December 21, 2014

The Presidential Candidates' Fiscal Policies -- Part II: President Obama

This is Part II of a two-part series of posts on the presidential candidates' fiscal policies. Part I examines Governor Romney's plans.

The first part of this blog post series looked at the unanswered questions in Governor Romney’s overall fiscal policy, tax reform plans and health care reform plans. This second part will look at President Obama’s budget plans in addition to some areas of uncertainty.

Simply by virtue of being the President, with the requirement to submit an annual budget, Obama has had to provide more details about his fiscal plans. Yet, what those details clearly show is an inadequate long-term fiscal goal. Over ten years, federal debt held by the public would only stabilize temporarily, and at a higher level than it is today.

To the President’s credit, he supports negotiating a long-term, bipartisan “grand bargain” on fiscal issues with both spending cuts and new revenues. Yet, such explicit support has come only after his initial tepid reaction to the Simpson-Bowles report when it was released. Nevertheless, if Obama is re-elected, the upcoming fiscal cliff will give the nation’s political parties a chance to negotiate a major budget deal. This will test whether the President will fulfill his promise to have flexibility and put all options on the table. Unfortunately, during the campaign season, he and Vice President Biden have taken some options to reform Social Security (raising the retirement age) and Medicare (premium support) off the table. This will make achieving a bargain more difficult.

On taxes, the President has been similarly contradictory. He has argued for the need for more revenue, yet has ruled out tax increases for anyone earning less than $250,000. He has also proposed some new tax breaks even while arguing that others should be scaled back. On the corporate side, he has been as vague as Gov. Romney in detailing how he would pay for his proposed rate reduction.

Obama’s proposal to limit itemized deductions in the top two income tax brackets is a start on reform that broadens the tax base, yet the proposal has been made in every budget submission of his presidency and has gone nowhere. He has not supported a broader fundamental reform like the forward-looking plans recommended by the Simpson-Bowles and Domenici-Rivlin panels -- where major tax expenditures are eliminated or scaled back and better targeted.

Obama’s contradictions are likely to impede a grand bargain. Furthermore, Obama’s promise not to increase taxes on anyone within a very expansive definition of the “middle class,” makes it very difficult to make the tax code more efficient.

Finally, the President’s health care reform agenda is mainly focused on implementing the Affordable Care Act (ACA). Proper implementation is a worthy goal and will be necessary for the ACA to have any chance of remaining effectively deficit-neutral. Yet, for the nation to control health care costs over the long term, more legislation needs to be enacted. Medicare in particular needs further reform.

As the Medicare Trustees and the Congressional Budget Office both suggest, the ACA and its reliance on provider cuts alone will not be a sustainable means of health care cost control.

While the Independent Payment Advisory Board (IPAB) is a good conceptual model for a backstop on health program savings, IPAB as created by the ACA looks doomed to failure. That is because it is almost inconceivable that all 15 members could be confirmed by the Senate within the next two years. Even if they were, the IPAB’s current mandate is too limited, weak and short-sighted.

Thus, presidential proposals need to go beyond IPAB to explain how Medicare’s long-term costs can be controlled. Premium support is a concept that has been endorsed by serious health policy scholars on both sides of the aisle and offers one path towards more certain cost control.

A sensible premium support plan for Medicare could build on the information from and the hard work on the ACA’s exchange structure, and the President would be in a good position to make that argument. Yet, Obama has rejected that type of reform.

He has worked carefully to frame his fiscal policy choices as countering his opponent’s instead of offering proposals that substantially advance any comprehensive march towards fiscal responsibility. While the politics of this strategy might be rewarding over the short term, it leaves voters and analysts with questions about whether there is a vision for longer-term sustainability. The numbers in the Obama budget suggest there isn’t.