Echoes of ’80s failure in Obama’s fail-safe budget plan

In Washington, there are no new arguments — only new people making them.

During the great budget battle of an earlier generation, President Reagan and Congress agreed to write into law a fail-safe similar to the one President Obama suggested Wednesday i n a major speech on reining in the nation’s debt.

Reagan’s fail-safe was designed to automatically trigger sharp cuts in government spending if massive deficits continued to spin out of control. But politicians couldn’t keep their hands off the fail-safe, adjusting it when precious programs were threatened, and ultimately they killed the provision. The cuts were “too enormous to be politically tolerable,” said Rudolph Penner, who at the time was head of the nonpartisan Congressional Budget Office.

Now a similar fail-safe is a hallmark of President Obama’s plan, one of several proposals that might be more unrealistic than the president acknowledged in his speech, outside analysts and economists said in interviews Thursday.

In the speech, which outlined a plan to reduce deficits by $4 trillion in 12 years, Obama called for cutting domestic and defense spending, raising taxes on the rich and boosting savings in government health insurance programs. The fail-safe would kick in if he and Congress don’t act, hiking taxes and cutting the budget but sparing Medicare, Medicaid, Social Security and poverty programs.

Some experts lauded Obama for suggesting serious steps to try to rein in the debt and said on the whole he provided a balanced approach. But they said not all his ideas are achievable in areas including health savings, taxes and cuts to defense and mandatory spending.

A tool to ‘focus’ parties

In the mid-1980s, Washington was consumed by fears that government spending was increasing far too fast.

A fight in Congress produced a landmark piece of legislation called the Gramm-Rudman-Hollings Act that required automatic cuts if the government didn’t reduce spending enough. It had prominent opponents, including then-Speaker Tip O’Neill (D-Mass.), who denounced it as “a gimmick” and “a disgraceful measure to subvert the Constitution.”

In an ironic twist, O’Neill’s principal domestic policy adviser at the time was a young staffer named Jack Lew, now Obama’s chief budget adviser.

But the fail-safe proposal was attractive to other Democrats, and it passed in 1985. It was eliminated a few years later when the economy went south and necessary cuts were bigger than anticipated.

James C. Miller III, who was head of the Office of Management and Budget under Reagan, said fail-safes work “until you pull the plug,” adding that in the current debate, “Congress and the president have their hands on the plug.”

Lew, for one, said times have changed.

“We had a challenge then, but it was nothing compared to the challenge we face here going forward,” he said in an interview Thursday. The fail-safe is “a tool that would focus the minds of all parties in the policy process to make sure that we don’t get to the point where the trigger needs to be pulled.”

Realistic measures?

But some experts question whether the measures the president has proposed to reduce the deficit are realistic.

Obama takes a light touch with Medicare and Medicaid, claiming he can achieve $480 billion in savings by reducing the price of drugs and taming the cost of the programs beyond what the landmark health insurance law of last year did.

Robert Kocher, director of the McKinsey Center for U.S. Health System Reform, said one of the top options for reducing drug prices is to negotiate directly with companies. “But for a multitude of reasons that’s not been a policy that’s been pursued and I’m uncertain whether it’s conceivable,” he said.

Robert Greenstein, president of the Center on Budget and Policy Priorities, wondered whether health care costs can grow just a little faster — half a percentage point — than the economy as a whole, as the president proposed. They now grow about 2 percentage points faster. An OMB spokeswoman said the president plans to slow spending through the work of a new board that will suggest efficiencies and by getting cheaper generic drugs to market faster.

Obama also proposed $1 trillion in new tax revenues, claiming he could spare the middle class. An OMB spokeswoman noted that the rich get much of the benefit of tax deductions. But some are skeptical, given that the rich only represent 2 percent to 3 percent of the population and that some of the most expensive tax features, such as the mortgage interest deduction, benefit many people who make well below $200,000.

“There’s just a limit of how much money there is at the top,” said Donald Marron, director of the nonpartisan Tax Policy Center.

Others are skeptical about Obama’s plan to cut defense spending by $400 billion — “you’re going to have to cut things that matter,” said Todd Harrison, senior fellow with the Center for Strategic and Budgetary Assessments — and his pledge to trim mandatory domestic spending by $360 billion without hurting the poor.

But Paul N. Van de Water, of the Center on Budget and Policy Priorities, said much of this spending goes to food stamps and other programs that benefit the poor. “It’s really hard to see how you can get much savings out of this without touching programs for low-income people,” he said.

Zachary A. Goldfarb is a staff writer covering the White House, focusing on President Obama’s economic, financial and fiscal policy.
Karen Tumulty is a national political correspondent for The Washington Post, where she received the 2013 Toner Prize for Excellence in Political Reporting.
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