September 19, 2011

ENCOURAGED TO go big, President Obama chose instead to go “medium,” as Maya MacGuineas of the Committee for a Responsible Federal Budget aptly put it. Compared to the $1.2 trillion to $1.5 trillion in savings that the new congressional supercommittee on debt reduction is required to achieve, the debt reduction proposal Mr. Obama unveiled Monday involved significantly more in savings — some real, some bogus, as we’ll explain in a bit. Compared to what’s necessary in terms of long-term debt reduction, and in particular compared to the savings outlined by his debt-reduction commission, better known as Simpson-Bowles, the plan falls short.

The best point of comparison is the level of debt as a share of the economy that both would achieve after 10 years. The president’s plan would leave the debt at an unhealthy 73 percent of gross domestic product. The Simpson-Bowles plan would reduce that number to 65 percent, a still high but far less troubling level. The difficult truth is that getting the country on a sustainable fiscal course will require more painful choices than the president, under fire from his base and facing a recalcitrant Republican Party, chose to deliver.

The administration’s claim to have come up with $4 trillion in deficit reduction is misleading. The more accurate amount is barely half that, including about $1 trillion in domestic and security spending cuts already agreed to as part of the debt ceiling deal, and $1.5 trillion in tax increases on the wealthy. The administration gives itself credit for another $1 trillion by counting savings — already incorporated in any realistic base line — from winding down military operations in Iraq and Afghanistan. The administration further pads its results by giving itself credit for $866 billion in “savings” from letting the George W. Bush tax cuts expire for those making more than $250,000 a year.

The president is right, of course, that credible debt reduction requires a combination of tax increases and spending cuts, and it is unfortunate that Republicans have been unwilling to accept that fact. But a more fundamental sweep through the tangled underbrush of the tax code, as envisioned by the Simpson-Bowles report, would be an even better approach.

The other essential element of credible debt reduction is tackling the biggest driver of long-term deficits — federal health spending, particularly Medicare. Here Mr. Obama backed away from some of the entitlement reforms he entertained in his closed-door discussions with House Speaker John Boehner, including raising the eligibility age for Medicare and changing the way that Social Security benefits are indexed for inflation. Mr. Obama left Social Security entirely out of Monday’s proposal, and his Medicare savings ($248 billion over 10 years) once again primarily target providers. A White House fact sheet on the proposal brags that 90 percent of the savings come from “reducing overpayments” and that changes affecting beneficiaries do not begin until 2017 — after a second Obama term, if he is reelected.

Mr. Obama deserves credit for tackling other mandatory spending, including agriculture subsidies, military health care and federal worker retirement programs. But Monday’s proposal looks better as an initial bargaining stance than as a rigid bottom line — and realistically, the prospects for even a scaled-down bargain emerging from the supercommittee are not good. Mr. Obama does not have a partner willing to meet him any part of the way on tax increases. So the package in the end may serve more as a campaign document. If so, that would be a shame — most of all for a country that cannot keep putting off the day of fiscal reckoning.