May 13 (Bloomberg) — When it comes to deficit reduction, President Barack Obama may have correctly taken the measure of Alan Simpson and Erskine Bowles and U.S. corporate leaders; that’s a reason why any deficit deal is more remote than ever.
Two and a half years ago, when the president refused to embrace the recommendations of his own deficit-reduction panel, he was criticized by the authors, Bowles, a former chief of staff to President Bill Clinton, and Simpson, a former Republican senator from Wyoming, as well as by business leaders.
The plan proposed a balance of spending reductions and tax increases of about $4 trillion over almost a decade; that would bring the long-term debt to a sustainable level, according to proponents, who said the president was abdicating leadership.
Privately, Obama saw the proposal as a trap. If he embraced it, Republicans would say, “let’s focus on areas where we agree — spending, including entitlement cuts — and return later to raising revenue.” Then, he feared, Simpson, Bowles and those worried executives would provide aid and comfort for that position, handing a devastating defeat to Democrats.
In these recurring budget battles, Obama deserves his share of blame. At the turn of the year, he was unwilling to hang tough for an entitlements-revenue deal as tax increases loomed for all Americans. He blinked and accepted a smaller tax increase on the wealthy. The White House then miscalculated that the mindless across-the-board spending cuts under sequestration were so bad that an alternative would emerge.
Yet, a month ago, Obama took a risk and proposed a budget containing cuts to entitlements cherished by his party. House Budget Committee Chairman Paul Ryan, a Wisconsin Republican, and his cohorts were unmoved; they wouldn’t give an inch on new revenue.
Simpson and Bowles gave Obama a pat on the back and largely refrained from criticizing Ryan or House Speaker John Boehner, while corporate leaders ducked.
Moreover, Simpson and Bowles have revised their plan and moved to the right, proposing proportionately more spending cuts and less in new revenue. Obama is playing ball, Ryan isn’t, and the two deficit hawks, and their CEO supporters, are rewarding the guy who is stiffing them.
Simpson and Bowles have been admirably persistent, open to some modifications and correctly insistent on the need to curb long-term health-care costs. A spokesman offered this explanation for their latest move to the right: Republicans now control the House. Sorry, Republicans had just won a huge victory, taking control of the House, and were on a high when Bowles-Simpson was first offered in December 2010.
What’s really going on is that their fervent hope for a deal rests on a naïve assumption that the able Ryan will strike a responsible compromise, even though he has made clear that he won’t.
The Republican position is that taxes went up as part of the deal on the so-called fiscal cliff, and there will be no more increases. In reality, all the tax cuts enacted under President George W. Bush were slated to expire anyway, and Republican congressional leaders, their backs against the wall, had to accept some higher levies on the wealthy.
Moreover, that $600 billion, over a decade, is only a little more than half of what Bowles-Simpson proposed. In addition, the new revenue is dwarfed by spending cuts, which have been more than twice as large.
Obama, for all his earlier timidity, showed political guts with his budget last month. He would lower cost-of-living adjustments for most Social Security recipients, means-test Medicare benefits for wealthier senior citizens and enact other reforms to entitlements that would amount to about as much as the deficit commission recommended.
This has infuriated the Democratic base, some of whom, unreasonably, oppose any cuts to Social Security or Medicare. Others warned that, whatever the merits, there was a political risk to a unilateral gesture, which would be rejected by the Republicans and rob the Democrats of a good issue.
So far, that’s proven to be the case.
Other Republican criticisms are equally dubious. The charge that Obama doesn’t deal with long-term health-care spending would be more credible if a stronger alternative were on the table. Obama’s Medicare cutbacks, over 20 years, are larger than Ryan’s. The sequestration cuts, now accepted by many Republicans, as the White House notes, provide no permanent entitlement changes. None.
There’s also sniping that the entitlement changes would be phased in only gradually. Well, that’s the only way to make entitlement changes politically viable. Consider the much-praised 1983 commission led by future Federal Reserve Chairman Alan Greenspan that made Social Security more solvent with spending cuts and higher taxes. It takes full effect in 2022, almost 40 years after it was enacted.
Corporate executives say they’re pessimistic about any long-term deficit changes and thus it’s better not to rock the boat. Who’s abdicating now?
Senate Democrats, after legitimate criticism for failing to pass a budget for years, did so this year. Now, it’s Ryan and the House Republicans who refuse to go to a conference to try reconcile differences.
In Washington, there’s a propensity to find bipartisan fault in most conflicts. Often, that is on the mark.
Now, however, if Simpson and Bowles and the CEOs who warned about the dire need to get America’s fiscal house in order are serious, they have a clear target: Paul Ryan.
(Albert R. Hunt is a Bloomberg View columnist. The opinions expressed are his own.)
AP Photo/Carolyn Kaster