October 24, 2014

Combine the Best of Obama and Ryan Plans

The following Op-Ed by Robert Bixby was published by Politico on April 17, 2012

An ironic consequence of the dueling fiscal plans put forward this year by President Barack Obama and House Budget Committee Chairman Paul Ryan (R-Wis.) is that, taken together, they illustrate why Erskine Bowles and former Sen. Alan Simpson had it right back in December 2010.

Budgets that fail to make tough compromises between Democrats and Republicans may please the party faithful. But they won’t get us out of the deep fiscal hole both parties have had a hand in digging.

The prescription for deficit reduction from Bowles and Simpson, who served as co-chairmen of the president’s bipartisan fiscal commission, begins with the premise that everything must be on the table: domestic spending, defense, entitlements and revenues.

Compromises must then be made among competing priorities. No one can expect to get everything they want — with the other side making all the concessions. Moreover, those compromises must involve the thorniest points of contention: health care, Social Security and taxes. They must also add up to substantial and sustained deficit reduction, not just a temporary fix.

The rationale is clear: The problem is too big to be solved with ideological purity. There is no point paying the political price of compromise to achieve something short of a real solution.

A lot of people didn’t get the message. Two are named Obama and Ryan.

To be sure, the Obama and Ryan budgets both aim for substantial deficit reduction. Looking at numbers alone, either budget would substantially reduce the deficit.

The problem is not so much with the bottom-line numbers but with how each would get there and with what happens beyond the 10-year window for the budget outlook.

The president’s budget is a hodgepodge of incremental steps that largely avoid any confrontation with the forces now driving the debt projections. After 10 years, the debt would actually be higher relative to the size of the economy and heading higher still.

On the plus side, Obama’s budget relies on both spending cuts and tax increases to bring the deficit down. In that sense, everything is on the table. It stops short, however, of the structural changes needed to keep the debt from again rising to unsustainable levels. At best, it is a stopgap.

Ryan’s fiscal blueprint claims to reduce the deficit more quickly, by a greater amount and with policies that would keep the deficit from rising again over time. And he does it all without a net tax increase.

To make the numbers work, however, Ryan resorts to implausible assumptions.

Under his plan, spending on everything other than Social Security, Medicare, Medicaid and defense would virtually disappear — as would popular tax subsides like the mortgage interest deduction, the exclusion of employer-provided health insurance and deductions for charitable contributions. For all this pain, though, the budget doesn’t get back to balance until 2040.

In the end, what the Ryan budget inadvertently demonstrates is how unlikely it is that an exclusive focus on spending cuts can get the budget back on a sustainable track.

What we need is a budget that takes positive elements from both the Obama and Ryan plans. Call it the “Obama-Ryan budget.”

In fact, campaign rhetoric aside, an Obama-Ryan budget is not too hard to imagine. It depends on one central compromise: Democrats agree to a structural change in Medicare that will reduce projected spending, like some version of “premium support,” and Republicans agree that a portion of new revenue from tax reform can go to deficit reduction, perhaps by using the “Buffett rule” as a pathway to scaling back deductions, exclusions and credits that act as expenditures dressed up as tax cuts.

Doing one without the other is a political nonstarter. It’s impossible to believe that Republicans will ever agree to higher taxes without limits on Medicare, the largest driver of projected spending growth. Conversely, there is zero chance that Democrats will agree to structural changes in Medicare without demanding higher revenues imposed on a progressive basis.

This leads back to Bowles and Simpson. They figured out this Gordian knot 16 months ago and have been waiting for the rest of the political world to catch up.

The wait has been prolonged by Ryan, who voted against the Bowles-Simpson recommendations as a member of their commission, and by Obama, who appointed Bowles and Simpson to lead the commission and then damned its work with faint praise in his subsequent budget.

Don’t look for a change in this pattern anytime soon. Obama and Ryan are happy to demonize each other for electoral advantage through November. But when the dust settles, the fiscal facts will remain — and the Obama-Ryan budget, guided by the Bowles-Simpson framework, may look pretty good.

 

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