Can the Budget Ever Be Cut?

EXPERT COMMENTARY

Can the Budget Ever Be Cut?

By Veronique de Rugy |
Jun 19, 2013

This piece will appear in the July 2013 issue of Reason Magazine:

President Barack Obama finally released his fifth budget in February. Like his four previous fiscal proposals, this one is stuffed with promises to “invest” in America and “our” children, to grow the economy, and to reduce the deficit. The reality, however, will be more spending and more taxes with zero reform of financially unsustainable entitlement programs.

Portrayed in the press as a great compromise between the austere budget of House Budget Committee Chairman Paul Ryan (R-Wis.) and the excessive spending and high taxes proposed by Senate Budget Committee Chairwoman Patty Murray (D-Wash.), the president’s budget is actually neither conciliatory nor moderate.

When evaluating budget proposals, don’t be hoodwinked by the long-term projections. Those figures are clouded by rosy assumptions and wishful thinking. The real deal is in the outlays for the coming year. In fiscal year 2014 (which begins on October 1, 2013, and ends on September 30, 2014), the president wants to spend a spectacular $3.77 trillion, up from $3.6 trillion this fiscal year. That’s higher than the Ryan plan’s proposed $3.53 trillion, and it’s even higher than the Murray plan’s $3.71 trillion. In other words, the president outspends all comers.

How about the long-term spending path? While these numbers should be taken with a rock of salt, they do illustrate what the author is thinking about the future. All three budgets expand the burden of government spending during the next decade; the difference between them is one of magnitude.

The Obama and Murray budgets dole out money at a remarkably similar pace. The Murray plan increases spending to $5.68 trillion by fiscal year 2023, while Obama hikes spending to an almost identical $5.66 trillion. Cumulative figures over this period show Obama slightly outspending Murray, $46.5 trillion to $46.3 trillion. By contrast, Ryan’s plan increases spending from $3.53 trillion in fiscal year 2014 to almost $4.95 trillion in fiscal year 2023, for a grand total of $41.4 trillion during the period. Even though this is still too much, the Ryan plan looks like fiscal discipline compared to the Democrats’ proposals.

Obama differentiates himself from both Murray and Ryan in that his plan at least tweaks the sacred cow of Social Security, slightly lowering projected future payouts by changing the way cost-of-living adjustments are calculated. But that’s where the difference stops. Both Obama and Murray undo the nondefense sequester cuts that went into effect on March 1, 2013, while catering to welfare beneficiaries and the middle class. 

Both Ryan and Obama push changes to Medicare into the distant future, avoiding the political discomfort of cutting benefits or changing expectations for today’s retirees. Finally, like Ryan and Murray, Obama restores much of the defense money cut through sequestration, confirming that Democrats and Republicans alike are eager to cater to the military-industrial complex.

The only way to put our country back on a sound fiscal path is to reform the drivers of our future fiscal nightmare—ObamaCare, Medicare, Medicaid, and Social Security. Despite his purported willingness to consider entitlement reform as part of a “grand bargain,” the president’s budget doesn’t propose anything meaningful along those lines. 

Obama offers a switch to a slower-rising gauge of inflation for Social Security as well as some modest reduction to the built-in growth rate of Medicare spending. But much of that supposed discipline is postponed to a date well into the future, after he leaves office, with no enforcement mechanism to ensure cuts happen when that day comes.

The Ryan plan does make some genuine efforts to confront entitlements. It converts federal Medicaid payments to block grants handed to the states, so that states would have to manage and pay all costs that exceeded the fixed federal amount. It repeals ObamaCare. It introduces as an alternative to Medicare a premium support plan, in which beneficiaries are provided a fixed federal payment for health care premiums, but pushes that reform off until 2024. This is unfortunate, considering that last year’s report from Medicare’s Board of Trustees shows that the program will become insolvent by 2024, if not sooner. Furthermore, Ryan’s proposal includes no credible plan to force future Congresses to implement its reforms.

The president’s plan does handily beat the Senate Democrats’ proposal, which ignores entitlement changes altogether. According to The Washington Post's editorial board, “There is literally nothing—not a word—suggestive of trimming Social Security, whether through greater means-testing, a more realistic inflation adjustment or reforming disability benefits.”

Revenue projections in all three budgets are equally laughable. They all accept as a starting point that the government will be able to more or less double tax revenue during the next 10 years. Data from the Office of Management and Budget going back to 1980 shows that the historical path of federal taxation averages roughly 18 percent of GDP. If we go back to the 1930s, that number falls to 16.4 percent. Yet all three budgets assume that revenues can reach the high level of 20 percent by 2023.

Both Obama and Murray raise taxes mostly on high-income earners while projecting glorious economic growth rates and revenue collections seemingly unaffected by the larger tax burden. Ryan doesn’t raise taxes beyond their current level and in fact adopts the more current Congressional Budget Office revenue projections. Yet he engages in some fiscal trickery of his own by keeping a baseline that includes tax increases from ObamaCare, despite the fact that his plan would abolish the president’s controversial health care law. He also retains the high marginal tax rates from January’s fiscal cliff deal.

The news from this budget season wasn’t all bad. Sen. Rand Paul (R-Ky.) introduced a plan that would seriously cut spending in fiscal year 2014, from its current $3.6 trillion to $3.2 trillion, raise spending over 10 years at a much lower rate than the others, and eliminate the Departments of Housing and Urban Development, Commerce, Education, and Energy while privatizing the Transportation Security Administration.

The Paul budget also offers an immediate reform of Medicare by switching seniors to the same plan provided to members of Congress, featuring more choice and lower costs. The only really negative point is that it proposes to spend money on defense above sequestration levels. But overall, Paul’s budget is worth praising as the only genuine effort in Washington to reduce the size and scope of government.

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