security payments. Economists generally believe that the method, known as “chained CPI,” better reflects the true nature of economic activity because it takes into account the choices consumers make when the price of some goods goes up — in the classic example, buying less steak when its price goes up, or buying hamburger instead. Chained CPI has a side benefit of increasing income tax revenues because the income thresholds for tax brackets are pegged to inflation, too, and they would go up more slowly.
The problem with chained CPI where Social Security is concerned is that the elderly tend to spend a much higher portion of their income on health care than other consumers do. Because health care costs are rising much faster than inflation, chained or otherwise, and because the substitution effects chained CPI is supposed to account for aren’t usually applicable in health spending, a seemingly minor change to the Social Security program could, over time, put a real squeeze on seniors.
Meanwhile, the president is proposing to cut about $380 billion from Medicare, mostly by reducing provider payments but also by including some degree of means testing for Medicare benefits. But the reason Medicare’s finances are in trouble is that the cost of health care overall is rising too fast, and this proposal wouldn’t really tackle that problem.
Nonetheless, the important thing from a political perspective is simply that the president has now put in writing a proposal to reduce the costs of the nation’s two biggest entitlement programs, which Republicans have long said is a prerequisite for any major budget deal. Now we get to find out whether they were serious or whether their concern about the deficit was just talk.
Some Democrats are complaining that the president has once again “pre-negotiated” with himself and that by starting with a proposal that includes entitlement cuts, he will eventually be pulled further to the right. What he has done, though, is to create a put-up-or-shut-up moment for the GOP. Republicans have consumed much of Mr. Obama’s presidency with a series of manufactured budget crises, and he needed to find a way to break that pattern so that he can make progress on the other big items on his agenda: gun control, immigration reform, combating climate change and the like.
It will be difficult for Republicans to blow off the president’s proposal as weak medicine when it has caused such an uproar on the left — Vermont’s socialist-leaning Sen. Bernie Sanders was actually protesting outside the White House on Tuesday. They can take this deal, or something close to it, or they can forfeit any moral authority on the budget. The choice is theirs. The first option is probably better for the country, but either one is good for Mr. Obama.