Obama’s Deficient Budget Pledge (And we know how good a politici ans promise is!)


President Obama’s address to a Joint Session of Congress on health care reform included a range of urgings, pleadings, and partisan jabs, and a single bright line in the sand dealing not with health care per se but with the deficit. The President said, “I will not sign a plan that adds one dime to our deficits – either now or in the future. Period.”

Before we get too carried away cheering the President’s sudden fealty to fiscal sanity we need to remember he did say the bill should come in at around $900 billion over 10 years. According to the various drafts and legislation circulating on Capital Hill, some of this would be offset with spending cuts but much of this amount represents a net expansion of government. Health care reform should not be used as an excuse to grow government. Health care reform should be spending neutral, not just budget neutral.

President Obama and the health care reformers need also to take a step back and look at the even bigger picture including Medicare’s long-run unsustainability. Obama has correctly identified the imperative of bending the curve on soaring health care costs downward to make Medicare and other federal programs less unsustainable. This should be another line in the sand for the President and health care reform.

That said, the President’s deficit neutrality pledge is encouraging. But to be taken seriously the pledge must be operational. Two issues needing answers then are – deficit neutral according to whom? and deficit neutral over what future?

To be credible, deficit neutrality must be measured by the Congressional Budget Office (CBO), not the President’s Office of Management and Budget (OMB). Not that CBO’s estimates are inherently superior to OMB’s, but OMB does work for the President and there’s an appearance of the fox guarding the henhouse if the President declares the bill meets his deficit neutrality test according to his own numbers. This, after all, is why we have a CBO.

Then there’s the question of “the future”. CBO and OMB make 10 year projections. Ten years may seem like a long time, but it’s not a long time for permanent programs. In such cases, the 10-year timeframe has more to do with the number of fingers and toes than it does anything relevant to the budget. A recent study by the Lewin Group for the Peterson Foundation demonstrates that Obama’s approach as captured in the House bill 3200 would increase the budget deficit by $1 trillion in the second 10 years after enactment. Surely the second ten years is part of Obama’s “future”, and so just as surely this bill would violate the President’s pledge.

CBO should do its usual year-by-year score and then it should also do a long-run score in present value terms, much as the Medicare and Social Security Trustees calculate for those programs. Such an estimate is fraught with uncertainties and so should be presented with a range. But even an uncertain estimate guarded by an army of qualifiers beats no estimate at all. With this additional information policy makers and the public will at least have some idea of whether the legislation makes the long-run budget picture better as the President originally promised, or worse as the Lewin estimate suggests.

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