Obama's and Boehner's Lilliputian budget cuts
House Speaker John Boehner and President Barack Obama are now engaged in a fierce but misleading contest to cut billions from the federal government's relatively small discretionary budget. With this year's budget about to expire under a short-term extension, and next year's budget outline about to enter the Congressional process, both are working feverishly to find the dollars to show they mean business about reducing the deficit.
But neither leader is focusing on the huge amount of spending locked up in inviolable programs such as Social Security, Medicare, Medicaid and rising interest payments on the federal debt. The prevailing wisdom about leaving the big entitlements alone is still strong. Despite efforts to raise the alarm here and there, the status quo has the upper hand as it always has in such battles for change. The Lilliputians remain in charge. (I'll write more about how to dislodge the prevailing wisdom next week.)
For his part, Boehner now seems determined to cut $100 billion in discretionary spending yet this year. Promising a no-stone-unturned, one-fell-swoop attack, the House package will likely contain a mix of itemized and across-the-board cuts. Just as they did in 1995 when they shut down government to President Bill Clinton's lasting appreciation, Republicans are letting their fingers do the walking down the Yellow Pages in a search for silly program titles and long-despised initiatives. They'll have their salmon stories, too--only these won't be about duplication and overlap, but fast savings.
For his part, Obama is taking a more precise approach that will include specific targets, such as the $5 billion Low Income Home Energy Assistance Program. Unless the economy recovers faster than anticipated, the cuts will hit the jobless hardest early next winter, arguably the worst moment for the most vulnerable.
To his credit, Obama has the guts, not to mention the statutory responsibility, to put the details on the table and take the heat for doing so. Also to his credit, Obama is focusing in part on wasteful federal contracting and treasured social programs that just don't seem to work. Although the data on what actual works is weak at best (and just plain useless at worst), at least the administration has a rationale for its cutting.
But whether the cuts are applied with a blunt ax or a laser beam, Boehner and Obama have decided to focus exclusively on the federal spending that can be controlled year to year. Neither wants to touch the "third rail" of the subway, in this case the desperately needed overhauls of endangered entitlement programs such as Social Security and Medicare.
At first glance, Social Security seems rock solid, largely because its trust fund has roughly $2.5 trillion in reserves. But it turned "cash negative" this year, meaning that it is now paying out more in benefits than it is collecting in taxes. According to Senate Budget Committee chairman Kent Conrad (D-N.D.), Social Security will run out of money sometime in the mid 2030s. Twenty-five years may seem like more than enough to guarantee solvency, but it's hardly reassuring for Americans who are already thinking about thirty-five years of retirement.
Medicare is in much more immediate peril. It turned cash negative three years ago, driven toward the edge by rising health costs and the new prescription drug plan enacted in 2003. Again according to Conrad, Medicare will exhaust its trust fund just in time for the 2016 elections. In an odd term, it will become "permanently cash negative," which is just another way of saying bankrupt. Although New York Times columnist David Brooks says that those who refuse to take on these and other entitlements are enablers of big government, I prefer to say that they are enablers of fear.
Given these balance sheets, don't be surprised if Congress and some future president eventually allow Medicare to borrow money from Social Security. After all, they set the precedent back in 1981 when they allowed Social Security to borrow from Medicare to get through a cash flow crisis. Inter-fund borrowing might give Medicare a few extra years, but would merely advance the collapse of Social Security. A dodge by any other name delays just the same.
There is another path, but it would require an authentic call to shared sacrifice. Younger Americans and small businesses would have to pay higher payroll taxes; older Americans would have to accept benefit cuts and bigger "doughnut" holes; organized labor would have to swallow an increase in the retirement age; and wealthier Americans would have to pay taxes on a higher percentage of their benefits.
This kind of reform requires great courage and political risk. Democrats would have to set aside a winning issue in the 2012 campaigns, while Republicans would have to set aside their enmity for the federal government's two most popular entitlements.
Yet, this is precisely what the leaders of the early 1980s did when they embraced Social Security reform. By agreeing to the 1983 package, House Speaker Thomas P. "Tip" O'Neill robbed his party of what might have been its most potent issue in the 1984 campaign, almost guaranteeing Walter Mondale's defeat.
In turn, President Ronald Reagan swallowed hard in accepting a significant payroll tax increase and the enduring anger of the small businesses he wanted to protect. He had the most to lose if the crisis continued, of course, but had to violate his longstanding pledge to reverse the growth of government.
Nevertheless, O'Neill and Reagan came to agreement by putting the nation first. Both knew they would face enormous pressure from their constituents, particularly AARP, labor and the Chamber of Commerce. Both also knew that no one would be happy with their compromise.
But by blending proposals that one or the other would have opposed in isolation, O'Neill and Reagan forged a remarkable partnership that gave young and older Americans confidence that government would honor the promises it made. It was a true clash of the Titans that produced a truce.
At least for now, Boehner and Obama seem content to target discretionary spending alone. Doing so will mark them forever as Lilliputians and leave the nation in complacent comfort that Social Security and Medicare will remain off limits. It is a cowardly decision and should be called out as such.
Why form a debt commission? Obama's budget skirts asked-for advice
February 11, 2011; 11:36 AM ET |
Federal government leadership
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