Obama’s Budget: Ignoring the 500-Pound Entitlement in the Room

By Cameron Smith

When President Obama released his budget for fiscal year 2013, the political reactions were swift … and predictable. Republicans immediately branded the budget “Debt on Arrival,” Nancy Pelosi called the President’s budget “a fiscally responsible plan,” and Harry Reid dodged the budget entirely, opting instead to talk about the need for transportation spending.

While the President is touting more than $4 trillion in deficit reduction, Republicans see as little as a $300 billion difference between Obama’s proposals and the consequences for the national debt if Congress does nothing but continue current policies. Regardless of how much deficit reduction actually takes place, the President’s “best case” scenario calls for $6.7 trillion in additional debt over the next decade.

Jack Lew, President Obama’s Chief of Staff, set the tone for the President’s budget by suggesting that “[t]here’s pretty broad agreement that the time for austerity is not today.” That sounds better than telling America that President Obama has proposed the largest budget in American history at a time of record national debt.

To make matters worse, the President is relying on an overly optimistic economic output to limit his requested deficit to “just” $901 billion for fiscal year 2013. The non-partisan Congressional Budget Office (CBO) projects real gross domestic product (GDP), an inflation-adjusted measure of America’s economic output, to increase year to year by just one percent for fiscal year 2013. President Obama’s budget assumes three times that amount of growth.

Why do the President’s projections about the performance of the American economy matter? Estimates of income taxes and social insurance taxes hinge entirely on how the economy actually performs. When GDP growth is lower than projected, tax receipts are often proportionally lower, increasing the amount of the deficit.

The cavalcade of press releases, news conferences, and political punditry serve only to mask the harsh reality buried in the pages of the President’s budget. First of all, entitlements are at the heart of America’s budgetary problems. Period. Politicians address earmarks, tax increases, foreign aid, welfare programs and a host of other topics before the heaviest line item on the budget-entitlements-is ever mentioned.

In truth, the vast majority of Republican and Democrats in Washington would sooner play egg toss with a hand grenade than talk seriously about entitlement reform. And there is apparently little political advantage in doing so.

According to a Pew Research Center poll conducted in 2011, Americans have a split personality when confronted with the realities regarding entitlements. Sixty percent of respondents said maintaining current benefits under Social Security was more important than reducing the federal budget deficit. However 52 percent said Social Security needed major changes or to be completely rebuilt.

The President’s budget clearly demonstrates the impact of mandatory programs on America’s spending.

President Obama’s budget calls for $2.3 trillion in mandatory spending, which includes Social Security, Medicare and Medicaid. Add to that $851 billion in security spending which includes programs such as Defense, Homeland Security, and Veterans Affairs, and $248 billion in interest payments and those items account for 117 percent of the revenues coming in to pay for all of the federal government. Even if the President raises taxes exactly as he wants, mandatory and security spending alone will automatically cause America to deficit spend.

Maintaining the status quo for mandatory spending not only has serious consequences for America’s budgets, but also leaves the programs themselves in jeopardy. The Social Security and Medicare Board of Trustees Report for 2011 states clearly that, after 2036, “tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2085.” The same report also notes that general fund revenues rather than Medicare payroll taxes “accounted for more than 45 percent of Medicare’s outlays” in fiscal year 2010.

The President’s budget continues the unfortunate trend of Presidential budgets that read more like a child’s Christmas list than a good faith effort for America to live within its means. Unfortunately, neither end of the political spectrum has shown leadership in dealing with America’s budgetary challenges. The President has clearly developed a budget aimed at improving his prospects with his political base, and Republicans, concerned with the reaction of senior citizens, remain conspicuously silent on ways to deal with entitlements, the most glaring economic burdens in the budget.

In this election year, political courage is in short supply on both sides of the aisle when it comes to fiscal responsibility.

Cameron Smith is General Counsel and Policy Director for the Alabama Policy Institute, a non-partisan, non-profit research and education organization dedicated to the preservation of free markets, limited government and strong families, which are indispensable to a prosperous society.

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