Obama’s Budget: Can Fiscal Reform Cross the Political Divide?


Source: http://www.flickr.com/photos/zieak/

It would be useful if we could use something like chess or go as an analogy for the game of political positioning that policymakers have been playing in Washington for the past few years, but we can’t — not if we want to be accurate. While there is no doubt an enormous amount of strategic calculation being performed, there is a pragmatic elegance to chess or go that has been absent in the political arena. Instead of positioning, it may be best to describe the rhetoric lobbed like grenades between Democrats and Republicans as posturing and to categorize most of the dialog as a farce.

It’s easy to hate the current situation, but it’s hard to see how it could be any different. Washington appears to have institutionalized incompetence on one hand and corruption on the other, and between left and right is a deep ideological fissure that is a political no-man’s land. Somewhere in the fog of war, like blind men groping different parts of an elephant, policymakers have built America’s fiscal house, and the one thing everyone can agree on is that it’s falling apart. What Republicans and Democrats can’t seem to agree on is how to repair it.

It’s not fair to paint the entire GOP or the entire Democratic Party with the same brush, but for practical purposes we have to use broad strokes. The blue brush, wielded by the Obama administration and the Democratically controlled Senate, is trying to paint over and add to America’s economic landscape with additional stimulus and extended benefits. The red brush, wielded by Speaker of the House John Boehner (R-Ohio), is trying to redact parts of the picture that have become illegible or unwieldy, primarily with spending cuts.

To their credit, it appears as though policymakers tried earnestly to reach some sort of compromise — call it a grand compromise — but it looks like Uncle Sam isn’t ambidextrous and can’t use both brushes simultaneously. The Obama administration’s “pro-growth” strategy is at odds with the GOP’s cost-cutting strategy.

There’s plenty of evidence for this, and more came on Thursday, when news broke that President Barack Obama’s 2015 budget won’t include a controversial edit to the way cost-of-living adjustments are calculated for Social Security and other social welfare benefits. The edit would have changed the way inflation is measured for use in the adjustment formula by using a chained consumer price index (CPI) instead of the established, traditional CPI.

This change may seem superficial, but it has a significant impact on both Social Security and welfare recipients and the federal budget over the long run. The chained CPI tends to calculate the rate of inflation below the traditional CPI to the tune of between 0.3 percent and 1 percent a year. Over 10 years, this is a difference of between 3 and 10 percent in the amount of money that people receive in their social welfare checks, and — the other side of the coin — how much money the government is spending on social programs. Over a 10- or 20-year timeline, this is a difference of tens of billions of dollars.

Because of the impact that adopting the chained CPI would have on the deficit (i.e., that it would reduce it) the proposal was generally favored by the GOP. Obama had included a chained CPI provision in his 2014 budget as a nod to the Republicans and their desire to reduce spending, and while it wasn’t the most substantial item on the table, it was at least a gesture of good faith. However, because it amounts to a reduction in the welfare benefits, Democrats generally oppose adoption of the chained CPI. Democrats are particularly unwilling to reduce welfare benefits without some sort of concession from those at the higher end of the income spectrum.

When asked about the change at a press briefing, White House Deputy Press Secretary Josh Earnest outlined the Democratic position (or posture). “The president is not going to be in a position where he’s going to ask senior citizens and middle-class families to make sacrifices in pursuit of reducing the deficit and not ask the wealthy and well-connected to make some sacrifices too; that it’s just not fair and it’s not good policy,” he said.

“So if Republicans — and Republicans thus far have refused to even consider closing a loophole that would cost a corporation or a wealthy individual one penny, that the second you bring up the prospect of closing tax loopholes, Republicans want to walk away. And why they think that it’s good policymaking to ask senior citizens and veterans and middle-class families to make sacrifices but say that corporations and wealthy individuals and well-connected individuals shouldn’t have to bear any of that responsibility or make any of those sacrifices, it doesn’t make sense.”

Brenden Buck, a spokesman for Boehner, also commenting on the issue, articulated the general GOP position (or posture). “The one and only idea the president has to offer is even more job-destroying tax hikes, and that nonstarter won’t do anything to save the entitlement programs that are critical to so many Americans,” he said.

“If anyone was hoping for a serious budget that did more than increase Washington spending and find new ways to tax job creators, it sure sounds like they’ll be disappointed,” said Don Stewart, a spokesman for Senate Minority Leader Mitch McConnell (R-Ky.).

All told, it’s a mess. The cost-of-living adjustment is a significant issue, and although it’s not the biggest issue that policymakers are faced with right now, it will likely serve as munitions in the midterm elections this year.

More from Wall St. Cheat Sheet: