A budget to reject
Obama’s plan offers more of the same

WhiteHouse.gov

President Obama announces the fiscal year 2014 proposed budget during a press event at the White House Rose Garden, April 10, 1013.

Article Highlights

  • The president’s budget would add nearly $7 trillion in new debt on top of the $6.6 trillion added since 2008

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  • The only deficit reduction in the president’s budget comes from a net $1.1 trillion tax hike over ten years

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  • There are zero net spending cuts in the budget.

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The Obama administration has taken great pains to cultivate the impression in the media that the president’s 2014 budget plan is a genuine effort at compromise. According to the president’s team, if the GOP were to reject this offer, it would be a sure sign that Republicans were not interested in budget-cutting, or entitlement reform, or preventing a debt crisis — because that’s what the president’s 2014 budget would supposedly deliver.

The budget’s numbers betray a far different reality. Consistent with Obama’s prior budget submissions, this one embodies the president’s statist governing philosophy and his indifference to the urgent need for serious changes to the operations of the nation’s entitlement programs.

Starting with the big picture, the president’s budget would add nearly $7 trillion in new debt on top of the $6.6 trillion added since 2008. Debt would remain above 70 percent of GDP for the coming decade, and that’s assuming the economy never fell back into recession.

The president has repeated over and over again the slogan that a budget plan needs to be “balanced,” by which he means the spending cuts must be matched with comparable tax hikes. His own budget fails this test miserably. The only deficit reduction in it comes from a net $1.1 trillion tax hike over ten years (on top of the $0.6 trillion tax hike in the fiscal-cliff deal and $1 trillion in Obamacare). There are zero net spending cuts in the budget. Zero. When the “doc fix” for Medicare physician fees and a smaller change in Pell Grant funding are removed, as they should be, from the administration’s current-law baseline and placed instead with the other policy choices the budget reflects, the budget results in a net $10 billion spending increase over the coming decade.

The reason there is no net spending restraint in the budget is that, well, the president likes to spend taxpayers’ money. That is apparent from the laundry list of new initiatives he wants to launch. There’s an expanded-preschool proposal ($66 billion over ten years), new funding for “teacher stabilization” ($12 billion), various “investments” in special transportation efforts ($125 billion), and on and on. And of course the president wants to do away with the sequester ($900 billion) and the cuts in Medicare physician fees ($245 billion) without ever really acknowledging the costs of doing so.

Much has been made of the president’s supposed political courage in sticking his neck out on entitlements. This is absurd. In the budget, the president proposes to make a modest change in how inflation is measured, and this would modestly alter future Social Security cost-of-living adjustments as well as indexation of income-tax brackets. It is not remotely close to a serious reform. It is minor tinkering with the status quo.

On health care, the net spending reduction in Medicare and Medicaid is less than $150 billion over the coming decade when the “doc fix” is included in the numbers. And for the most part, the cuts that the budget does suggest in Medicare and Medicaid are of the kind that the GOP should reject. Most of the savings comes in the form of further tinkering with the byzantine payment regulations according to which Medicare pays hospitals, doctors, and other providers of medical services. These payment cuts, coming on top of the $700 billion in cuts in Obamacare, would do nothing to improve the efficiency with which care is delivered to patients. They would only reduce what the government paid to providers of health care, forcing either cost-shifting or reductions in the quality of care. Other cuts would import into the part of Medicare that is working best — the drug benefit — price controls that would drive premiums up for many seniors. And the “structural reforms” in Medicare that the administration is touting would produce only very modest budgetary savings over the next decade.

If there ever was going to be a “grand bargain,” the president needed to embrace entitlement reform of a kind that is anathema to the Democratic party — namely, “premium support” for Medicare, as proposed by Representative Paul Ryan and others. That is the model that has the potential to transform Medicare and produce serious and beneficial changes throughout American health care. Instead of embracing such a reform, the president used his opposition to it to cement his reelection with demagogic political attacks. In the end, this tactic appears to have been ineffectual — polls indicate that Governor Romney and Congressman Ryan more than held their own with voters on Medicare. The president’s attacks did, however, succeed in making a grand bargain nearly impossible to achieve.

What the president is offering now can be summed up this way: another massive tax hike in exchange for swapping the sequester cuts with more price controls in Medicare, the “chained CPI,” and other minor tinkering with mandatory spending programs. Total federal spending would not change. Some deal, huh? Congressional Republicans’ acceptance of it would be a political and economic disaster.

— James C. Capretta is a senior fellow at the Ethics and Public Policy Center and a visiting fellow at the American Enterprise Institute

 

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About the Author

 

James C.
Capretta
  • James Capretta has spent more than two decades studying American health care policy. As an associate director at the White House's Office of Management and Budget from 2001 to 2004, he was responsible for all health care, Social Security and welfare issues. Earlier, he served as a senior health policy analyst at the U.S. Senate Budget Committee and at the U.S. House Committee on Ways and Means. Capretta is also concurrently a Senior Fellow at the Ethics and Public Policy Center. At AEI, he will be researching how to replace the Patient Protection and Affordable Care Act (best known as Obamacare) with a less expensive reform plan to provide effective and secure health insurance for working-age Americans and their families.

  • Email: James.Capretta@aei.org
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