The US Budget - Petty Politics Equals Poor Policy

Throughout the hoopla of the Leadership Spill that wasn’t I was struck by how parlous politics in Australia had become. Then I wandered over to one of my regularly-read blogs, the ever-engaging Ezra Klein on The Washington Post, who highlighted the endemic nature of intransigence in the budget-making process in the US. His broad contention, reinforced by the likes of Jonathan Chait in New York Magazine, is that no matter what President Obama offers in terms of compromise on the budget, it will be met by the same obstinate response from Congressional Republicans to demand more concessions on spending in exchange for any further increases in tax revenue.

As President Obama recently released his budget proposal for the upcoming fiscal year, Klein’s and Chait’s thinking was made evident in the responses from the likes of Speaker John Boehner and Senate Republican Leader Mitch McConnell. The most newsworthy items to come from Obama’s policy document are that he is now proposing genuine cuts to the scared-cows of the Democrats in Congress; Social Security and Medicare. The main component of the policy is that there will be a new method to calculate the cost of living increases tied to Social Security, known as chained CPI. Obama’s proposal would reduce federal spending over time by reducing the amount of money the government pays out to entitlement recipients, a sign of goodwill as assessed by Politico. What’s more it’s a change Obama has expressly disagreed with in the past but now considers part of any ‘grand bargain’ with Republicans; but only if it is paired with reform to the tax code to limit the scope for deductions and loopholes.

The other area of key reform, Medicare, has elements similar to those being discussed in Australia at present. With a view to cutting $400 billion from a variety of federally-funded health programs (Medicare making up the largest proportion) by expanding means-testing to gradually require more wealthy seniors to pay more out of pocket. And whilst it’s a policy that has been met with latent hostility from the likes of Democratic House Leader Nancy Pelosi in the past, it is yet another requirement for Republicans to even broach the idea of further revenue.

The Week goes on to highlight other elements of President Obama’s proposal that would be naturally appealing to Congressional Republicans and make them more amenable to accepting more tax revenue through reform; ranging from a partial restoration of funding to defence that was slashed in the criminally simplistic sequestration commencing in March to an extra $4 billion to increase security at American embassies around the world in response to last year’s attack on the US Embassy in Benghazi, Libya.

And yet, the response has been indifferent from Republicans. As Greg Sergeant in The Washington Post highlighted, Speaker Boehner said that, “if the president believes these modest entitlement savings are needed to help shore up these programs, there’s no reason they should be held hostage for more tax hikes … that’s no way to lead and move the country forward.”

This neatly encapsulates the problem facing the United States at present, no matter what Obama offers up, even at the expense of angering his base (which strategist James Carville suggested he may even enjoy doing), the Republicans will ask for more and dismiss all overtures as gimmicks and fantasies. Whilst some of Obama’s proposals are clearly engaging in creative accounting, his efforts must be respected for taking the first genuine steps towards the compromise. Ultimately, it is what American politics was fundamentally predicated on, genuine and meaningful compromise between both sides of the debate for the mutual benefit of the American people.

Despite the fact that this Congress and President have come together in the past to reduce the deficit by upwards of $2.5 trillion over 10 years, much heavy lifting remains if long-term fiscal sustainability is to be achieved. But if the politics on display currently don’t change, the likelihood of further action may be minimal and too late to save them from a permanent future of long-term deficits and out-of-control national debt; which could cripple America’s global power.

The American people deserve more effective policymaking, and yet it seems that everyone except the members of Congress know how to conduct it.

Maybe what the President and Congress need to do is play this budget game set up by the Hamilton Project of the Brookings Institution which developed a list of 15 reasonable and significant ideas for reforming the federal budget. They each vary in how much they would reduce the deficit but if you check out Hamilton’s summary of their findings, there’s an entertaining graphic that lets you evaluate how each impacts the ever-increasing US debt burden. The problem remains though, after playing the game, implementing most reform proposals will only bring about a reduction in the Debt-to-GDP ratio (currently at an increasingly unsustainable 74%) to 60%, still not sustainable going forward. [Hat-Tip to Dylan Matthews on Wonkblog]

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