Saturday, March 9, 2013

Obama Sues For Peace

In the past few days, President Obama has (literally) broken bread with a dozen Senate Republicans and the Chairman of the House Budget Committee, Paul Ryan. The media is thrilled to report that the President is reaching out to Republicans, bonding with them, and trying to find middle ground to come up with the elusive "grand bargain" that obsesses the Inside the Beltway crowd from the broadcast studio of Morning Joe to the editorial page of The Washington Post. Lost in all of this reporting is that with each fiscal skirmish, the pieces of that grand bargain are falling into place, and each time, the deal gets worse and worse for progressives.

The dirty little secret of budget politics is that not only have the Republicans run circles around the President, but the total savings that most "smart people" in Washington claim is needed to stabilize our debt in the long-term ($4 trillion) has already essentially been reached. What the President is being baited into is the final nail in the fiscal coffin that results in his giving away cuts in social welfare programs in exchange for closing tax loopholes that will quickly reopen not long after the ink is dry on his signature. 

If you're scoring at home (and you should be), there have been two huge cuts in government spending over the past 2 years. The first, enacted in 2011 as part of the debt ceiling deal, cut roughly $900 billion over 10 years, and the second (the so-called "sequester"), lopped another $1.2 trillion-$1.5 trillion off our long-term spending. [1] Meanwhile, there has been one tax increase (which wasn't really a tax increase - that will yield roughly $620 billion over 10 years while permanently locking in Bush era tax rates for just a hair more than 99% of all Americans. The final tally? Budget cuts: $2.1 trillion - $2.4 trillion vs. tax increases: $620 billion, or a roughly 3.5:1 to 4:1 ratio and a grand sum total of between $2.7 trillion to $3 trillion in long-term aid to our deficit picture, and that's without adding in savings on future interest, which gets that number closer to the magic $4 trillion mark. 

This simple arithmetic is important to remember. Republicans claim that the President "got" his tax increase at the beginning of the year. Of course, that tax increase was far less than it could have been. Instead of letting all the Bush tax cuts expire, which would have raised $4 trillion in new taxes over 10 years, we are raising less than 20% of that total ($620 million). Meanwhile, Republicans did not exactly fight for the extension of the payroll tax cut, which disproportionately hit the lower and middle class, but made sure an obscenely high exemption for estates was locked into place (and with yearly adjustments for inflation!). 

Against this modest pinch to the very richest in our society, the Republicans have extracted cuts to our domestic spending so severe that as a share of our overall federal budget, domestic spending is at it's lowest level since the 1950s. Infrastructure investment has all but dried up and bills that were once routinely passed in areas such as agriculture and aviation are now dragged out in a legislative Bataan Death march before passage. When the President proposed establishing universal pre-kindergarten, at a modest cost (and wonderful return on investment!) of $98 billion over 10 years [2], Republicans scoffed, even though we spent more than that amount in less than any one year of our occupation of Iraq. 

And now, Republicans can see the end game come into focus. Having relentlessly beat the drum about the need to cut spending (never mind this austerity was nowhere to be found when George W. Bush was President) and the long-term risk to our economy over debt and deficit (ditto), the Republicans have smartly caught Obama in a pincers movement - no longer is there talk of a jobs plan, infrastructure spending or homeowner mortgage relief, rather, it is a race to see who can more sharply "curb" the growth of those pesky "entitlements" (that we pay into with every paycheck). 

Republicans have already succeeded in getting Obama on record as supporting cuts, prodding him to cut deeper and deeper while "banking" these offers as the new shifting line for where any deal gets cut. Look on the White House website and you will see the President's call to shift the calculation of Social Security benefits to something called "Chained CPI" [3] which would reduce benefits by $340 billion over 10 years [4], never mind the fact that Social Security is solvent (i.e., can pay out 100% of its benefits until past 2030) or that by simply removing the FICA ceiling we would ensure the programs solvency, essentially forever. Instead of seeking equity and fairness in this program, the President of the party that created the single most successful anti-poverty program for the elderly now supports cutting it. Baffling. 

But the bigger problem is that Obama does not even draw decent negotiating lines in the sand. Even if he pitched the idea of removing the FICA cap entirely but negotiated it down to capping it say $500,000, or even $1,000,000 (it's currently $113,000 and change), or creating a "donut hole" so the current cap stayed in place but was re-triggered at a higher level (see above), either of those solutions would not harm wealthy wage earners anywhere near what switching to Chained CPI will do to poorer seniors who rely on Social Security. In other words, the President is playing entirely on the Republicans side of the field; conceding that cuts to Social Security is the only option available.  

Meanwhile, the Republicans continue to press for drastic changes to Medicare. Paul Ryan will introduce yet another iteration of his "voucher" proposal to turn what is a guaranteed right for all Americans at age 65 into a private health insurance program that will require the elderly to purchase private health insurance; while the President has said he does not currently support raising the eligibility age to 67, he has flirted with the idea in the past (and is also known to back down from his positions, just check his promise to raise taxes on anyone earning more than $250,000). And while battle lines are being drawn over Medicare, in Florida, Governor Rick Scott got the Obama Administration to agree to allow him to privatize the delivery of Medicaid as a condition of accepting funds under the Affordable Care Act - a dangerous harbinger that may lead other Republican governors to seek similar exemptions, especially since studies show that "government run" Medicare/Medicaid have far lower overhead/administrative costs than private insurance.  

What Obama wants in return is the elimination of various deductions and loopholes in the tax code that largely benefit the wealthy and multinational corporations. There is widespread support for ending many of these benefits, particularly ones that allow billionaire hedge fund managers to pay 15% tax on something called carried interest (google it) and enormous oil and agricultural corporations to reap billions in tax credits. Of course, those loopholes don't appear out of thin air. Indeed, the same call to "clean up" the tax code resulted in a massive reform in 1986, but slowly but surely, lobbyists have slipped in sweetheart deals for their overlords, there is no reason to think that even if these loopholes are closed today, they won't reappear in the future. The difference is, there will be far less political will to bolster reduced social insurance benefits.

Not only is Obama getting boxed in to cutting a deal that is bad politics, it is bad policy. As noted, Social Security is not "broken" to begin with, but even if one were to accept it needed to be tweaked over the medium to long-term, lifting the FICA ceiling is a far more equitable way of doing it than Chained CPI (with the added benefit of making the program solvent forever). As to Medicare, allowing the program to negotiate lower prescription drug prices and continuing to emphasize outcome-based performance measures for doctors is a better alternative than either vouchering the program (which runs far more efficiently than private insurance plans) or requiring near elderly people to continue paying for costly private insurance.  As the journalist Steven Brill has pointed out, there is a far better argument to be made for lowering the Medicare eligibility age than raising it [5].

But all of this appears lost on a President who is now throwing himself at any Republican who shows even the vaguest willingness to negotiate with him. Sadly, we've seen this movie before. After being elected in 2008, Obama tried to get Republican support for his stimulus bill by making 40% of it focused on tax cuts. He got no Republican votes in the House and three in the Senate. When the Affordable Care Act (an idea that originated in a right wing think tank) was being debated, Obama held out hope for months on end that first Chuck Grassley, then Olympia Snowe, might sign on to some sort of bipartisan bill, only to have them each back out at the last moment. 

Do not be surprised if the same thing happens again. Republicans will lead Obama around by the nose and if no deal is cut, it is of no consequence to them - they have already locked in more than $2 trillion in spending cuts with modest tax increases, have the President on record supporting cuts in Social Security and Medicare, gerrymandered House seats to such an extent that only an electoral tidal wave will sweep them out of power and Senate seats all over the country are being defended by Democrats in 2014 with their grasp on control of the Senate up in the air. Not bad for a party without a leader, that holds just one house of Congress and hasn't had more than 45 Senators in the other since 2009. 


[1] Estimates of the sequester's long-term effect vary between $1.2 trillion to $1.5 trillion. 






  1. Worst negotiator ever. I have said this before and will say it again - he was not paying attention during his negotiation class at HLS. Clearly the Republicans figured out his BATNA (see Fisher's "Getting to Yes") and are beating him into the ground with it - why has he not figured this out yet???

  2. Where did I read that the only way Republicans can destroy "entitlements" is to get a Democrat to do it? Is this an actual quote from someone, or just accepted wisdom? Because this sure does seem like the way it's playing out.