The “fiscal cliff” is a massive failure of presidential leadership. The tedious and technical negotiations are but a subplot in a larger drama. Government can no longer fulfill all the promises it has made to various constituencies. Some promises will be reduced or disavowed. Which ones? Why? Only the president can pose these questions in a way that starts a national conversation over the choices to be made, but doing so requires the president to tell people things they don’t want to hear. That’s his job: to help Americans face unavoidable, if unpleasant, realities. Barack Obama has refused to play this role.
Instead, he has cast the long-term budget problem as a question of whether the richest 1 percent or 2 percent of the population should pay more in taxes. Not only that, but he has insisted that the higher taxes be paid by raising rates, as opposed to reducing various tax breaks (deductions, exemptions, preferential rates) enjoyed heavily by upscale Americans. The obsession with rates is bad policy (higher rates may threaten risk-taking, work effort and hiring) but qualifies as good politics: It signals Obama is macho; he’s tough on the rich, who are implicitly blamed for the nation’s budget and economic woes.
Whatever one thinks about raising taxes at the top (and I have no objection to it as part of comprehensive budget package), it’s not the crux of the problem. The crux of our problem — the problem being the bipartisan and untenable promises made to most Americans of both high government benefits and low taxes — arises from an aging population and high health costs, which cause rapid increases in spending on Social Security, Medicare and Medicaid. Let me repeat some statistics I’ve often cited. In 2012, Social Security, Medicare and Medicaid accounted for 44 percent of non-interest federal spending. As for taxes, the richest 5 percent paid almost 40 percent of federal taxes in 2009 (and within that, the richest 1 percent paid 22 percent of taxes).
The nonpartisan Congressional Budget Office puts it this way:
“With the population aging and health care costs per person likely to keep growing faster than the economy [gross domestic product], the United States cannot sustain the federal spending programs that are now in place with the federal taxes (as a share of GDP) that it has been accustomed to paying.”
Until Obama conspicuously and consistently acknowledges these realities in straightforward and unmistakable language — something he hasn’t done and shows no signs of doing — he cannot be said to be dealing honestly with the budget or with the American people. The main reason that we keep having these destructive and inconclusive budget confrontations is not simply that many Republicans have been intransigent on taxes. The larger cause is that Obama refuses to concede that Social Security, Medicare and Medicaid are driving future spending and deficits. So when Republicans make concessions on taxes (as they have), they get little in return. Naturally, this poisons the negotiating climate.
Of course, Obama would offend many Democrats if he entertained benefit cuts in Social Security and Medicare: higher eligibility ages, higher premiums for affluent elderly, structural changes in the health-care system to reduce costs. Just as many Republicans don’t want taxes raised a penny, many Democrats don’t want benefits cut a penny. Consider the highly technical proposal to shift from the standard consumer price index (CPI) to a “chained” CPI to adjust Social Security benefits. From 2013 to 2022, this change is estimated to reduce Social Security spending by $100 billion. Over that decade, total Social Security benefits are estimated at $10.588 trillion; the cut would be less than 1 percent. Yet, many Democrats reacted in horror, as if hordes of elderly would be impoverished.
Unfortunately, much of the media have accepted the Obama narrative that it’s only Republican rigidity that frustrates negotiations and leads to deadlock. This means, of course, that there’s even less incentive for Obama and congressional Democrats to engage in genuine bargaining.
The result is that we’re not getting the debate we deserve and that budget choices are being made mainly by default. Just as important, the periodic, ugly confrontations over budget policy — the paralysis and bitterness they involve — corrode confidence and weaken the economy. A weak economy creates few new jobs, and the lack of jobs is the nation’s No. 1 social problem. Obama’s abdication of responsibility may be in his political self-interest, but it is profoundly hostile to the national interest.