Obama and the budget disaster: How the president should fight Paul Ryan's catastrophic plan.

Making government work better.
April 11 2011 12:23 PM

Democrats Can Still Stop This Budget Tragedy

President Obama needs an alternative to Paul Ryan's catastrophic plan. Here's what he should do.

Barack Obama. Click image to expand.
President Obama

The relief at the mere fact of a resolution to last year's budget—six months late—is distracting Americans from an unfolding catastrophe. Four critical decision points—two past, two still forthcoming—are leading us down a path to fully embracing the disastrous Republican budget framework. The two past moments: last December's extension of the Bush tax cuts, which eliminated nearly $4 trillion in revenue over the next decade, and last week's budget agreement, which cut nearly $40 billion mostly from nondefense discretionary spending. The two decision points still to come are next month's confrontation with the debt ceiling and this fall's confrontation with the 2012 budget.

At each of the first two decision points, the terms of debate were largely defined by Republicans. The simplicity of their argument—cut taxes, cut spending that benefits the poor—was not met by a clear alternative from the White House. The president never successfully made the case for allowing marginal tax rates for the wealthiest 2 percent to revert to their Clinton-era level at this time of massive deficits, or for protecting the programs benefiting the poorest Americans from disproportionate cuts.

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The abject failure to enunciate a policy alternative has led to two failed negotiations. The lesson is worth restating because the next two negotiations are at least as significant as the one just past, and Republican leadership has been very open that there will be no lifting of the debt ceiling absent major structural changes in federal spending.

The two Republican proposals for future spending are devastating. House Budget Committee Chairman Paul Ryan's plan was met with accolades by the chattering class, merely because he at first blush appeared to confront serious issues. But Ryan's plan is a disaster: It raises no revenue, relying exclusively on draconian cuts to close the deficit gap; sets a threshold for federal spending at 19 percent of GDP, thus ensuring massive underinvestment in key areas; ignores the politically risky issue of Social Security altogether; barely takes a nick out of defense spending; claims falsely to save $1.4 trillion by eliminating health care reform; and cuts Medicaid—health care for the poor—by close to $1 trillion, in a way that will guarantee that tens of millions of the poor lose health coverage. And yet with all this and the use of impossible economic forecasts—unemployment will be at 3.5 percent by 2015?—he will not balance the budget until 2040! Summed up: Fully two-thirds of Ryan's cuts fall on the poorest Americans at the same moment the wealthiest get a tax cut.

And in a little-noticed document, the Republican Study Committee—the voice of top House Republicans —issued an equally astonishing call for a 50 percent cut in nondefense discretionary spending—the education, research and development, and infrastructure investments that actually build our economy—in order to spare any cuts in defense or tax increases on the wealthy.

The Ryan plan and Republican Study Committee will set the framework for the debt ceiling and 2012 budget negotiations unless an alternative is presented by Democratic leadership. So why has it hesitated? Because they view the political risk of moving first on tough issues, even by merely embracing the Bowles-Simpson plan, as too great.

But playing defense and waiting for consensus to form instead of setting out the alternative that will be the starting point for negotiations, the Democrats have exposed themselves to two deeper risks. First, they have lost politically because they appear to have ceded leadership to the Republicans. And second, they have given away the ability to define the playing field.

It is time for a strategy shift.

If the president is in fact going to address these issues on Wednesday, perhaps he should use these simple defining principles, based on shared sacrifice, to guide the two remaining chapters of our budget debate:

a) The all-in burdens of the combined revenue raised and cuts imposed must be shared roughly in proportion to income and wealth accrued over the past decade.

b) The deficit must be closed with no less than the 33 percent of the total narrowing generated by revenue. This is the threshold sought by the bipartisan Bowles-Simpson Plan and already embraced by a significant number of conservative voices. The 33 percent is actually a low number.

c) Spending cuts must be allocated across various sectors of federal spending, roughly in proportion to the shares of spending they will reflect in future years. The enormous predicted growth of Medicare can't be used as a reason to gut nondefense discretionary spending. And defense spending can and must be included in the cuts.

d) Health care savings—which are the real key, since health care costs drive the Medicare-Medicaid expense juggernaut—cannot be accomplished by merely lopping tens of millions of people from the rolls of the insured. Genuine constraints on inflationary pressures must be imposed, a much tougher but necessary task. Anything less is avoidance behavior.

e) Cost-savings must be accomplished in a way such that the young are not forced to accept an undue share of the burden. They have no lobby equivalent to the AARP, and this imbalance has driven the Republican proposals so far.

f) The tax code must be simplified with the objective of lower rates, a broader tax base, and greater revenue. This can be accomplished only by eliminating the vast majority of tax loopholes and tax expenditures that have riddled our tax code for decades now—everything from oil-and-gas write-offs to preferences for capital-gains income.

These principles will generate a fundamentally different outcome than the Ryan plan, and something not totally dissimilar from Bowles-Simpson. If the president were to embrace and speak passionately for principles such as these, the next two chapters of the budget debate could get us to a resolution that could make Americans on the left and the right proud.

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