By Brendan Loy
The Wall Street Journal’s David Wessel looks ahead to Obama’s budget, due Monday, and what it may signify about his approach to the looming debt crisis. (You may recall that I blasted Obama after his State of the Union for timidity vis a vis the debt.)
Wessel writes that “when Barack Obama’s budget arrives on Monday, the thoughtful will look for responses to two issues.” The first issue: “The U.S. government budget is on an unsustainable course.” The second: “The U.S. economy, despite recent encouraging signs, is not growing fast enough to bring down unemployment and raise incomes.”
About that first issue, Wessel writes:
There are three ways to reduce future deficits. The quickest is for the economy to grow faster, but that won’t suffice. The others are to raise taxes or cut spending. Mr. Obama will propose that recently renewed Bush upper-income tax cuts expire in 2013, but otherwise won’t push revenue increases. Neither Republicans nor voters will contemplate higher taxes until they’re convinced spending has been cut, he figures.
On spending, today’s debate in Congress is about annually appropriated domestic spending, everything from paper clips to public health experts. … For all the noise, this spending, about $1 of every $6 the government spends, isn’t driving up deficits. “I’m waiting for the politician to get up and say: There’s only one way to do this. You dig into the big four: Medicare, Medicaid, Social Security and defense,” former Sen. Alan Simpson (R., Wyo.), co-chairman of a deficit commission Mr. Obama appointed, said Sunday on CNN. “Anybody giving you anything different…you want to walk out the door, stick your finger down your throat, and give them the green weenie.” (I looked it up: The “green weenie” was a plastic hot dog that Pittsburgh Pirates fans once waved to bestow good luck on their team and jinx opponents.) …
The White House argues there’s no point in the president proposing anything serious on big health- and retirement-benefit programs until Republicans are ready to deal. “If the president just gets up and says this is what I want to do and it’s not bipartisan…then he’s blasted, and we’re back to ground zero,” White House economist Austan Goolsbee said this week. So the president likely will stick to suggesting ways to offset the cost of must-do legislation (such as blocking scheduled cuts in Medicare doctor fees) and proposing fixes to smaller benefit programs, a trust-building exercise of sorts.
By casting the budget as a bargaining chip in a two-year poker game with Republicans rather than showing gutsy leadership and offering ways to slow benefit spending, the president runs the risk that no one will take his rhetoric about taming the deficit seriously. Here’s the tough reality: Even if defense spending goes from 4.7% of GDP to 2.8% by fiscal 2021, if stimulus spending ends, if domestic spending is cut and then frozen and if taxes are raised on upper-income Americans, the debt-GDP ratio still keeps climbing, Goldman Sachs projects.
As for the second issue, fixing the economy in the here and now?
Republicans argue government is an obstacle to growth and want to shrink it. Mr. Obama counters that government can foster growth with spending on education, innovation and infrastructure, nearly all in the hotly contested domestic-spending bills.
The president’s critics say all spending is bad. His challenge is to argue convincingly that some spending is worthwhile and to identify cuts to maintain or increase this higher priority investment spending.
Then, back to the debt. Wessel ends with this zinger:
“Sooner or later, the American political system will rise to the responsibility to be serious: to complete the job of fiscal policy correction. It may do it in small steps or large. It cannot do it with side-steps.” That was the late White House budget director Dick Darman, writing 21 years ago in his introduction to George H. W. Bush’s budget.
they I say, #PANIC!