It was nothing if not bold. Far from sliding away from his promise to reform healthcare, Obama affirmed it by proposing a $635 billion "downpayment" on the cost, financed about equally by high-income taxpayers and by squeezing Medicare payments to private providers. To announce an initiative of that scale and scope in the same budget that predicts a $1.75 trillion deficit in 2009, and a full-employment deficit of 3% of GDP even after ten years of brisk recovery and steady growth, took some nerve. Obama clearly has plenty. Left-leaning Democrats who have spent recent weeks moaning about centrist appointments and attempts at outreach to Republicans should hang their heads in shame. This is the budget they have been dreaming about for years.
I am not what you would call an instinctive leftist Democrat, yet so far as substance goes I like a great deal of what is there. The intelligence of this administration shines through at many points. My objections are mostly about the gaps.
I am for comprehensive healthcare reform. It would have been easier to do in a strong economy, of course--but Obama has the momentum to get this job done. It is urgent and has already waited too long, and so I applaud his determination to press on. It is good that he plans a big reserve to cover perhaps a third to a half of the likely eventual cost: better to leave that crucial line in the budget half-blank instead of entirely blank. I am also glad to see substantial cap-and-trade revenues make their first appearance. A carbon tax would be better, but still.
Obama and Peter Orszag seem intent on cleaning up the budget process, too, which is good. No more nonsense about expected revenues from the alternative minimum tax; no more off-budget accounting for military spending in Iraq and Afghanistan; and so on. Congratulations on switching from a current-law to a current-policy baseline. (Shame they had to go and spoil that by extending current spending in Iraq into the out years, just to get them to their phony $2 trillion of "savings". Current policy on Iraq is not to stay there forever, any more than current policy on infrastructure is to spend at the stimulus-package rate for the next ten years.)
I find the out-year arithmetic a bit baffling. Granted, under present circumstances you really need more than one scenario to make sense of things. The economic assumptions in the budget are very optimistic--more optimistic (unless I'm reading the numbers wrong) than in the base-case stress test to be applied to the banks under the new financial stability plan. A drop in output of barely 1% this year (the stress test assumes a drop of 2% in the base case and 3.3% in the adverse case) is followed by growth of 3.2% in 2010 (as against 2.1% in the base-case stress test and 0.5% in the adverse case). If things go that well, halving the dollar deficit by 2013 then letting it stay at 3% of GDP indefinitely is not nearly ambitious enough. If things go badly, the goal of halving the dollar deficit by 2013 is rash.
The persistent full-employment deficit, and the fact that the costs of healthcare reform are at best only half accounted for, implies the need for further very large increases in taxes and/or cuts in spending once the economy has recovered. (This is to say nothing of the longer-term budget pressures, acknowledged by the administration but not reflected in this timescale.) What is the point of doing a ten-year budget if you are not going to lay those options out?
The budget expresses a very strong preference for piling all the costs on the rich--meaning households earning $250,000 a year or more. Not only does it reverse the Bush tax cuts for these high-earners, it also claws back some of the value of their tax deductions (in order to part-fund the health policy reserve). Limiting exemptions is an intelligent way to raise taxes. Lower rates and smaller exemptions is good tax policy. But higher rates and smaller deductions? That starts to look harsh. Spare a thought not for hedge-fund managers and bank CEOs, but for successful two-earner professional households, or owners of thriving small businesses, who have just watched their savings destroyed and their housing equity crushed, and who are now promised taxes higher than, not merely equal to, what they were paying before Bush. And here's the rub: the budget still needs much more revenue. Extrapolating the political preferences in this blueprint, where is that revenue going to be found? If you can limit exemptions to a 28% rate, why not to 20%--or why not abolish them altogether?
In this "new era of responsibility", as the budget document is called, it would have been better for Obama to signal that huge and desirable initiatives like universal health care will impose at least some costs on all Americans. It is literally impossible to make the rich pay for everything, and telling 95% of voters that they can have all these things at no cost is not good leadership. It has even less to do with shared responsibility.
For all I know, however, it might be good politics. We will have to see how that plays out. One thing, though: unless and until he adjusts the message of this budget, Obama's claim to be centrist and pragmatic looks false. On the stimulus, he successfully characterised the Republicans as unconstructive doctrinaire rejectionists and himself as the pragmatic bipartisan leader. It wouldn't have taken much in this budget to build on that success: on taxes, confining himself to reversing the Bush tax cuts, as he promised in the campaign, might have been enough. The surprise of the extra $30 billion a year in capped deductions was enough to make "redistribution" the big story. Time will tell if that was a mistake.
I fail to see why comprehensive health care reform is "liberal." That would have made sense 50 years ago, but now we see that every industrialized country can provide health care more effectively and efficiently than we do. Is there no empiricism in American conservatism?
for successful two-earner professional households, or owners of thriving small businesses, who have just watched their savings destroyed and their housing equity crushed
Certainly you could find some households that fit that description; I'd guess it'd be about 0.8% of all US households. When you make policy, you make best available choices, not perfect ones. The era of the free lunch is over-- the GOP is out of power.
telling 95% of voters that they can have all these things at no cost is not good leadership
In good times, I'd agree. But it'd be bad policy to increase taxes now on those who can keep the economy moving.
"It is literally impossible to make the rich pay for everything..."
Definitely agree. In pretty short order, you ain't going to have any rich left to pick up the tab.
Further, how long are "the rich" going to stick around when they can move to Monaco?
I am disappointed by Mr.Brooks' limited criticism of the budget proposal. The proposal should be primarily directed to solving our economic problems now and laying a strong foundation for future growth so that we can pay down the obscene, but unfortunately necessary, costs of this rescue operation. In that context the Obama has it all backwards. He is front loading our long term costs without any realistic means of paying the costs of (1) the already forbidding costs of existing and explosive long term entitlement growth, (2) the rescue costs of our current problems and (3) the cost of increased entitlements built in to the stimulus package. The post further ignores the long term pernicious effect of the dead hand of government that will weigh over so much of the economy. Two very significant parts of the economy will be subject government control: health care and energy usage. In each case Obama is going for the solution that will increase the politicization of crucial and huge economic decisions. Hence it is not enough to say the a carbon tax would be preferable; cap and trade makes the government role far more pervasive.
So plenty of expensive new government but not a word about the costs of litigation and other difficulties faced by small businesses. Lots about leaps of technological faith on alternative energy but nary a word of helping promote and expedite nuclear power for our new electric transportation economy (indeed making it harder to do with the elimination of the Nevada waste disposal site. Only increased tax burdens on the most job productive part of our population. And how is an energy tax not a tax increase on those making under $250,000? It is of course, but Obama doesn't really admit that.
LIke Clive I favor a carbon tax and i think the long term human and economic health of the country requires major change in the health system. But first things first; show me a long term budget with realistic growth assumptions that gets to afford this without confiscating an ever higher percentage of people's income. Then by all means let the initiatives roll after careful consideration of the costs and benefits. This a dangerous and reckless budget proposal even before Congress has worked its further magic.
The key to true health care reform is bringing down costs. What we need to watch is how well Obama -and the Congress-will stand up to the private insurance companies with the proposed national health insurance option. From what I hear, the President is hanging tough in the closed door negotiations taking place through Senator Kennedy's office with the various stakeholders. At issue is the 31% collective overhead costs resulting from a contracting system that leaves hospitals and physician offices dealing with some 700 different variations of insurance contracts-each with a different nomenclature and coding system. The threat of having to compete with a government sponsored insurance option is having the desired impact on the private insurers who are showing considerably more flexibility than we've seen in the past as they know they cannot compete with a public option. Watch to see how far they are willing to go to codify and reduce contract procedures designed to slow down claims payments. When you see the privates come around on this, along with an increased willingness to make insurance available to those with pre-existing conditions or leave this to government, you will know that Obama has truly brought us reform. I, for one, am very hopeful.
"Is there no empiricism in American conservatism?"
One could ask the same thing of American liberalism, and particularly of advocates of fully-socialized medicine. Consider, for example, what David Gratzer, a former Canadian physician, wrote in this column in 2007:
There's also the matter of how other first world countries free ride on the innovation largely financed by our health care industry. Who will we free ride off of, if our health care system becomes more like those of say, Canada, or Britain?
This administration's approach to legislation is very different. Basically, the president names spending target and leaves the entire substance of the program up to Congress.
With the stimulus, he basically said "give me something that costs $800B and has 'stimulus' in the title". With health care, he is saying "give me something that costs $600B and has 'health care' in the title".
As a political tactic, this is probably a sure-fire way to get legislation. Tell Congress to spent $X and they will have no problem finding a way to do it. As a strategy for producing coherent and efficient policies, it leaves much to be desired.
"but now we see that every industrialized country can provide health care more effectively and efficiently than we do."
As evidenced by the continual waves of Canadians flocking to Detroit area hospitals.
Wow, spiking gov't spending and taxing the "rich"- it's always worked so well before...
The Netherlands, Canada, France, Germany, Switzerland, Belgium, you name it, all have health systems that guarantee universal insurance, and the UK, Spain, and many other countries have fully nationalized health systems that resemble the system run by the American Veterans Administration. All of these countries have democratic systems of government with voting rates greater than ours, and all have conservative parties. Yet none of these countries has shown the slightest desire to change their health systems to something resembling ours. That tells you all you need to know about the spurious right-wing claims about how unpopular "socialized medicine" is in Europe and the rest of the developed world.
I've got no dog in the big gov/small gov fight. I fully expect them to make a hash of it either way. Obama got elected fair and square, so why not? It's my problem to deal with however it gets screwed up. But this part burns my britches:
I'm one of those owners of a thriving small business. Not enough to get the rich people tax, but enough to know you don't get to make two sets of assumptions. Well actually you can, but it's usually a bad idea. It smells of fudging the numbers to get the results they want.
But hey, I'm getting a tax cut, so what do I care.
Being a victim of this current economy (i.e., unemployed, uninsured and enjoying the warm sensation of crisis), I have been attempting to follow these economic arguments and I find myself frustrated when the health care issue is brought up and bandied about, particularly when it is thought of as an optional privilege predicated upon one's ability to pay.
So, here's the thing: I have an illness that is livable when treated and fatal when untreated. I have no insurance, nor do I qualify for Medicaid. What does that make me then? Collateral damage? Acceptable loss? Unfortunate statistic who really shouldn't be able to speak anyway, because I should be busy being poor and dying?
Also, I get really burned up when I hear people trot out the effigy of the small business person. What small business people? They are (and I should know, having been one) a tiny teeny little minority in the overall business interest and are overwhelmingly NOT in that $250K+ bracket because -- surprise -- things are tilted against them, up to and including the burdens of providing health care and other benefits for employees in order to solicit talent. Granted, my interest in seeing single-payer healthcare is intensely personal, but I do get awfully tired of hearing people speak for me rather than with me about issues with which they seem to have no experience. It is easy to talk about how awful single-payer healthcare would be until it is you who is dying because we commodify our very lives in the most literal sense possible.
I think it is worth figuring that out, and I don't see how we are going to be able to recover without it, because the lack of healthcare is a serious burden to business and a real social crisis. Also, I'd appreciate not having to read so constantly the conservative view that I deserve to die. That would be nice.
As to your view of the administration's optimism: I agree. This is probably social engineering on their part in order to try to convince people that the depression will end sooner rather than later, hoping the idea will catch on and people will start planning accordingly. I'm not convinced this is a good idea.