The last two budget proposals from Barack Obama failed to win a single vote in either chamber of Congress. In three floor votes over two years, not even a single Democrat would stand in favor of Obama’s budgeting priorities. In my column today for The Fiscal Times, I argue that Obama is a shoo-in to score the hat trick with his latest, record-breaking spending plan, perhaps this time especially among Democrats:
Earlier in the week, after the White House floated the trial balloon on entitlement reform, Roll Call reported outrage from the Left over Obama’s strategic retreat on Social Security and Medicare. “I’m well past the point of trying to understand what, if any, strategy is behind anything this administration does,” Roll Call quoted an anonymous Democratic aide. “It most definitely does not outline party priorities, as evident by the reaction from the base.”
The Washington Post reported last Friday that Democrats on Capitol Hill opposed “any cuts to Social Security,” including Obama’s proposed use of chained CPI to calculate cost-of-living increases, and would likely be “furious” over any hint of weakness in this area.
It didn’t get any better for the White House after Obama announced the proposal. Progressive Senators Elizabeth Warren (MA), Tom Harkin (IA), and Bernie Sanders (VT) sent out messages strongly opposing any attempt to reform Social Security and Medicare. Sherrod Brown (OH) told reporters that “senior citizens didn’t cause [the 2008 recession],” and shouldn’t have their benefits “cut,” even though chained CPI would only reduce the rate of increase for those benefits.
On the other end of the spectrum, the Democratic candidate in the special election for South Carolina’s open 1st Congressional District blasted the proposal for its lack of seriousness on spending. Elizabeth Colbert Busch, who will face former Governor Mark Sanford next May for the seat held by now-Senator Tim Scott, objects to both the “cuts” to Social Security as well as higher taxes and increased spending.
Republicans aren’t going to rush to the President’s defense, either. Obama did give ground by proposing to change the calculations for benefits adjustments with chained CPI, which will slow the rate of growth in Social Security spending (not cut it, as some Democrats claimed). However, Obama is holding this hostage to a pile of tax increases that the GOP won’t accept, probably ever but certainly not without comprehensive entitlement and tax reform. Nor should they, given the state of the economy:
Republicans on the Senate and House Budget Committees released a joint statement immediately after the launch highlighting the glaring flaws in Obama’s idea of budget discipline. Among them: $964 billion in new spending over the next ten years, $8.2 trillion in new debt, and more than $1.1 trillion in increased taxes – “on top of $1 trillion in taxes from Obamacare and more than $600 billion from the President’s recent tax hike.”
The inclusion of tax hikes seems especially odd, given the circumstances of the economy. The last GDP report, from 2012’s fourth quarter, measured US economic growth at an annualized rate of just 0.4 percent. Friday’s jobs report for March showed only 88,000 jobs added, with a civilian labor force participation rate of 63.3 percent — the lowest in 34 years. Hiking taxes while adding Obamacare mandates for employment is a recipe for more economic stagnation, if not contraction.
Those aren’t the only labor indicators heading south. Rick Newman at US News alerts us to a “surprise drop” in pay in a number of industries:
The economy doesn’t usually boom when pay is falling, so a new survey showing a surprising drop in compensation may be yet another sign of a slowdown.
The Payscale index, which measures quarterly changes in pay in 15 broad industries, ticked downward in the first quarter of 2013, the first decline in nearly two years. During most of 2012, pay rose at the fastest pace since before the recession, as the following chart shows. So the first-quarter decline interrupts a pattern that seemed to reflect a healthy recovery.
Income has been a weak spot in the economy and one reason many economists feel a slowdown is inevitable this year. The tax hikes at the start of the year reduced disposable income for nearly every U.S. worker, although the reduction hasn’t yet cut into spending in a measurable way. People have been saving less, though, so at some point they may have to cut spending to rebuild their savings.
The real problem with tax hikes isn’t so much the bite in consumer spending (although that will eventually be a problem, as Newman writes), but a lack of capital investment that creates jobs and increases pressure to lift wages. The drop in pay isn’t coincidental to the labor-force decline.
Jim Tankersley at the Washington Post says Obama’s budget has “12 million losers” — people looking for work:
Last month, the Labor Department reports, 11.7 million Americans were looking for a job but couldn’t find one – an unemployment rate of 7.6 percent. Another 2.3 million people said they wanted a job but did not count as unemployed because they haven’t actively looked for work.
That unemployment rate is at least 2 percentage points above the rate that economists have historically considered “full employment” – the level at which the economy is operating most efficiently. And it’s going to take a while to get back there.
It’s actually worse off than that, thanks to the drop in the civilian labor force participation rate to a 34-year low. But Tankersley’s pointing out that even with that poor context, the White House keeps extending the time to get back to even a false sense of “full employment”:
According to the projections in Obama’s new budget, America won’t return to full employment until about 2018. That assumes the projections are correct; in recent years the Obama administration’s forecasts have proven to be overly optimistic, forecasting that the economy would soon enter a period of speedier growth that has still not arrived.
Every president includes unemployment forecasts in the annual budget document. In his first budget, the FY2010 budget released in the midst of the 2009 recession, Obama predicted unemployment would fall below 5.5 percent by 2013. Two years later, he predicted full employment around 2016.
Now it’s 2018. That’s not a trend the millions of unemployed Americans like to see.
With tax hikes in mind, Investors Business Daily explains why Obama’s budget is actually worse than everyone thinks:
• Vastly exaggerates spending cuts. The press has widely reported that Obama’s budget would cut spending a total of $1.2 trillion over the next decade. But Obama’s own budget shows that he actually cuts spending a mere $186 billion. (The relevant tables can be found at http://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/tables.pdf on Pages 187-190.)
Obama inflates his claimed savings by first canceling the automatic sequester spending cuts he previously signed into law, then reclaiming them as new savings, and by adding in cuts in interest payments on the debt.
• Relies almost entirely on tax hikes. Obama’s budget shows his plan would increase revenues by $1.14 trillion over the next decade. That means his budget proposes $6 in new taxes for every $1 in spending cuts.
• Cuts the deficit less than claimed. “My budget will reduce our deficits by nearly another $2 trillion,” Obama said Wednesday. But his budget shows total deficit reduction over the next decade would be just $1.4 trillion. Plus, deficits start rising again after 2018.
So far, there isn’t much to recommend this from either side of the political divide, huh? While some would have us believe that this is a feature and not a bug in Obama’s budget, David Harsanyi isn’t buying the “all sides hate it so it must be centrist” pitch:
Nearly every story stresses that the budget has drawn critics from both the left and the right. Obama, you see, is so moderate he’s willing to wrangle with the socialist Sen. Bernie Sanders from Vermont (and his petition signed by a couple of million folks who wouldn’t know the difference between a “chained consumer price index” and a Chick-fil-A chicken sandwich) and Republicans. So, balance.
President Obama’s budget would spend $160 billion more in 2014 than the Congressional Budget Office’s base line had even imagined. No tax reform. No genuine entitlement reform. His 10-year, $1.8 trillion “deficit reduction plan” is predicated on doing away with $1.2 trillion in sequester cuts and making it up by taxing us directly or allowing tax hikes to pass through various industries. It is a massive zero-sum fallacy masquerading as a budget.
Nearly every piece of journalism means to frame Obama as a rational broker residing somewhere between Senate Democrats and House Republicans, when in fact, he offers only meager concessions — or, more precisely, a meager concession — meant to compel impotent Republicans into surrender. …
Inevitably, Republicans will have to reject Obama’s budget — which was, incidentally, delivered two months late — because it is stuffed with tax increases that would mean political suicide. Republicans will be cast as obstructionists, when in fact, there sit Senate and House budgets entirely ignored by the White House. Maybe the president is offering voters the type of spending they desire — though, looking at polls of their attitudes on taxes, that’s debatable — but the media do the public a disservice by framing his proposal as moderate or, even more dishonestly, casting Obama as a great compromiser.
Inevitably, everyone will reject Obama’s budget, just as they did his last two proposals. The only virtue in this budget proposal is consistency.
Update: I wrote “tax cuts” where I meant to write “tax increases.” I’ve fixed it above.