THIS STORY HAS BEEN FORMATTED FOR EASY PRINTING
Scot Lehigh

One step forward, half-step back on deficit

By Scot Lehigh
April 15, 2011

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STOP THE presses: President Obama has decided to play a leadership role on the federal deficit!

On Wednesday, the chief executive waded belatedly into the debate, taking a strong stride forward, before concluding with a dubious half-step back.

Obama began with a reminder about the societal importance of Medicare, Medicaid, and Social Security. He then offered a pointed review of how Washington went from provident to profligate over the last decade: An unfunded prescription drug benefit; the expense of two wars; and his own spending to combat the recession. Oh yes, and two rounds of tax cuts, which cost roughly $4 trillion over 10 years.

“That lesson is worth repeating many times because there is a competing message out there that is one-sided,’’ said Isabel Sawhill, an associate director of the Office of Management and Budget under President Clinton and now a senior fellow at the Brookings Institution. The competing message, of course, is the Republicans’ specious insistence that ours is simply a spending problem — and that most of the overspending has come on Obama’s watch.

The president also offered a tough but fair critique of the long-term budget plan proposed by House Republicans.

Under House Budget Committee chairman Paul Ryan’s framework, federal spending as a share of the economy would fall to a level we haven’t seen since 1951. Medicaid would become a block grant program, its projected spending reduced by a third over the next decade or so. Medicare would be transformed into a voucher program; over time, a significant portion of health care costs would be shifted onto seniors.

Obama’s comparison of his approach to the GOP’s irked Ryan and his allies. The Republicans, after all, prefer to portray the Ryan plan not as a policy choice, but rather as the ineluctable result of budgetary math.

Actually, one reason Ryan’s plan makes such large cuts is that he and the House Republicans want all deficit reduction done on the spending side, with no new revenues in the mix. Obama, by contrast, drew a firm line when it comes to letting the Bush tax cuts for upper earners expire. Postponed during last year’s lame duck session, that fight is certainly one worth having. And yet, that tax change alone, which amounts to about $850 billion over 10 years, won’t be sufficient.

And that brings us to Obama’s half-step back. Although he talked about the large cost of the Bush tax cuts, he failed to acknowledge that he himself wants to keep the middle class breaks, which account for most of the lost revenue.

It’s as though Obama “forgets that he supports the continuation of most of those policies,’’ said Diane Lim Rogers, chief economist at the Concord Coalition, a deficit watchdog.

Obama, of course, has promised not to raise taxes on families making less than $250,000 a year. And on Wednesday, that ill-considered pledge forced the president into feints and evasions of his own. Rather than candidly acknowledging that we need more revenue than will come simply from letting the upper-earner tax cuts expire, the president shifted that discussion to the tax expenditure side of the budget. He called for raising another $1 trillion by closing loopholes and ending deductions. Still, let’s be honest: Those are tax increases by another name.

The administration has suggested that all that tax expenditure revenue could be raised without hitting the middle class. That’s highly dubious from both a policy and a political perspective.

“In reality, it would be very difficult to raise an adequate level of revenue without affecting some people with incomes below $250,000,’’ said Jim Horney, director of federal fiscal policy for the Center on Budget and Policy Priorities. And in the same way that Ryan’s no-new-revenues framework means deeper program cuts, the president’s no-new-middle-class-taxes would mean a substantially bigger bite on upper earners.

The details of all this will be left to Vice President Joe Biden to negotiate with congressional leaders. Biden is an able and affable VP, but he’s not a miracle worker. Expect these differences to frame the debate in next year’s national campaign.

Scot Lehigh can be reached at lehigh@globe.com.