budget


How Obama Killed the Grand Bargain

The prospects for a “grand bargain” on the budget finally seem dead, and as I explain at National Review Online, the fault lies with tactical blunders made by President Obama.

There was a period when the prospects for a “grand bargain” were on the rise — right after President Obama’s reelection in November 2012. The president was riding high and had campaigned on a “balanced approach” to deficit reduction, by which he meant any deal to reform entitlements and cut spending must also increase taxes, especially on the rich. In the weeks after his reelection, the president might have been able to press a demoralized congressional GOP into agreeing to a large, multiyear budget framework along these lines.

That certainly would have been in his interests. Based on where things now stand, his presidency will be defined in part by the $7 trillion in debt he will run up during his time in office. A “grand bargain” on the budget at the beginning of his second term could have fundamentally altered the legacy of his budgetary performance in office, turning what is sure to be viewed as a rather large failure into perhaps a modest achievement. Moreover, a multiyear budget deal would have taken fiscal issues, including the sequester the administration despises, off the table for the remaining years of the president’s time in office, freeing up his administration to press for agenda items he clearly is more passionate about.

But for some unfathomable reason, the president decided to pursue a different strategic approach. Instead of moving quickly to do what was necessary to create the conditions for a budget deal, he chose instead to pursue a two-part strategy on taxes and spending. That was a huge mistake.

You can read the rest of the column here.

posted by James C. Capretta | 12:47 pm
Tags: President Obama, budget
File As: Politics, U.S.

The Reform Vision of the GOP Budget

I have a new column up at CNN on the new GOP budget proposal:

The budget proposal introduced by House Republicans on Tuesday is much more than a series of numbers on a spreadsheet -- it's a vision for reforming the key pillars of the American social contract in the 21st century. In that regard, it's very different from the vision put forward by President Obama in his budget plan from a month ago, which emphasized preserving the status quo with another round of tax hikes.

The central economic problem of coming years is how to update the nation's largest entitlement programs so that they are sustainable and available to future generations of Americans.

The Congressional Budget Office projects that spending on Social Security, Medicare and Medicaid (plus the new 2010 health care law) will increase from about 10% of the nation's total economic output this year, as measured by gross domestic product (GDP), to nearly 16% in 2035. Historically, the government has collected about 18% of GDP in revenue. Thus, if the entitlement programs remain on autopilot, there will either be nothing left in the budget beyond transfer payments, or government taxes will have to soar.

The whole piece is available here.

posted by James C. Capretta | 1:09 pm
Tags: budget
File As: Health Care

The Presidentís Plan: Higher Taxes, Deep Defense Cuts, and the Entitlement Status Quo

I have a new column up at e21 on why the president’s new budget proposal is more of the same. Here’s a snippet:

For a brief moment, it seemed that the president wanted to take on this challenge and pursue just such an agenda. In 2010, he appointed the Bowles-Simpson commission to come up with a comprehensive budget plan to restore long-term solvency to the government. Not surprisingly, the plan approved by that commission called for serious tax and entitlement reforms as well as deep cuts in every corner of the federal budget.

But instead of embracing the Bowles-Simpson plan, the president changed course and chose to ignore entirely the recommendations of the panel he had initiated to great fanfare. The president then spent all of 2011 attacking the GOP’s version of long-term budget reform instead of offering a serious plan of his own, thus making it all but impossible for a bipartisan consensus to form in Congress. The president’s 2013 budget plan fits this pattern, providing stark contrasts with the GOP at the expense of real progress.

You can read the full article here.

posted by James C. Capretta | 4:19 pm
Tags: budget
File As: Health Care

Letting the Super Committee Fail?

I have a new columm up at e21 on the prospects for success of the Joint Select Committee on Deficit Reduction:

The problem is not that the two sides can’t put on the table broad budget parameters that look good on paper (although Republicans will never agree to the kind of tax hike the Democrats are now calling for). The problem is that everything breaks down when the negotiations go from broad and general to the specific....

By all accounts, the super committee has made no progress in conquering these large obstacles to a “grand bargain” on the budget.

That being the case, some in Congress are pushing for a smaller, more incremental deal from the committee, to demonstrate to the markets and the ratings agencies that the American political system isn’t entirely broken. Fine, if it can be done. But under no circumstances should a deal which merely tinkers around the edges and does not fundamentally reform the tax code and entitlement programs be billed as anything but a temporary Band-Aid.

In truth, what is really holding back the super committee is that it does not have a mandate from voters to do what needs to be done. That’s going to take another election, in 2012.... 

You can read the full column here.

posted by James C. Capretta | 3:20 pm
Tags: super committee, budget
File As: Health Care

The Presidentís Bad Budget Moves

I have a new column up at National Review Online on why the president’s actions on the budget are bad for himself and the country:

...inexplicably, the president has decided once again that he would rather preserve his political talking points for 2012 than achieve bipartisan legislation. There is no other way to interpret his highly partisan proposals on jobs and the budget. Once again, his speeches and legislative initiatives have earned hallelujahs from the liberal faithful, but they have doomed the prospects for bipartisan compromise. Indeed, it’s clear from the president’s threat to veto any deficit-cutting legislation that doesn’t raise taxes that he wants the supercommittee to fail. And the demise of the supercommittee would almost certainly mean there won’t be any jobs package either....

You can read the whole piece here.

posted by James C. Capretta | 11:33 am
Tags: President Obama, budget, jobs
File As: Health Care

The Trouble with the Super Committee

I have a new column up at e21 on the ups and downs of the upcoming budgetary “super committee”:

As Congress gets set to reconvene after Labor Day, all eyes have turned toward the so-called “super committee” — the special budgetary panel created by the debt limit deal. That’s understandable because the super committee has the potential to be a very, very powerful force in Washington. As constituted, if seven of the twelve members of the committee agree to a proposed deficit reduction plan, it will be brought up for an up or down vote in the House and Senate — without the possibility of amendment from non-super committee members. Further, and even more importantly, the super committee’s legislative proposal can’t be filibustered in the Senate. That effectively lowers the bar of support needed to get a super committee-endorsed plan through the upper chamber by nine votes — from a super majority of 60 to a simple majority of 51.

The committee’s legislative mandate is also sweeping. It is charged with finding a minimum of $1.2 trillion in deficit reduction over the coming decade to avoid the same amount getting cut automatically and indiscriminately from a wide array of spending programs, including Medicare and the defense budget. To meet its deficit cutting objective, the super committee has the authority to tackle tax and entitlement reform, health care, the budget and appropriations process, even government reorganization. All it takes to get something big and serious moving through Congress is for seven of the super committee members to support it....

You can read the whole column here.

posted by James C. Capretta | 2:40 pm
Tags: super committee, budget
File As: Health Care

The Gang of Six Disaster: The Worst Plan So Far

Confusion among congressional Republicans about their objectives in the debt-limit endgame has increased the possibility that they will stumble into a policy and political disaster over the next two weeks.

Only ten days ago, Republicans appeared to regain their footing when House Speaker John Boehner torpedoed the disastrous “grand bargain” that President Obama was offering. That deal would have forced Republicans to accept a massive $1 trillion tax hike and left Obamacare in place. In return, the president offered more centrally planned cuts in Medicare and Medicaid and other minor entitlement adjustments. Some deal.

But now, along comes the Gang of Six plan, and some Republicans are apparently intrigued by it. They shouldn’t be. It’s a terrible, terrible plan. It will hand the president a huge strategic victory and deliver nothing that the GOP should be seeking in this fight. It’s far, far worse than anything we have seen thus far, and certainly much worse than the McConnell plan.

In a nutshell, the Gang of Six plan would have three parts. Let’s look at each part in turn.

First, there’s a relatively small bill to supposedly save $500 billion immediately with a combination of discretionary spending caps through 2015, a move toward the chained CPI for indexing Social Security and the tax brackets, repeal of the CLASS Act, and other unspecified process provisions. Although unstated, presumably it is this bill that would carry a temporary debt-limit increase to get past August 2, and probably provide about six months of room before another debt-limit increase became necessary.

Republicans must understand that even in this small, initial part of the package, the Democrats are insisting on a tax hike. The chained-CPI proposal will increase taxes along with slowing inflation increases in Social Security.

The second part of the Gang of Six package is far worse. It’s essentially a call for a budget “reconciliation” bill, with no specifics yet available. Senate committees with jurisdiction over taxes and entitlements would be tasked with achieving targeted amounts of savings or tax increases. For instance, the Finance Committee would be charged with reporting out a tax-reform plan that increases taxes by about $2.3 trillion over a decade. That committee would also be charged with finding savings in Medicare and Medicaid, but there’s absolutely no indication of how the savings will be achieved.

Republicans would be foolish to think this process will produce anything worthwhile. The Democrats control the Senate, and all of the committees. They will write the tax and entitlement changes, and look for Republican votes. It’s a recipe for another round of useless mishmash posing as “entitlement reform.” Remember, Finance Committee chairman Max Baucus is an architect of Obamacare. If his committee were to produce any real health-care savings at all, it would be with the same kind of price-setting and central planning that was written into Obamacare. There’s zero chance this process will lead to any meaningful movement away from the Obamacare model.

If this “reconciliation”-style package of tax and entitlement changes gets supermajority support in the Senate, then the Senate would move on to the third part of the Gang of Six proposal: a Social Security reform package that closes the long-term financing gap. Again, with Democrats in control of the Senate and the writing of legislation, this almost certainly would mean another large tax increase. The Social Security plan would then be attached to the legislation containing the other tax and entitlement changes, and sent to the House (probably on a take-it-or-leave-it basis).

In short, the Gang of Six has essentially offered a plan in which Republicans would hand over control of the budget process to Democratic senators and hope for the best. Enough said.

Republicans need to quickly get their bearings and figure out how they want to play the endgame. At this stage, any version of a “grand bargain” will play completely into the president’s hands. It will lead to a massive tax increase, with nothing meaningful on entitlement reform to show for it. The president would get a strategic victory, having forced Republicans to vote for a tax increase without giving up anything real on the spending side. And the conservative coalition would be at war with itself. So drop the idea of a grand bargain.

Next, Republicans must realize that being tactically nimble in this fight will be the difference between success and failure. The conservatives in the House who say they will never, ever vote to increase the debt limit need to realize they are handing all of the leverage to President Obama. To begin with, the budget they support — the Ryan budget that the House Republicans voted for nearly unanimously in April —requires a large debt-limit increase. Indeed, there’s no conceivable budget plan out there that doesn’t require one. Moreover, there is a strong chance that going past August 2 without an increase could completely backfire on the GOP. It’s hard to predict what will happen, but it could be quite chaotic and cause real damage to real investors and businesses. It will almost certainly trigger a very negative public reaction, which will then force Congress to raise the debt limit quickly, one way or another. It’s hard to see how such a confrontation will help Republicans get a better deal.

What conservatives should be doing is seizing the initiative in the House. They should move immediately to pass a small debt-limit increase, on the order of $500 billion, coupled with a reasonable set of spending cuts, including caps on discretionary spending. They should then send that to the Senate as the starting point for discussions. Doing this now would increase Speaker Boehner’s leverage immensely, as he would become the only person in the room who had shown by his actions that he doesn’t want a default. Moreover, at this late stage, there’s a very real chance it would become the vehicle for getting past August 2.

If Republicans can’t find their way to make such a move (for whatever reason), then they have little choice but to work with Senator McConnell on his version of Plan B. But they should make it absolutely clear that no version of the Gang of Six plan will be acceptable.

[Cross-posted at the Corner]

posted by James C. Capretta | 4:09 pm
Tags: Gang of Six, budget
File As: Health Care

Budget Danger Ahead

I have a new article up at National Review Online on why danger lurks for Republicans, and the nation, in the debt-ceiling showdown:

Democrats want a deal that doesn’t give an inch on what really matters to their voting base — which is the entitlement status quo....

To further that goal, the president and his allies are playing a familiar card. It’s not that they are against entitlement “reform,” they say, it’s just that they want to protect the beneficiaries from any financial sacrifice. And so we learn in recent days (see here and here) that Democrats are willing to put sizeable Medicare and Medicaid “cuts” on the table....

These kinds of changes in Medicare and Medicaid are nothing new. Various versions of them have been included in every budget deal going back 30 years, and most especially in the bipartisan deals of 1990 and 1997. They do not constitute genuine entitlement reform. They will not fix Medicare and Medicaid. And they will not solve the nation’s budget problem....

Read the whole article here.

posted by James C. Capretta | 5:09 pm
Tags: budget, debt ceiling, Medicare, Medicaid, Republicans, Democrats
File As: Health Care

Whereís the Democratic Alternative?

The folks at the New York Times invited me to contribute another short piece for one of their “Room for Debate” discussions, this time on the possibility of a government shutdown if the current continuing resolution is not renewed next week. The piece is short enough that I won’t excerpt it here. I’ll just say that it asks where the Democrats’ actual proposals are, and makes a prediction about the price tag on what might pass the Senate.

You can find the piece here.

posted by James C. Capretta | 9:15 am
Tags: budget, continuing resolution, government shutdown

The Implications of Last Night

It’s important to start with the obvious: Yesterday marked the end of the hyper-activist phase of the Obama administration, and that’s no small matter. Republicans picked up an astounding 60+ seats in the House and now enjoy their largest working majority in decades. Moreover, the House will be quite conservative, with scores of new members elected on an explicit promise to limit the size and reach of the federal government. Come January, don’t look for the new House to go along with any of the ambitious and expensive federal programs, tax increases, and burdensome regulatory requirements that have marked the first two years of the Obama era.

Republicans also made impressive gains in the Senate, making it even less likely that any type of legislation will get enacted without at least some Senate Republican support. And with 24 Democratic senators up for reelection in 2012 — many of them in states much less friendly than the ones in which their colleagues competed this year — there will be opportunities for Republican senators to effectively control the fate of legislation if they are smart about building bipartisan coalitions.

Still, Republicans must understand that they are still the opposition party, without the ability to effectively govern the country. That has important implications.

For starters, it means that the health care war is really only just beginning. By all means, the House should press for full repeal. But it has always been the case that the decisive health care election was always going to be in 2012, at the presidential level. The only way the fight for repeal-and-replace can be won decisively is if a Republican presidential candidate runs on an explicit replacement platform, and wins. Then there will be a clear mandate to overturn Obamacare and move the nation’s health-care system toward consumer control and market competition. Republicans in the House and Senate should recognize this, and lay the foundation for the ultimate victory by highlighting the most unpopular and damaging aspects of what was passed.

On budget matters, Republicans in both chambers would be wise to take the long view. The greatest challenge Republicans face is making good on their commitment to actually implement real cuts in government spending. The politics always get much, much tougher when the conversation moves from the abstract of the campaign trail to the specifics of legislative language. Republicans must understand that real progress on fiscal matters in coming years will require building a durable center-right coalition that is strong enough to take the intense heat that always comes whenever real cuts are on the table for consideration. Consequently, House and Senate Republican leaders should resist the temptation to go it alone after last night’s victories. Instead, they should reach out immediately to those remaining conservative Democrats in the House and Senate who have expressed a desire to downsize government too, and work with them to implement serious budget discipline. That was the Reagan model for his 1981 agenda, and it worked. Of course, it will require some compromises, but those compromises (on details, not principles) will be worth it if the result is a bipartisan budget framework that can be contrasted with what will surely be a far more liberal tax-and-spend agenda coming out of the White House.

[Cross-posted at NRO here.]

posted by James C. Capretta | 1:23 pm
Tags: election, repeal, budget
File As: Health Care

Next