Thursday, April 14, 2011

The President whiffs his mulligan

The President has had two previous opportunities to address our dreadful fiscal future. His fiscal commission came out with its plan after the election and the President ignored it and kicked it to the side. Then he introduced his budget in February and totally ignored the problems we face of skyrocketing debt and unsustainable entitlement spending.

The Paul Ryan released his budget and courageously took on those very problems by proposing real reform of Medicare and Medicaid. Ryan received much inside-the-beltway respect for grasping those third rails. The President looked like a bystander in his own administration so, as he launches his reelection campaign, he decided to do what the media likes him to do best - give a much-touted speech.

But the speech didn't propose any real changes to, as he likes to say, "win the future." His spending cuts don't come until after the election. He doesn't propose anything on Social Security. Then he calls for another fiscal commission since he has ignored the previous one that he appointed. Instead he pretended that we're not facing those skyrocketing costs for the retiring baby boomers and impossible debt payments. He called the Ryan plan "deeply pessimistic." Earth to Obama: realism is not the same thing as pessimism. And anticipating unbelievable rates of growth and promised savings in spending by some future Congress and president is not realism.

Obama's big change is to tax the rich more. He even adopts this Orwellian terminology to apply to raising taxes on the wealthiest Americans: "reduce spending in the tax code." Because in the Democrats' view, lower tax rates are just a form of government spending.

Alan Reynolds explains that raising those taxes won't cover the spending that the President continues to consider absolutely necessary.
Preliminary estimates from the Congressional Budget Office (CBO) project that federal spending under the president's 2012 budget plan would average 23.3% over the coming decade—up from 19.7% in 2007 and 18.2% in 2001.

Even if the president could persuade Congress to enact all of his proposed tax increases, in addition to surtaxes already included in ObamaCare, the CBO finds we would still face endless budget deficits averaging 4.8% of GDP.

"Federal debt held by the public would double under the President's budget," says the CBO, "growing from $10.4 trillion (69% of GDP) at the end of 2011 to $20.8 trillion (87% of GDP) at the end of 2021, adding $9.5 trillion to the nation's debt from 2012 to 2021."
But the President is so very optimistic that he makes all sorts of assumptions that no one believes will come to pass.
And yet, enormous as they are, these deficit and debt estimates assume that the higher tax rates called for under the president's 2012 budget plan do no harm to the economy, that interest rates stay unusually low, and that the economy avoids recession for a dozen years. Those assumptions require taxpayers to behave much differently than they ever have before. The revenue estimates are even more unbelievable. According to the Office of Management and Budget, total revenues would supposedly exceed 19% of GDP after 2015, rising to 20% by 2021—a level briefly reached only at the height of World War II (1944-45) and the pinnacle of the tech-stock boom (2000). Moreover, these unprecedented revenues would supposedly come from the individual income tax, which is even less plausible.
Reynolds goes on the explain how we've never gotten that level of revenue even when we had marginal tax rates on the wealthiest earners as high as 92%. But Obama isn't interested in such facts. He'd rather attack Ryan with deeply dishonest characterizations of what Ryan proposed.

Jake Tapper notes how President Obama a year ago claimed that partisan politicians would have to stop attacking each other's plans to address entitlements by screaming about how the other party was abandoning senior citizens. Contrast these two statements.
President Obama at the GOP House retreat, January 2010:

“We're not going to be able to do anything about any of these entitlements if what we do is characterize whatever proposals are put out there as, ‘Well, you know, that's -- the other party's being irresponsible. The other party is trying to hurt our senior citizens. That the other party is doing X, Y, Z.”

President Obama today:

“One vision has been championed by Republicans in the House of Representatives and embraced by several of their party’s presidential candidates…This is a vision that says up to 50 million Americans have to lose their health insurance in order for us to reduce the deficit. And who are those 50 million Americans? Many are someone’s grandparents who wouldn’t be able afford nursing home care without Medicaid. Many are poor children. Some are middle-class families who have children with autism or Down’s syndrome. Some are kids with disabilities so severe that they require 24-hour care. These are the Americans we’d be telling to fend for themselves.”
Yup, when Obama does it, it suddenly becomes perfectly civil and acceptable.

The President has now swung and missed on three big opportunities to show that he's serious about our fiscal problems. He is not up to the task. As Daniel Henninger writes, there is now a clear choice for the American people.
After spending about a decade getting a feel for the realities of a new century—itself defined by a constant state of financial and physical vulnerability—Americans next year have to decide which of their institutions are most likely to take the nation forward to a successful result. Is it Democrats or Republicans, Washington or the states, the public sector or private sector?

The Ryan-GOP budget's core goal is to pare spending as a percentage of GDP to 20%. Mr. Obama, referring obliquely yesterday to his two successive $3-trillion-plus budgets as "emergency steps," has reset federal spending at 24% of GDP.

With annual national output now at $14 trillion, within those four points of GDP are trillions of dollars of public spending and taxation decisions. Inside those four points, you can define and decide the nation's future.

At 24%, you are entrusting the trillions to Washington, the Democratic Party and the public sector—a triumvirate Mr. Obama yesterday referred to as "we," as in, "we will not abandon the fundamental commitment this country has kept for generations."

At 20%, you're entrusting that wealth to someone else. That someone else is either the private sector or the 50 separate states. This would expand the meaning of "we."

The Ryan Medicaid proposal illuminates the choice. He'd allow individual states to decide how to spend their share of federal Medicaid trillions. Nearly everyone agrees that Medicaid needs rehab. It's destroying state budgets, doctors shun it, and the poor are driven to the mayhem of emergency rooms for routine care.

Someone has to decide how to spend those Medicaid trillions and repair the program. That someone will continue to be whoever shows up for work every day at the offices of HHS's Centers for Medicare and Medicaid Services at 200 Independence Ave. in Washington—aka "we." Or it will be 50 different teams assigned to figure out a fix appropriate to their states. The left says that "they," the states, would throw the poor into the streets. This is 2011. Either you believe that the states are stuck in 1933, or you don't.
As Timothy Carney writes, the President has doubled down on his ideology. He won't cut what he likes and will praise himself for his choices on spending.
Billed as a speech about cutting the deficit, Obama instead delivered a speech about why not to cut spending and why to preserve all of his programs. "We do not have to sacrifice the America I believe in," he said, in one of his many uses of the first-person singular.

Attempting to position himself as the grown-up in the room, Obama instead made it clear that nearly everything that he "believe[s] in" should remain untouched. Anything else would reflect a lack of "patriotism," the president implied.

For instance, the president's definition of "tax reform" is an odd one. Usually, the term implies eliminating tax deductions and credits ("broadening the base") and lowering rates. For Obama, there are no rate cuts -- in fact, there are rate increases. But more revealing, the only "loopholes" he wants to kill are those with which he disagrees.

Obama has created dozens of tax credits and tax deductions aimed at shaping the economy in his image. Obama's supposedly "serious" talk about the deficit never proposed to eliminate his own tax credits. He also never touches other tax credits that reward the behaviors he likes, even at the expense of the economy and tax revenue -- like the ethanol-blending credit.

Obama clearly sees the tax code not simply as a way to collect revenue, but as a way to modify behavior. The only "loophole closing" he has proposed in recent months is even more discriminatory than the loophole itself: Obama doesn't want to end the "production tax credit" that applies to coal mining, manufacturing, forestry, and oil and gas drilling -- he just wants to kick oil companies out of the club that benefits from this tax credit.

He certainly isn't proposing an end to tax credits for wind and solar energy or electric cars. These are the "investments" that will help us "win the future."
He attacks Republicans for their faith in opposing tax increases but his own approach in the power of government control of the economy is just as faith-based with a lot less evidence to support its efficacy in encouraging economic growth.