Can Obama avert a fiscal catastrophe?

By Fred Hiatt
Monday, March 29, 2010

Last summer President Obama told me that once health reform became law, he could pivot to the "broader structural changes" needed to bring the federal deficit under control.

Without health reform, he said during a July telephone interview, there would be no hope for fiscal reform. With it, he would be in a position to "start laying out a broader picture about how we are going to handle entitlements in a serious way."

Well, it's been six days since he signed the bill, and he still hasn't saved Social Security.

Just kidding. We can give him another day or two.

But the long-term threat is no joke, as Obama has acknowledged many times. If Obama does not pivot, the country will be in serious trouble.

Why? According to a Congressional Budget Office analysis published last week, Obama's budget plan has the government spending one-quarter of the national economy (25.2 percent of gross domestic product) 10 years from now, while collecting revenue that's less than one-fifth (19.6 percent).

Such a gap isn't sustainable for any country. The United States would have to borrow so much money that in interest alone the government would be spending 4.1 percent of GDP -- compared with 1.4 percent this year. Other programs -- for defense, for the poor, for national parks, for everything -- would be squeezed more and more. The United States would be increasingly at the mercy of China, Saudi Arabia and other lenders.

"I understand why a deficit hawk would be nervous," Obama told me last July. "I'm nervous about this. And if you talk to my senior advisers, they'll tell you I'm on them every day about how are we going to make sure that we're positioning ourselves to take care of this long term."

But if he's talking with his advisers, Obama hasn't begun to prepare Americans for what such positioning will take.

Here's one measure of the challenge: The president touts health reform in part because it will reduce the deficit -- according to the CBO, by $143 billion in the next 10 years.

That sounds pretty good, until you consider that Obama would need the equivalent of 70 additional health bills to undo the $9.8 trillion that his budgets will add to the deficit during the next 10 years, according to the CBO.

(Actually, it would take something like 220 health-care bills of deficit reduction, because the true savings from health care are more like $44 billion, once you subtract $70 billion in premiums that people will pay for long-term-care insurance and $29 billion they will pay into the Social Security trust fund, all of which will have to be paid out later. But either way, it's a frightening picture.)

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