PRESIDENT OBAMA’S proposed budget for fiscal 2017 met instantaneous rejection from the Republican Congress, unsurprisingly, given that it’s basically a blueprint for more active government paid for with higher taxes. Though predictable, the GOP’s refusal to hold a hearing on Mr. Obama’s budget was gratuitously contemptuous; and it was regrettable in substantive terms, as some of Mr. Obama’s structural proposals, such as a 28 percent rate cap on individual tax deductions and $375 billion worth of savings in federal health-care spending, merit debate. Congress may grant some of Mr. Obama’s requests, such as larger tax credits for low-income workers and $1.1 billion in new funding to fight drug addiction. For the most part, though, this document amounts to little more than Mr. Obama’s final statement of fiscal priorities before his successor takes over 11 months from now.
As such, it’s an occasion to review his budgetary record. To be sure, Mr. Obama’s budget, if enacted, would maintain federal debt held by the public at its current level — 75 percent of gross domestic product — through 2026. But it will never be enacted. A more relevant indicator is the Congressional Budget Office’s forecast, which shows debt rising to 86.1 percent of GDP by 2026 under current law, a historically unprecedented level except for the World War II years.
Things could have been worse but for the deficit reduction achieved during Mr. Obama’s presidency; the deficit fell from 9.8 percent of GDP in 2009 to 2.5 percent of GDP in 2015. Some of this was attributable to the end of the Great Recession, some was due to tax increases and health-care reforms Mr. Obama advocated and some was due to the blunt-force spending cuts imposed by sequestration. Too little, however, reflects structural reforms to the main drivers of federal spending: entitlement programs for the elderly such as Medicare and Social Security.
Therefore Mr. Obama’s successor will inherit a growing national debt and a federal budget with precious little “fiscal space” for the next crisis or major new public needs. This is not unmanageable; yet, as former CBO director Douglas Elmendorf and Brookings Institution economist Louise Sheiner emphasize in a new study, low interest rates have helped moderate current fiscal conditions and are likely to persist for several more years. They recommend using low-interest debt to fund growth-enhancing public investments, while reducing deficits through spending cuts and tax increases “gradually.” That’s sensible — provided that Washington actually picks productive projects rather than pork-barrel, and provided that politics doesn’t turn “gradually” into “never.”
Our own definition of gradually would be “starting now,” with tweaks to the tax code and entitlements whose impact, however modest, can’t easily be reversed. Examples: a more accurate inflation adjustment factor for Social Security (with appropriate protection for the poorest recipients), streamlining Medicare’s crazy quilt of cost-sharing rules and capping individual tax deductions as per Mr. Obama’s proposal. What’s getting all the attention in the presidential campaign, alas, are fiscally irresponsible promises ranging from the Republicans’ giant dueling tax cuts to Sen. Bernie Sanders’s (I-Vt.) nationalized health insurance. This country has many problems, but a political class in the grip of mindless austerity does not seem to be one of them.