federal budget

The Obama Budget’s Hidden Tax Plan

I have a new column up on National Review Online today describing Obamacare’s hidden tax hikes and rationing. Here’s how it starts:

President Obama’s 2012 budget has rightly been lambasted as completely detached from fiscal and economic reality. Even under the budget’s own rosy assumptions, the country would accumulate $7.2 trillion in deficits over the coming decade. Under more realistic assumptions, it’s a plan for trillion-dollar deficits every year, with no end in sight. By 2021, government debt would likely approach $21 trillion under this budget, up from $5.8 trillion at the end of 2008.

This might lead one to think there is no Democratic plan for closing the fiscal gap. But actually, the president and his allies do have a plan of sorts. They just don’t want voters to know what it is. Indeed, it is their hope that they can get their plan adopted by stealth — and that voters never fully realize that the government has adopted it.

To Democrats, the solution to our budget problem has two components. First, massive and steady tax hikes, not just over the next few years but every year for the next quarter century to match the explosion in entitlement costs. Second, they want stiff government cost controls on the entire health sector, not just on public insurance programs.

For years, the only thing that stood in the way of Democrats’ securing these changes were unenlightened and intransigent Republicans. But when Democrats secured once-in-a-generation majorities in the 111th Congress, Republicans were no longer in a position to stand in their way. So Democrats took the opportunity not only to pass Obamacare — the largest entitlement expansion in two generations — but also to try to reshape the long-term budget picture according to their big-government vision.

Read the rest here.

posted by James C. Capretta | 3:43 pm
Tags: federal budget
File As: Health Care

Even the President Seems to Oppose His Budget

It’s not unusual for a budget submission from a president to be declared “dead on arrival,” especially from members of the opposition party in Congress. But it is unusual for the president to join his opponents in proclaiming the early demise of his own, months-long handiwork to establish priorities.

But that’s essentially what the president did at his press conference yesterday. Under repeated questioning about the lack of leadership his budget betrays, the president essentially said, “don’t take it too seriously.”

It’s hard to blame him for walking away from what is plainly indefensible. It’s not a serious plan, even as measured by his own numbers. But, as Brian Riedl of the Heritage Foundation has explained, it’s far worse than even those numbers indicate because so much of what is in the budget is phony.

Starting with the bottom line, according to the administration’s own numbers, the 2012 budget would push debt (held by the public, not government trust funds) up to nearly $12 trillion at the end of 2012. That’s up from $5.8 trillion at the end of 2008. So the federal government will have borrowed as much during President Obama’s four-year term in office as it had during the previous two-century-plus history since the Republic was founded in 1789.

And that’s before the entitlement spending explosion associated with the baby boom retirement hits with full force. Over the coming decade, spending on Social Security, Medicare, Medicaid, and Obamacare’s new entitlements will soar, from $1.6 trillion in 2011 to $3.0 trillion in 2021, according to the Congressional Budget Office.

With the costs of entitlements rising rapidly, what does the Obama budget plan to do to head off a crisis? Nothing. As a result, by their own numbers, the budget would run deficits of $7.2 trillion over the next ten years, pushing the nation’s accumulated debt to an astounding $19 trillion in 2021, or nearly 80 percent of GDP.

And that’s the rosy scenario based on the administration’s numerous gimmicks. Among other things, those numbers assume — as noted by the Committee for a Responsible Federal Budget — $315 billion in unspecified “offsets” to pay for higher Medicare physician fees; $1 trillion in “spending cuts” from plugging $50 billion per year in 2013 and beyond for war funding (down from $165 billion in 2011); and $328 billion from unspecified “bipartisan financing” for highway spending the president says is so critical to “winning the future.” Further, the administration’s economic and technical assumptions make the deficit look about $1.5 trillion less than what CBO expects over the coming decade. Take these gimmicks out of the budget, and the cumulative ten-year deficit exceeds $10 trillion, or about $1 trillion each and every year for as far the eye can see.

The president says his budget doesn’t really matter much because he is serious about working with Republicans on entitlement and tax reform. But why should they believe him? Despite what the president said, budgets do matter. They signal priorities and either lay the groundwork for compromise — or don’t — by what they include. If the president really wanted to work toward a bipartisan deal on the budget, his submission to Congress would have looked very different, with the inclusion of pro-growth tax proposals and market-oriented efforts to slow the growth of rising health costs. Instead, what he submitted is a thinly disguised plan to force, by delay and neglect, a massive tax increase to avoid fiscal meltdown.

posted by James C. Capretta | 10:47 am
Tags: federal budget
File As: Health Care

Kicking the Can on Solving the Debt Crisis

I have a new column up at Kaiser Health News about the president's failure to seriously address the debt crisis in the newly-released 2012 budget proposal:

It's like the president and his team woke up after the November 2010 mid-term election with a bad case of political amnesia. What deficit? What debt commission?

This isn't what the president promised when he ran in 2008, nor is it what he told voters as recently as one year ago. Over and over, he has promised not to "kick the can" down the road, as he says his predecessors did before him. Instead, he would provide real leadership to tackle the looming threat posed by out-of-control borrowing and debt accumulation. That was supposedly the reason for appointing the Bowles-Simpson National Commission On Fiscal Responsibility and Reform in the first place, to lay the predicate for engaging in a bipartisan effort to narrow medium and long-term budget deficits and reduce the risk of a debt-induced crisis.

But now, all of that kind of thinking is out the window. If the president won't show leadership on the budget, there's zero chance congressional Democrats will. Some moderate Democrats in the Senate may make some noise about going farther than the president. But when push comes to shove, the rank and file Democrats in both chambers are far more likely to take a pass, too. Why would they take on large political risks when the president of their own party won't and is likely to pull the rug out from under them if they do?

So, realistically, the Obama "punt," as House Budget Committee Chairman Rep. Paul Ryan, R-Wis., has aptly described it, means the odds of a serious deficit reduction effort before the next presidential election are now low and falling.

Read the full column here.

posted by James C. Capretta | 1:12 pm
Tags: federal budget, fiscal commission, Congress
File As: Health Care

Why Health Care Repeal Won’t Add to the Deficit

I have a new article up at the Wall Street Journal today with Doug Holtz-Eakin and Joseph Antos. It refutes the idea that repealing Obamacare will increase the deficit:

The Congressional Budget Office says repealing the Affordable Care Act would increase the deficit by $230 billion over the coming decade and by a modest amount in the decade after that. The CBO estimate has become the central defense by ACA advocates fighting the upcoming repeal vote in the House.

They might want to re-think their strategy. A close examination of CBO's work and other evidence undercuts this budget-busting argument about repeal and leads to the exact opposite conclusion, which is that repeal is the logical first step toward restoring fiscal sanity....

How, then, does the ACA magically convert $1 trillion in new spending into painless deficit reduction? It's all about budget gimmicks, deceptive accounting, and implausible assumptions used to create the false impression of fiscal discipline....

Read the full article here.

posted by James C. Capretta | 1:55 pm
Tags: repeal, federal budget
File As: Health Care

More Advice for the New Congress

I will have several posts here today and tomorrow to catch up on a raft of things I’ve recently written in print and online. For starters, in the latest issue of National Affairs, I offer advice to the new Congress on a broad range of questions. A couple of brief examples:

Republicans will have to show voters that it is the need to revive the economy — not a blind desire to slash spending — that underlies their agenda. Fostering growth requires, for instance, smart regulation that keeps the marketplace fair and open without suffocating the private sector; a tax code that minimizes burdens on productive work; a commitment to free trade and open global markets; and a sound monetary policy that assures predictability and long-term stability (rather than short-term remedies that only perpetuate debilitating cycles of boom and bust). Above all, fostering growth requires a government that lives within its means.

Republicans must also be honest with voters about what this will involve, and must clearly understand the limits of their own power. This time, easy budget proposals like slashing earmarks and trimming bureaucracy will only go so far. Our fiscal problems demand much broader reform — in particular, a vast simplification of America’s tax code and a fundamental restructuring of major entitlement programs. Social Security must be made to conform with demographic reality; health-care costs must be constrained by the discipline of a consumer-directed marketplace. In short, policymakers need to rebuild the most important pillars of America’s social contract....

In 1995 and ’96, the appropriations process became the most high-profile arena in which the newly elected Republican Congress — led by House Speaker Newt Gingrich — wrestled with President Bill Clinton over matters of policy. Like the incoming class of 2010, the congressional class of 1994 was determined to reverse spending trends on a host of domestic programs, particularly those long favored by Democrats (especially in the departments of Labor, Health and Human Services, and Education). The resulting budget fight — which culminated in a government shutdown of about three weeks — did not work out well for Republicans.... Republicans coming to Washington in 2011 will certainly want to avoid these mistakes. They will therefore need to develop a shrewd tactical plan for appropriations — one that avoids the traps into which the Gingrich Congress fell, allows Republicans to halt further growth in the budget, and enables them to identify and seize opportunities to make major, targeted spending cuts....

The full essay is available here.

posted by James C. Capretta | 1:53 pm
Tags: Congress, Republicans, federal budget
File As: Health Care

Advice for the New Congress

With the 112th Congress convening for the first time tomorrow, I’ve offered some advice in the New York Times Room for Debate series to the leadership of the House of Representatives on what they should focus on in the months ahead:

The lengthy lame duck session of the 111th Congress so dominated the news last month that it is easy to forget what happened in early November. In the president’s words, the mid-term election was a “shellacking,” with Republicans picking up more than 60 seats in the House and six in the Senate.

Republican candidates won because they campaigned hard on restraining government spending. That struck a chord with an electorate that has become alarmed at the rapid run-up of debt over the past two years.

Republican veterans know that spending restraint is easier said than done. In the abstract, cutting back on government always has appeal. The political problems occur when the cuts become specific to certain programs and agencies.

The Tea Party movement should help Republicans stay true to their word. Never before was there such a strong grassroots movement of voters pushing House and Senate members to carry out real cuts in government spending.

The power of this new movement was on display in the failure of the lame-duck Congress to pass the “omnibus” appropriations bill. For many voters, that bill symbolized all that is wrong with current spending practices. Senate Democrats waited until the very last minute to unveil their plan, and when they did it was business-as-usual earmarking and steady growth in government spending. The demise of the “omnibus” would seem to mark the end of an era.

Of course, Republicans will only control the House in the 112th Congress. They won’t be able to unilaterally impose their will. And when they begin to announce specific cuts, they will come under fierce attack from defenders of the status quo. It’s inevitable that some of the cuts they would like to make won’t survive that process.

That’s why Congressional Republicans would be wise to reach out to conservative and moderate Democrats right away on budget matters. After November, many of those Democrats do not want to be seen by their constituents as big spenders. Drawing them in may require some additional early compromise. But it will be worth it if Republicans are able to build a durable center-right coalition capable of withstanding the political heat that always accompanies efforts to cut the size of government.

The original post is available here.

posted by James C. Capretta | 7:41 pm
Tags: federal budget, Tea Party, Congress, Republicans
File As: Health Care

A Bipartisan Budget Will Require Bipartisan Health Care

The November election has certainly shaken things up in Washington, even before most of the newly elected members to the House and Senate arrive in town and take their seats in Congress. That's because all parties havebegun recalibrating their positions in anticipation of the shifting balance of power that is coming in January.

Most notable, of course, is the president's recent deal with congressional Republicans on taxes. Once the voters had spoken, the president pivoted quickly and began direct negotiations with his adversaries on one of the campaign trail's most contested items: What should happen to the Bush-era tax rates scheduled to expire at the end of December. Democrats have spent the better part of the past decade decrying those rates as fiscally irresponsible. And yet the main result of the bipartisan tax deal is that those Bush-era rates on personal income, dividends and capital gains will all be left in place through the duration of the president's current term in office. Who would have expected such an outcome after the 2008 Democratic landslide? Moreover, the deal calls for a temporary reduction in the payroll tax, which is a far more acceptable approach to short-term stimulus for many Republicans than the spending programs adopted in early 2009.

Now all attention is beginning to shift to the nation's daunting short- and long-term budgetary challenges. Here, there is also a whiff of bipartisanship in the air.

The president's fiscal commission, chaired by former Clinton White House chief of staff Erskine Bowles and former Sen. Alan Simpson, R-Wyo., issued its recommendations earlier this month, with the support of 11 of the 18 commissioners. Among the supporters were all of the current Republican senators serving on the panel (Tom Coburn of Oklahoma, Judd Gregg of New Hampshire and Mike Crapo of Idaho). The budget framework they endorsed is based on the approach of the commission's co-chairs and thus commonly known as the Bowles-Simpson plan. It is far more ambitious in scope than was expected just two months ago, when many thought the commission wouldn't produce anything of consequence.

Bowles-Simpson starts with a plan to radically reform the nation's income tax laws by eliminating or scaling back many current tax expenditures while simultaneously instituting two much lower rates. The plan also calls for cutting the corporate income tax rate, capping discretionary spending, and reforming Social Security by raising retirement ages and limiting benefits for higher wage earners.

That's certainly a bold agenda, and it very definitely points in the right direction with its inclusion of some important entitlement and tax reforms.

But on the most important budget issue that the country still faces — rapidly rising health care costs — Bowles-Simpson is a major disappointment. Yes, the plan calls for long-overdue tort reform. But that's not nearly enough to overcome its downside — the plan's implicit embrace of the entirety of the health care law enacted in March. The $1 trillion entitlement expansion; the $700 billion ten-year tax increase; the complete lack of any meaningful Medicare and Medicaid reform; the heavy reliance on arbitrary Medicare payment rate reductions to cut costs on paper; the poorly structured long-term care entitlement program that almost certainly will need its own bailout in future years; and, the ceding of almost all health sector regulatory authority to the Department of Health and Human Services — all of those provisions and more would remain in place under the Bowles-Simpson framework.

Indeed, if anything, Bowles-Simpson would build upon the law by expanding the authority of the Independent Payment Advisory Board, which was established to control Medicare costs with payment rate reductions, to oversee the health spending that occurs in the new state-sponsored insurance exchanges.

The fiscal commission members appointed by House Republican Leader John Boehner – Rep. Paul Ryan, R-Wis., Rep. Dave Camp, R-Mich., and Rep. Jeb Hensarling, R-Texas — all opposed the Bowles-Simpson plan when it came up for a final vote, thus preventing it from advancing to Congress for potential near-term consideration. And, to their credit, the main reason they cited for their opposition was the failure of Bowles-Simpson to change direction on health care from what was enacted in March.

The yearlong debate over health care was contentious and polarizing because the opposing sides have strongly held and difficult to reconcile views of what needs to be done. By and large, the Democrats believe that what is needed is much heavier governmental management of the health sector. By contrast, most Republicans believe that what is needed is a functioning marketplace and consumer control of the allocation of resources.

Ordinarily, difficult legislative initiatives require some degree of support from both major political parties to pass. That's particularly true with deficit reduction efforts. There's very little to gain politically from cutting spending programs or increasing taxes. As the president looks to bring future deficits down in coming years, he is almost certain to try to enlist Republican help in the effort, as bipartisan support would shield Democrats from some of the political risks associated with fiscal consolidation.

But it will be near impossible for the president to succeed in building a strong bipartisan coalition of support for a budget plan if he takes the same approach as Bowles-Simpson and builds a wall around health care. Health care is the largest line item in the federal budget, and it will only become more important in future years. Most Republicans will not agree to any short or long-term budget framework that essentially ignores their point of view on how to address such an important component of the budget equation. Rising federal debt is now widely recognized as a serious threat to the nation's long-term prosperity. It is essential that political leaders come together in a bipartisan fashion to put our government's finances on more stable footing. But that won't be done so long as the nation's approach to health care is supported by only one of the two major political parties. No, a bipartisan budget framework is going to require a bipartisan approach to health care too.

[Cross-posted at Kaiser Health News]

posted by James C. Capretta | 2:35 pm
Tags: federal budget, fiscal commission, Bowles-Simpson plan
File As: Health Care

The Demise of the Omnibus

They almost got away with it, and they may try again.

Congressional Democratic leaders planned all along to basically do nothing during the months leading up to the November election — and then, in a lame-duck session, unveil a bloated, business-as-usual spending bill and use the press of the Christmas break to force members into passing it before they adjourned. This approach would allow them to keep doing what they always do — perpetuate every federal agency and spending program ever created — without having to reveal their spending intentions prior to facing the voters at the ballot box.

If the Democrats had prevailed in November and held their position in the House and Senate, you can bet that the omnibus spending bill would have sailed through to a presidential signature, and their grand and cynical plan would have paid off.

But they didn’t win the election. They lost in a rout. And not only that, they lost because voters specifically rejected the out-of-control spending and hyper-activism of the last two years.

One might have thought that, having lost, the Obama administration and its allies in Congress would be a little sheepish about sticking to their big-spending game plan. After all, jamming a $1 trillion–plus, 2,000-page, earmark-laden monstrosity through Congress in December would entail relying on the votes of scores of defeated Democrats, who no longer carry the legitimacy that comes with voter approval. But we should have known not to underestimate their, well, audacity: In the wake of Scott Brown’s election last January, they demonstrated a remarkable capacity to ignore the wishes of the electorate.

In this instance, the Democrats wanted one more year of business-as-usual spending before the Republican takeover of the House slowed them down. And so, they moved ahead with their plan, hoping to get the spending bill across the finish line with the support of a few apparently out-to-lunch Senate Republicans.

Thankfully, Senate Republican leader Mitch McConnell had the patience to cajole his wavering Republican colleagues back from the brink and drop their support of this incredibly ill-advised spending binge. And, for the moment, it looks like the solution will be the right one, a short-term continuing resolution that will leave decisions on 2011 funding levels to the 112th Congress. But the lame duck is still in session, with no clear end in sight. And as we have seen, they have no shame. Vigilance is required.

posted by James C. Capretta | 4:09 pm
Tags: federal budget, omnibus bill