"A Speech on the Deficit? - The 2012 Campaign Begins!"

Sydney M. Williams

Thought of the Day

“A Speech on the Deficit? – The 2012 Campaign Begins!”

April 14, 2011

This was not a speech about a budget deficit that is throttling opportunity. It was the opening gambit for the President’s re-election bid announced last week. The first half of the forty-five minute talk was devoted to bashing Representative Paul Ryan’s deficit reduction proposal issued last week. The Washington Post said: “In the speech he used as many words to attack the GOP proposal as to lay out his own.” They went on: “Even as he savaged the GOP proposal, Obama was less specific about his own.” The New York Times echoed that sentiment: “Mr. Obama spoke in strikingly partisan tones.” The speech was a “blistering critique of the Republican approach.” As a speech on the budget, it was unserious at a serious moment – as a campaign opener, it was an odd venue.

There are very few observers of the Washington scene who do not feel that the deficit situation, if left untended, will wrack critical damage on our economy and interest costs. A year ago Mr. Obama appointed a deficit commission. They issued a report in December with eleven of the eighteen members in agreement. The President, at the time, never accepted their recommendations. Nor did he say anything in his State of the Union message. When he issued his 2012 $3.7 trillion budget on February 12, nothing was said about the findings of the deficit commission. And, again last night he ignored their findings. A “gang” of six senators (Kent Conrad, D-ND; Richard Durbin, D-IL; Mark Warner, D-VA; Tom Coburn, R-OK; Saxby Chambliss, R-GA, and Mike Crapo, R-ID) have been meeting quietly to prepare a bi-partisan proposal. The President did not seek their advice before the speech. He has now asked for a third bi-partisan group (to be composed of four senators and four representatives from each party and chaired by Vice President – who appeared to sleep through yesterday afternoon’s speech) to meet by May and report their findings by the end of June – about the time the debt ceiling will be breached. Good luck to that!

The President’s proposal allegedly cuts $4 trillion from the budget over twelve years – a two year extension from earlier proposals. Three trillion would be from spending cuts and $1 trillion would be achieved through tax increases. His proposal assumes that the Affordable Care Act, which looks to become the biggest entitlement ever, will save the country half a billion dollars – part of his $3 trillion in savings. (As an aside, now that questions are being raised as to the reality of the $38 billion cuts in the 2011 budget, are we to believe the $4 trillion from Mr. Obama, or the $6 trillion from the GOP?) Even if the numbers are correct, the combined federal budgets over the next dozen years will constitute about $200 trillion; so whether the cuts are six trillion or four trillion, we should view the proposals with reservation.

This was the speech of a candidate addressing a small base of ardent, left-wing supporters who have felt he has given up too much to the Right. He knocked the Bush tax cuts for “millionaires and billionaires,” claiming that each person, on average, is benefitting by $250,000 annually. He did not talk about tax reform, a subject he has broached before, but oddly omitted this time.

There is a lot of misinformation floating around about taxes. The top 1% of all tax payers today pays 38% of all income taxes. The bottom 50% pays 3%. When George Bush took office, before he lowered taxes, the top 1% paid 34%. In 1980, the marginal tax rate on the highest earners was 70%. In 1981, it was cut to 50% and then lowered again in 1986 to 30%. The share of income tax revenues collected from the top one-half of one percent of earners rose from 14% to 22%. The way to get more money from high earners is to reduce the marginal rate and eliminate (or sharply curtail) deductions. The same thing would be true for corporations. Simplifying the tax code, a recommendation the President has made in the past, makes sense.

The President has had four opportunities to seriously address the budget deficits – in December when the deficit commission reported its findings, during his State of the Union, when he issued his 2012 budget in February and yesterday afternoon. Each time he punted. I am sure that he does understand the serious nature of the problem we face. Certainly he is pandering to his base, but more importantly he reflects his vision of the future which includes a far more intrusive government. The President wants to raise government’s share of GDP from the 19% to 21%, which has been the case for the past forty years, to 22%-24%. So, in a way, I am pleased he made the speech he did. “It was,” as Daniel Henninger wrote in today’s Wall Street Journal, “a useful speech. A defining moment.”

Paul Ryan made a genuine start on a path toward budget reform. One does not have to accept his proposal to agree that it took courage to initiate the discussion. Entitlements can no longer be treated as the “third rail” of politics. No one wants to dismantle them, but they need to be put on a sound fiscal foundation. Instead of responding in a non-partisan, “above the fray” manner, the President chose to throw down the gauntlet, giving the American people a clear choice as to which road they choose to follow – one that provides more power to states and the people, or one that endows increasing power in the hands of the President and our representatives in Washington. He also provided us a sense of the rhetoric we can expect until the 2012 elections are finally held on November 6 of that year. It is going to be a long eighteen months.