federal spending


What Desperate Democrats Do

It’s been a bad stretch for the Democratic majority in Congress.

Their polling numbers have been going from bad to worse. The White House press secretary has openly speculated that House Democrats could lose their majority in November. Nasty disputes between Democratic congressional leaders and the White House staff have broken out in the press. One of the most senior House Democrats is now under an ethics-investigation cloud. And, worst of all, the public now sees the Obama agenda clearly and recognizes that it is far too liberal, government-heavy, and anti-business to be compatible with a vibrant American economy. That spells near-certain doom for many House and Senate Democrats seeking reelection and who are viewed by their constituents as accomplices in the administration’s pursuit of massive new spending, onerous taxation, and clumsy regulation.

All is apparently not lost, however — or so the optimists among them now surmise. Yes, these are desperate times; then what’s needed are desperate measures! What do Democrats do when they are cornered and desperate? Why, attack Republicans on Social Security, of course!

Never mind that Democrats have now controlled Congress for nearly four years and have controlled both the White House and Congress for half of that time. They don’t want to talk about their record, probably wisely. Their signature initiative — a massively expensive government takeover of American health care — remains highly unpopular, so much so that most Democratic candidates are now tiptoeing around the subject and almost never bringing it up themselves. Their so-called “stimulus” plan has done little to nothing to generate job growth, even as unemployment has hovered around 10 percent for months on end. And the Obama budget would run up $10 trillion in deficits through 2020 at a time when the American public has come to realize that excessive government spending and debt pose very real threats to their long-term economic security.

No, in the heavy campaign season between now and November 2, congressional Democrats don’t want to talk about what they have done with the voters’ trust since 2006. They want to shift the focus off of themselves by resorting to a tried-and-true scare tactic. If they can’t get voters to affirmatively support them for office, perhaps they can still get their votes by scaring the heck out of them about what the other guys might do.

Specifically, top Democrats, from House Speaker Nancy Pelosi on down, have apparently decided that their ace in the hole is a concerted attack on Rep. Paul Ryan’s plan to save the country from economic collapse. We are told that House Democrats plan to hold a hearing on the Social Security component of the Ryan blueprint sometime this fall, and the expectation is that Democrats will also make it the focus of a coordinated campaign ad attack as the election approaches.

Though not surprising, the shameless irresponsibility of these planned attacks is still something to behold. Rome burns, and those who are the notional stewards of the nation’s finances continue to play the same political games they have always played – indeed, the very games that have brought us to the precipice in the first place.

Every credible economist views runaway federal entitlement spending as the most serious threat to the nation’s long-term prosperity. The Congressional Budget Office (CBO) recently reported that spending on Social Security, Medicare, Medicaid, and Obamacare’s new entitlement commitments will rise from 10.3 percent of GDP in 2010 to 15.9 percent in 2035, a jump of 5.6 percent of GDP — and that assumes that the unrealistic Medicare cuts in Obamacare continue in perpetuity. A more realistic projection shows spending on these programs rising to 17.1 percent of GDP in 25 years. Beyond 2035, the situation will only get worse.

For the record, the Ryan Roadmap is a comprehensive plan to actually fix the problem — permanently. It would rework the federal government’s main retirement and health programs and tax laws to ensure spending commitments can actually be met now and in the future without pushing tax rates or debt to catastrophic levels. Moreover, the reforms reward work, promote economic growth, and empower consumers and markets. Among its many provisions, in the Social Security section, the Ryan plan would very gradually phase in voluntary personal accounts for workers under the age of 55. No one currently in the program or about to retire would have their benefits changed based on the introduction of the accounts, which in any event would be very small for the foreseeable future. Once instituted, the personal accounts would be entirely voluntary. Enrollees would still get a defined benefit from Social Security, but they would also get an annuity from an investment that they own and that is no longer subject to the unpredictable whims of political control. The balances in the accounts would grow at least at the rate of inflation. Workers would be offered more control over their own money, making it easier to also implement the modifications needed to keep program spending in line with revenue.

Where is the Obama-Pelosi plan to head off fiscal disaster? It doesn’t exist, of course. Obamacare did nothing to solve the problem of rising health-entitlement costs. In fact, it made the problem much worse by bringing tens of millions of people into new, open-ended entitlement programs. And there is no plan to keep Social Security solvent, even though the program is already running cash deficits.

The only Democratic “plan” — such as it is — is the appointment by the president of the so-called “debt commission.” But this is a transparent political ploy in its own right. It is aimed first at providing cover for Democrats between now and November. To every question from a reporter on runaway spending and the hemorrhaging of debt that has occurred under President Obama, the Democrats can simply say they are waiting for the commission to make its recommendations — conveniently scheduled by the president for December 1. Moreover, the Democrats are hoping to use the commission to maneuver Republicans into giving them cover for massive tax hikes to temporarily paper over the explosive costs of the Obama welfare state.

Republicans would be fools to go along with this game. Sooner or later, the fight must be joined, and it almost certainly will in 2012, in any event. Voters need to see as clearly as possible the choice that is before them. We can either stay on the road we are on, with crushing taxes and wholesale middle-class dependency on government. Or we can return to a uniquely American formulation, one which protects the vulnerable but also relies on individual responsibility and initiative. Congressman Ryan has done everyone a favor by laying down a blueprint for responsible American self-government that can produce wealth and prosperity in this century just as it did in the last. With the choices clear, Republicans have nothing to fear from this fight.

[Cross-posted at The Corner]

posted by James C. Capretta | 10:38 am
Tags: Paul Ryan, CBO, Congress, federal spending

Gazing Into CBO's Crystal Ball

Over at Kaiser Health News, I have a new article looking more broadly at the fiscal sleight of hand that has gone into making the health care law seem far less expensive than it is:

In total, federal spending on the nation’s main retirement and health programs will jump by 5.6 percent of GDP over the next quarter century, and that assumes all of the Medicare cuts enacted in the health law go into effect as written.

But that is almost certain not to happen....

CBO did everyone a favor by producing an alternative baseline forecast which does not assume these Medicare reductions continue cutting deeper into rates after 2020. In 2035, in CBO’s alternative baseline, health entitlement spending including Medicare would reach 10.9 percent of GDP, or a full 1.2 percent of GDP higher than the baseline that assumes the unrealistic Medicare cuts will continue forever....

The primary threat to the nation’s long-term prosperity is runaway federal entitlement spending. Entitlement costs are set to rise so fast and so quickly that the implications for federal deficits and debt are staggering. If allowed to stand, the health law has dramatically reduced the flexibility of the federal government to respond to the coming budget crisis. It locks in massive new spending commitments, and uses every trick in the book to make it look like those commitments have been paid for.

Read the full analysis here.

posted by James C. Capretta | 2:54 pm
Tags: CBO, federal spending, economic forecasts

A Mid-Year Update on the Presidentís Plan to Spend, and Then Tax, in Epic Proportions

Peter Orszag, the president’s outgoing Director of the Office of Management and Budget, released the annual mid-year update to the administration’s budget projections at 3 p.m. last Friday afternoon in a conference call with reporters. That was a dead giveaway that the administration was hoping not to make much news with its latest budget projections, or at least not make news in a way that anyone would notice.

They weren’t entirely successful in burying the report, but it’s understandable why they tried. The numbers are eye-popping. The budget deficit in 2010 is expected to set a record at $1.471 trillion — or 10% of GDP. In 2011, the administration projects the deficit will again top $1.4 trillion. From 2010 to 2020, the Obama budget plan would run up a cumulative deficit of nearly $10 trillion, and the nation’s debt would reach $18.5 trillion in 2020, up from $5.8 trillion at the end of 2008.

Even more ominous for the president is the economic forecast. It shows unemployment remaining at over 8% through the 2012 presidential re-election campaign, despite the assumption that relatively normal economic growth would have been underway for more than two years by then.

The primary problem is quite plainly out of control federal spending. In 2008, total federal outlays were about $2.9 trillion. President Obama wants to add $1 trillion to that total in 2011, or about a 33% expansion of governmental activity in just three years. And that’s just the beginning of it. By the end of the decade, federal outlays would reach $5.6 trillion, nearly double what they were a little more than a decade earlier, and that’s assuming a massive and speculative peace dividend after 2011 and cuts in domestic discretionary programs that the president has yet to identify. Of course, the baby boomers are also now entering their retirement years, and will begin flooding into the Social Security and Medicare program in the next few years, pushing spending on those programs up even more rapidly than they have grown in the past. By 2030, there will be 71 million Americans age 65 and older, up from 41 million this year.

All of this building budgetary pressure is now a clear drag on growth and a hindrance to hiring. Firms are worried that the “solution” politicians will ultimately pursue to close the widening gap between federal revenues and spending is more debilitating tax increases. The latest long-run budget forecast from the Congressional Budget Office won’t allay those fears.

In that report, CBO found that a massive tax hike is already in the offing. Historically, federal taxes have hovered at around 18 to 19% of GDP. CBO expects that number to rise to 23% of GDP by 2035, even if nothing is done to change current law. Income taxes will begin to rise automatically next year if Congress lets tax rates revert to their pre-Bush levels. In addition, the cuts to rates on dividends and other investment earnings from 2003 — cuts that were which instrumental to igniting growth during the post-9/11 slump — would also vanish.

President Obama has already pushed through Congress one of the largest tax increases on record as part of his health care plan. The Medicare payroll tax is set to rise by 0.9% of payroll for individuals with incomes above $200,000 per year and couples with incomes exceeding $250,000. In addition, these same households will now pay an additional 3.8% tax on “unearned” income, such as dividends, rent, and other investment income. The income thresholds for assessing these taxes are not indexed at all. Further, the new 40% excise tax on the premiums of so-called “high cost” insurance plans kicks in 2018, and then begins to hit more and more people as the threshold for determining what constitutes a “high cost” plan grows with general consumer inflation and not health costs. Carter-era bracket creep has now been restored in a big way in the age of Obama.

All told, CBO expects these and other tax hikes in the health bill to raise ever-increasing amounts of revenue, reaching 0.5% of GDP in 2020 and 1.2% in 2035.

The president’s governing and budget strategy should now be evident to one and all. He has spent his first two years in office working to secure expansions in the scope and power of the federal government. Working with very sizeable Democratic majorities in both the House and the Senate, he passed an $800 billion-plus “stimulus” program, a massive health care entitlement covering tens of millions of new beneficiaries, a full federal takeover of the student loan industry, and sweeping new regulations for the financial sector. All of these initiatives have increased federal power and spending and have been financed with new tax and regulatory burdens on the private sector of the American economy. And all were passed entirely on partisan lines, or with just token Republican support.

Now that a vastly expanded federal enterprise has been “locked in,” or so the Democrats now hope, the president and his team are looking to “pivot” and spend the coming period in the run-up to 2012 as would-be defenders of the U.S. treasury. The president is now pledging to attack runaway budget deficits starting with consideration of the recommendations of a presidentially-appointed debt commission, set to report — conveniently — just after the mid-term election. And he wants Republicans on the commission and in Congress to give him cover for the tax increases he is sure to seek to pay for the bloated government he has erected.

Republicans would be fools to go along with this game plan. If the president wants bipartisan cooperation in governing, then that cooperation should extend to the scope and expanse of the federal government, not just how to pay for it. That means health care policy, and financial services, and student loans, and everything else in between. But that’s not what the president has in mind. He has spent his first two years in office building a government of the Democrats’ dreams. He and his fellow Democrats in Congress should now explain how they plan to pay for it.

[Cross-posted at e21 here]

posted by James C. Capretta | 3:04 pm
Tags: Peter Orszag, CBO, federal spending, economic forecasts, deficit commission
File As: Health Care