When Life Hands You Deficits . . .
New presidents tend to go for grand slogans for their nascent administrations: New Deal, New Frontier, New Covenant. In that vein, the New Sobriety may not sound quite so uplifting, but that is the unavoidable situation in which the next president will begin his term.
There is a lemonade-from-lemons aspect to this state of affairs. It could give the next president more maneuvering room to extricate himself from unaffordable campaign promises and to build political consensus for painful but necessary budgetary choices.
What better moment to change course than when only 8 percent believe the country is on the right track? Nothing concentrates the mind like a $1 trillion deficit. Consider: The Congressional Budget Office forecasts a fiscal 2009 deficit of $438 billion -- $611 billion without the Social Security surplus factored in. Add a second stimulus package -- say, $150 billion -- the fact that tax revenue is likely to be far lower than anticipated and the unknown true cost of the economic rescue package, and you're talking real money.
And that's not even considering entitlement spending. Assume that spending on Social Security, Medicare and Medicaid continues on automatic pilot and that tax revenue stays at about the same share of the economy. By 2015 the federal budget would have essentially no room left to pay for anything except those programs, a somewhat smaller defense budget and interest on the national debt.
As Eugene Steuerle of the Peter G. Peterson Foundation described the situation to the House Budget Committee last month, "Never before in the nation's history has so much been promised to so many people for so many years into the future. Little or no slack remains to address new needs, accommodate new wants, take advantage of new knowledge or meet new emergencies."
So what would a president preaching the New Sobriety propose -- and which candidate would be likely to have better luck getting an unruly congressional flock to go along?
For starters, a President McCain would revert to the straight talk of Senator McCain, circa 2001, and acknowledge that the nation cannot afford to continue all of President Bush's tax cuts. A President Obama would emerge from a grim meeting with his top economic advisers, much like president-elect Clinton did in 1993, and announce that his additional $85 billion a year in tax cuts for the middle class and seniors are similarly unaffordable.
Next, either president would seize the opportunity of a fiscal crisis to provide for more honesty in budgeting. No longer should the Social Security surplus, which is pledged to pay for benefits in the future, be used to obscure the true size of the operating deficit. No longer should candidates -- or presidents, for that matter -- be allowed to pretend, as both John McCain and Barack Obama do, that extending existing tax cuts does not represent an actual budgetary cost.
Most important, either president should use the moment to engage in a fundamental reexamination -- first of the tax code and then, once a sensible, sustainable revenue stream is in place, of entitlement spending. Given the demands of an aging population, the country is going to need more revenue than it now collects.
The expiration of the Bush tax cuts in 2011 and the continuing, costly headache of the alternative minimum tax create an action-forcing event; the economic crisis provides extra political cover to build a more rational tax code, one that would broaden the base without raising marginal rates to growth-stifling levels. As Concord Coalition chief economist Diane Lim Rogers notes, the tax code provides for as much spending on "hidden entitlements" -- provisions that give special breaks to items such as mortgage interest or employer-sponsored health care -- as all discretionary spending combined.
Any president, Republican or Democrat, will face enormous pressure -- from his base and from entrenched interests -- in confronting this challenge. McCain has a party allergic to raising taxes. Obama has a party addicted to government spending, reflexively opposed to any benefit cuts and chafing under years of pent-up demand for new programs.
I'd have more confidence in McCain, with his history of standing up to his party, had he not so thoroughly chugged the no-new-taxes Kool-Aid. That leaves two reasons to give Obama the edge. His economic team has a proven commitment to responsible budgeting. His party, for all the leftward pressure it will exert, at least has a significant faction that believes in paying as you go.
Still, you'd have to be a little, well, intoxicated -- especially in the face of the ongoing, bipartisan binge -- to believe that either, as president, will usher in a new sobriety.