President Obama on Monday will unveil a new deficit reduction plan designed to convince moderates and independents that he has a viable long-term strategy for solving the nation’s fiscal woes.
In a highly politicized environment focused on next year’s elections, Obama’s goals at this point are largely political. He has to outflank his unyielding Republican opposition in a way that bolsters his sagging approval ratings without alienating his Democratic Party base.
That will require high-order political messaging skills on deficits from a White House that has often failed to deliver in crucial moments. However, Obama’s recent barnstorming on his jobs bill, suggests he may be regaining his political footing as he slips into campaign mode.
His latest deficit reduction plan, promised during his jobs speech to the joint session of Congress earlier this month, is likely to draw liberally from the program outlined last April, where he belatedly embraced many of the proposals made by the Bowles-Simpson commission. His April plan called for trimming $4 trillion from projected deficits over the next dozen years by cutting $2 in spending for every $1 dollar raised in new taxes.
This time, though, the president is likely to put a more populist face on his vision of how to move the nation into the emerging age of austerity. He is likely to couple his call for long-term fiscal retrenchment with the need for the federal government to continue providing a strong social safety net for its most vulnerable citizens.
To bolster his standing with traditional Democratic Party constituencies, the White House last week signaled that changes in Social Security will not be part of the package. That’s a stark contrast to just two months ago, when he endorsed trimming seniors’ annual cost-of-living allowance during aborted negotiations with House Speaker John Boehner over raising the debt ceiling.
During his jobs speech, he also warned supporters that he backs wringing more savings from Medicare and Medicaid. “With an aging population and rising health care costs, we are spending too fast to sustain the program,” he said. “We have to reform Medicare to strengthen it.” His new plan will be closely scrutinized to see if he endorses lifting the Medicare eligibility age to 67, as he did during the Boehner talks.
But even the prospect of minor changes to the program has angered many fellow Democrats, who want to campaign next year against Republican plans to privatize Medicare. Rep. Paul Ryan’s deficit reduction plan released last winter would turn government-run senior citizen health insurance into a private voucher program. A Congressional Budget Office analysis said that would require seniors retiring in the 2030s to pay about two-thirds of their own health care costs.
With the Ryan plan offering Democratic challengers a juicy political target next year, the president will no doubt avoid proposing major structural changes to health care entitlements, which also cover the disabled and the poor. He will instead focus on saving money by eliminating waste, fraud and abuse, making existing providers more efficient, and lowering payments to drug companies and other providers.
That leaves most of the cuts in his deficit plan coming from discretionary domestic and military programs. Defense Secretary Leon Panetta said it has already done enough by agreeing to $400 billion in spending reductions over the next decade as part of last month’s deal on raising the debt ceiling.
If Obama heeds the Defense Department’s pleas, the bean counters in Budget Chief Jack Lew’s Office of Management and Budget will have to do a lot of paring on domestic discretionary programs. That means whacking away at the president’s professed desire to continue major investments in domestic programs and angering liberals who support programs like job training and medical research.
“I anticipate we will have $1 trillion in defense cuts over the next ten years, whether it is in this plan or not,” said Gordon Adams, a professor of international relations at American University. “Concerns over the deficit and the American people’s declining interest in power projection around the globe will drive them there.”
Another way to moderate the level of cuts needed is to use tax reform – likely to be part of the package—as a vehicle for raising revenue. Secretary of Treasury Timothy Geithner has repeatedly said the administration backs revenue neutral tax reform.
But if the president overrides advisers like Geithner who have close ties to big banks and wealthy contributors, he could back lowering corporate and individual rates by eliminating tax loopholes and tax expenditures in a way that not only pays for his short-term stimulus package, but also pays for sustaining other programs.
The argument for doing so is straightforward. The tax code’s yield, currently languishing at 15 percent of gross domestic product, is about four percentage points below the historical average.
Raising taxes, whether directly by eliminating high-end tax breaks and special loopholes for the oil industry or through reform, has already drawn strong condemnation from Republican leaders. House Speaker John Boehner in a major speech to the Washington Economic Club last week said raising new revenue through tax increases was “off the table.”
While his comments were aimed at the so-called Super Committee that was given the task of coming up with a minimum of $1.2 trillion in deficit reduction by the end of November, he was also reflecting the united Republican position on reform. “Tax increases destroy jobs,” he said.
Democratic think tanks are warming to the task of taking on that argument. “If you seriously make the kind of changes that would move government spending from 23 percent of GDP (where it is now) to 19 percent (where Republican plans would take it), you just don’t get there without making the kind of changes in entitlements that will drive people crazy,” said Scott Lilly, a senior fellow at the Center for American Progress, a liberal think tank closely aligned with the White House. “Our current tax levels have departed from all precedents in the amounts we pay. In the end, the public will go for tax increases instead of taking apart the safety net.”