The President’s deficit commission met yesterday to begin its task to address the mounting fiscal crisis facing the nation. As we show in our 2010 Budget Chart Book, the estimated federal deficit in 2010 will be $1.54 trillion, and spending on entitlement programs (Medicare, Medicaid, and Social Security) and interest on the federal debt is slowly squeezing out other programs. House Majority Leader Steny Hoyer (D-MD) outlined a way forward for the commission yesterday in the Wall Street Journal, and while we agree with Leader Hoyer on the gravity of the nation’s financial situation, his analysis was lacking in the following ways:
- Pointing the Finger in the Wrong Direction. Leader Hoyer attributes the climbing deficit to President Bush, claiming that “more than 90% of the projected deficit we will face over the next decade is the result of President Bush’s 2001 and 2003 tax cuts, the wars in Afghanistan and Iraq, the rescue of the financial sector he began in the last few months of his presidency, and lower revenues from the recession.” To ascribe the enormous deficits of the past, present, and future to President Bush is erroneous. Heritage’s budget expert Brian Riedl finds that the cost of the Bush tax cuts, funding of wars in Iraq and Afghanistan, and the Medicare prescription drug program created under the Bush administration comprise a little over a third of the $13 trillion in baseline deficits for the next decade.
- False Hopes for Obamacare. Leader Hoyer claims the health care overhaul will lower federal spending by lowering health care costs. Though the Congressional Budget Office projected the bill will reduce the deficit, this is based on unrealistic assumptions about the future behavior of Congress that the score-keeping agency is required to make. In reality, when the doc fix and the double counted savings are factored in and equal years of revenues and outlays are accounted for, the new health care law is more likely to add billions to the deficit. Furthermore, according to the Chief Actuary of the Centers for Medicare and Medicaid Services (CMS), Obamacare will increase, not reduce, health spending by $311 billion over ten years.
Leader Hoyer further claims that “…critics of the legislation wrongly and knowingly portrayed [Obamacare’s] Medicare savings as a cut in benefits.” But the critics were right. The Actuary predicts that cuts to Medicare Advantage will “generally reduce MA rebates and thereby result in less generous benefit packages.” Moreover, all the cuts to Medicare will total $575 billion, which the Actuary predicts could cause as many as 15 percent of hospitals to become unprofitable if they continue to see Medicare patients. Ending participation in Medicare would severely jeopardize access to care for seniors.
- That’s What You Call Fiscal Responsibility?! Leader Hoyer praised the President for embracing fiscal responsibility through a slew of largely ineffective fiscal constraints. These included a cap on non-defense non-discretionary spending, which would reduce the deficit by an unimpressive 1.1 percent. Also, Leader Hoyer praised the President for cutting the deficit in half by 2013—which shouldn’t be too hard, since President Obama quadrupled the deficit in 2009 alone. Moreover, Heritage’s Brian Riedl writes that the end of the recession, pulling troops out of Iraq, and phasing out stimulus spending would alone cut the deficit in half. Finally, the President embraced PAYGO intending to keep Congress from spending without first creating offsets. In reality, PAYGO exempts discretionary spending, which is 40 percent of the budget, has no effect on the current trajectory of entitlement spending, and doesn’t actually reduce spending or the federal deficit. The simple fact that, between 1991 and 2002, PAYGO was not once enforced, points to its ineffectiveness.
- Ignoring the Real Problem. Leader Hoyer claims that “nobody likes raising revenue—but sometimes, it’s necessary”. Well, in this case, it’s not. Measuring taxes and spending against their historical averages shows that, while revenues hover near their historical average, spending in 2020 will be 5.3 percent of Gross Domestic Product above the 40-year average. It is Congress’ out-of-control spending, not under-taxation, which is causing major deficits, so spending should be the first place the deficit commission looks to make changes. Plans like Representative Paul Ryan’s (R-WI) Roadmap for America’s Future would put entitlement spending on a sustainable trajectory and reduce the deficit to zero. Leader Hoyer demonizes this fiscally responsible plan as one that would be harmful to Medicare, when in reality, Rep. Ryan’s plan would model Medicare after the successful and popular health care plan Congress itself uses.