Wednesday, July 27, 2011

The "radical" plan Obama is rejecting

The Cato Institute has reviewed the latest Republican plan to stop the US overspending slow down the growth in US government spending, it isn't impressed:

The plan is to cap discretionary spending over 10 years to achieve $1.2 trillion in savings; have (another) bipartisan group of policymakers come up with $1.8 trillion in “deficit reductions” over ten years; and get a vote on a balanced budget amendment. In exchange, the president would get to increase the deficit by $900 billion this year and by another $1.6 trillion next year.

That means:
  • Under the Congressional Budget Office’s optimistic spending baseline, the federal government will spend $46 trillion over the next ten years. Obviously, reducing spending by $1.2 trillion oven ten years is relatively small.
  • The same dysfunctional congress that treats entitlement programs like lit sticks of dynamite is supposed to come up with $1.6 trillion in “deficit reduction.” Note that we’re not even talking specifically about spending cuts here, so that figure would likely include tax increases assuming they’re able to even come up with something.
  • Under the Boehner plan, spending and debt will continue to rise. At the most, the plan would produce an average of $300 billion a year in cuts in exchange for increasing the debt ceiling by $2.5 trillion over the next two years.
  • Boehner’s bill includes language that tightens up the definition of what constitutes “emergency” spending. Congress regularly slaps the “emergency” designation on all sort of non-emergency spending bills.
  • Where are the immediate spending cuts? Once again, we have the promise of cuts but no specifics. Even if the discretionary caps hold the line on that portion of spending, total federal spending (and debt) will continue its unsustainable upward climb. Entitlement spending is the biggest driver of our long-term budgetary problems but entitlement spending isn’t capped under the Boehner plan.
Obama is rejecting this, because he wants more taxes and wants the issue resolved so it looks like he managed to chaperone a compromise that will outlast his Presidential term.  Of course, some Democrats want tax increases to be a major component of the deficit reduction strategy, because they want to entrench the growth in government that has been the legacy of Obama and Bush before him.   Tea Party aligned Republicans want deficit reduction to be entirely about spending cuts, and I agree.

Even the Cato Institute's own rather meek plan, by Chris Edwards, to cut spending would be a vast improvement, because a balanced budget would still be a decade away, but so much wasteful spending would be addressed.  It would cut the Federal budget to 18% of GDP, down from Obama's projected 24%.

It is about competing visions for the USA.  Some Democrats (and likely Obama himself) want the US to be more like Europe, and to have an activist state involved in health, education, welfare and economic development more than now.  Tea Party Republicans want to keep a sizeable gap between the European size of the state and the US, and want to balance the books by getting spending down, and then address the debt bubble.   However, I suspect most congressmen and women from both parties just want to get elected, be loved and popular, and to convince people that they are just the right ones to solve their problems.  The deficit being something most have spent little time thinking about.

For now, it is a game of chicken.  Obama does not want a deal that needs to be replicated next year during the election season, he wants to look like the honest broker who saved the country from bankruptcy (or at least convinces his core voters that he is in charge and competent).  The recently elected Republicans don't want a deal that includes any tax rises, because they campaigned against that, and they want a balanced budget constitutional amendment so that there is a legal requirement to eliminate the deficit over time (and avoid the risk of this ever happening again).   Both Obama and the Republicans fear being blamed for a default.  Obama bears the bigger risk, because he is President and more people think he is in charge than Congress.  All the Republicans can say is they reject any tax increases, and want to cut waste.  Yet, they also don't want to be seen as being incapable of compromise.

Two visions of the USA - will one win, or will a lily livered half arsed middle ground be found that does barely enough to get past this hurdle.

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