|
 |
Truthout…
President Obama’s
Real Proposal (and Why It’s Risky)
Saturday 16 April 2011
by Robert Reich, Robert Reich’s Blog
Photo: Pete Souza / White
House
Paul Ryan says his budget plan will cut $4.4 trillion over ten years.
The President says his new plan will cut $4 trillion over twelve years.
Let’s get real. Ten or twelve-year budgets are baloney. It’s hard
enough to forecast budgets a year or two into the future. Between now
and 2022 or 2024 the economy will probably have gone through a recovery
(I’ll explain later why I fear it will be anemic at best) and another
downturn. America will also have been through a bunch of elections – at
least five congressional and three presidential.
The practical question is how to get out of the ongoing gravitational
pull of this awful recession without cow-towing to extremists on the
right who think the U.S. government is their mortal enemy. For
President Obama, it’s also about how to get reelected.
(Yes, we also have to send a clear signal to global lenders that
America is serious about reducing its long-term budget deficit. But in
truth, global lenders don’t need much reassurance. Bond market yields
in the U.S. are now lower than they were when the government was
running a budget surplus ten years ago.)
Seen in this light, Obama’s plan isn’t really a budget proposal. It’s a
process proposal.
Stage 1, starting now and ending in June, requires that Republican and
Democratic leaders devise a budget for 2012. Apparently they’ve already
agreed to try.
That budget would also include a “framework” for deficit reduction over
the longer haul. But that framework will be mainly for show. It will
give House Republicans enough cover to vote to raise the ceiling on the
amount the U.S. government can borrow. (The vote has to occur before
the Treasury runs out of accounting maneuvers, in early July.)
And because the framework’s details will be filled in after Election
Day, it will give Obama wiggle room before the election to campaign on
his priorities. If he wins big – and if Democrats retake the House –
its details will look completely different from what they’d look like
in the alternative.
Stand up to the monolith of corporate news - support real independent
journalism by donating to Truthout here.
Stage 2 occurs in 2014 – fully two years after Election Day. Then,
according to Obama’s proposal, if the ratio of the nation’s deficit to
the GDP hasn’t fallen to 2.5 percent (it’s now over 10 percent),
automatic across-the-board cuts will go into effect to get it there.
Importantly, these cuts wouldn’t apply to Social Security and Medicare,
or to Medicaid and other programs designed for the poor. And they
wouldn’t be limited to spending. They’d also apply to tax expenditures
– that is, to tax deductions and tax credits.
The betting in the White House is that by 2014 the recovery will be in
full force, and the economy will have grown so much that the ratio of
deficit to the GDP will be in the range of 3 to 5 percent anyway. That
means any across-the-board cuts wouldn’t have to be very deep.
The White House is also betting that a strong recovery will take the
sting out of any recommendations to slow the growth of Medicare
spending emanating from the Medicare board set up under the new health
care law (officially known as the Independent Payment Advisory Board.)
Under Obama’s new plan, such proposals will be necessary if Medicare
spending grows .5 percent faster than growth of the economy (under the
law, it’s 1 percent faster).
All told, it’s a clever strategy. It might well avoid a dangerous game
of chicken over raising the debt ceiling. It still allows the President
to charge Paul Ryan and other Republicans who join him as ending
Medicare as we know it – which they are, in fact, proposing to do.
(This may help Democrats win back seniors, whose support for Democratic
house candidates dropped form 49% in 2006 to 38% in 2010.) And it gives
the President lots of room to maneuver between now and Election Day,
and between Election Day and 2014.
But there’s one big weakness. The whole thing depends on the recovery
picking up steam. If the economy doesn’t, the process could backfire –
leading to indiscriminate budget cuts later on, as well as big cuts in
Medicare. Indeed, if the recovery fails to fire up, Obama’s own chance
of reelection is dimmed considerably, as are the odds of a Democratic
House after 2012.
Yet what are the chances of a booming recovery? The economy is now
growing at an annualized rate of only 1.5 percent. That’s pitiful. It’s
not nearly enough to bring down the rate of unemployment, or remove the
danger of a double dip. Real wages continue to drop. Housing prices
continue to drop. Food and gas prices are rising. Consumer confidence
is still in the basement.
By focusing the public’s attention on the budget deficit, the President
is still playing on the Republican’s field. By advancing his own
“twelve year plan” for reducing it – without talking about the
economy’s underlying problem – he appears to validate their big lie
that reducing the deficit is the key to future prosperity.
The underlying problem isn’t the budget deficit. It’s that so much
income and wealth are going to the top that most Americans don’t have
the purchasing power to sustain a strong recovery.
Until steps are taken to alter this fundamental imbalance – for
example, exempting the first $20K of income from payroll taxes while
lifting the cap on income subject to payroll taxes, raising income and
capital gains taxes on millionaires and using the revenues to expand
the Earned Income Tax Credit up to incomes of $50,000, strengthening
labor unions, and so on – a strong recovery may not be possible.
Read it at Truthout
|
|
|
|
