The Congressional Budget Office released its 2013 long term budget outlook on Tuesday. The document is the most significant vindication of President Obama's economic policies to date, both enacted and proposed, and it is the most damning thing to the president's economic critics, both Left and Right. The CBO reports that thanks to the president's strong leadership in investing in America's future and raising taxes on the wealthy, by 2015, the deficit will have been cut by 80% relative to the size of the economy from when President Obama took office.
The economy’s gradual recovery from the 2007–2009 recession, the waning budgetary effects of policies enacted in response to the weak economy, and other changes to tax and spending policies have caused the deficit to shrink this year to its smallest size since 2008: roughly 4 percent of GDP, compared with a peak of almost 10 percent in 2009. If current laws governing taxes and spending were generally unchanged—an assumption that underlies CBO’s 10-year baseline budget projections—the deficit would continue to drop over the next few years, falling to 2 percent of GDP by 2015. As a result, by 2018, federal debt held by the public would decline to 68 percent of GDP.The last time the federal deficit was 2% or below was in 2002, after George Bush blew through the Clinton surpluses in just one year in office. This conclusively proves that the GOP's cut-cut-cut economic policy doesn't work and only produces bigger deficits. The president's approach of a sound fiscal policy with a mix of higher taxes for the ridiculously wealthy and targeted investment in the middle class is responsible for a whopping 80% projected deficit reduction (compared to the size of the GDP) as well as a growing economy (a growth arrested by Republican obstructionism, but a growing economy nonetheless).
Great. Let's do more of that. And we should do more of that.
While the CBO report decimates the Ayn Randian Republican economic model, it doesn't bode much better for the radicals on the Left. Thanks to President Obama's leadership, the debt and the deficit as a portion of the economy will be going down in the short term, but absent any reforms in the social safety net to arrest cost growth - something President Obama has taken insane hits from liberals for suggesting - the deficit will begin to grow again. After falling to a low 2% of GDP, the deficit will start rising again, going to 3.5% of GDP by 2023, and the debt will go to 71% of GDP.
Now, some of that may be overstated as the CBO may not be fully accounting for the downward pressure the Affordable Care Act is already putting on health care cost growth (currently at the lowest point in 50 years), but on the other hand it may also be underestimating longevity growth due to the same ACA. Time will tell whether cost growth due to longevity growth and the arrested growth due to regulations will be a wash or lean one way, but either way, it's unlikely to affect the trendlines too much.
And this is what the trendlines look like under CBO's current baseline assumptions:
As you can see, the federal health care spending is the "pull-away" line, with rising health care, Social Security and interest payments contributing to the higher deficit, while the rest of spending falls rather badly. The breakdown of those health care costs are also provided.
It may look like Medicaid SCHIP, and the exchange subsidies are growing the most from 2013, but remember that exchange subsidies aren't even in play for the 2013 fiscal year (and is in play for only two-thirds of the 2014 fiscal year). Medicare is the largest jumper, followed by Social Security - this assuming that Social Security keeps making payments in full despite the fact that it will have exhausted the trust fund in 2033, after which it will only be able to pay 75% of benefits if nothing is done. The Medicare Hospital Insurance trust fund will be exhausted by 2026, after which incoming taxes will be sufficient to pay for 87% of benefits, gradually declining to 71% in 2047 if nothing is done.
If nothing is done. That is a prospect we need to avoid, and the sooner we do something, the less drastic the measures will have to be. If adjustments aren't made - in both revenue and spending fronts - these programs will become shells of their earlier selves, as benefits are automatically reduced thanks to the exhaustion of the trust funds.
The president has, numerous times, put forward modest reforms in negotiations with Republicans, and Republicans know that those reforms remain on the table. The reforms include a chained CPI formula (a better measure of overall inflation) to calculate Social Security cost of living adjustments only if older seniors are protected with a benefit boost and the cap on income taxed is raised, it's coupled with raising the cap on incomes taxed as well better means testing and certain other reforms to Medicare that would require a better distribution of deductibles and copays, and cap cost sharing.
That's what the president has offered as part of a 'grand bargain' if Republicans are willing to negotiate on the budget in good faith - not on keeping the government open or paying bills Congress already ran up, but on the budget. These are the components that seem to send self-appointed representatives of the Left on the media and in government up the wall about "backstabbing" from a president who is responsible for the greatest expansion of the social safety net since the 1930s in the form of the Affordable Care Act and its vast Medicaid expansion and Medicare benefit increase, as well as expanding SCHIP to 11 million children.
But those compromises will be necessary - if the Republicans are willing to come to the table - to take action to begin to put our long term fiscal house in order now. And they'll be necessary if liberals who say they care about the social safety net really care about it for longer than the lifespan of their hair-on-fire fundraisers. Under current law, all non-health care and non-Social Security spending is scheduled to dwindle to 7% of GDP - that includes defense, education, labor and environmental regulatory enforcement, food assistance programs for children and the poor, housing assistance, heating assistance for the elderly and the poor, everything. Think about that.
As people live longer and longer - which is a good thing - they will utilize Social Security and Medicare longer and longer. That's just a fact, and adjustments will have to be made if these programs are to continue to keep the promise of a social safety net in perpetuity. And no, waiting until we reach ever closer to the brink to try a 1983 Reagan-style solution raising the retirement age isn't the answer, as some Leftist ideologues still suggest.
Our long term fiscal challenges can be solved with fairly modest changes to the safety net and the tax code. But that will not happen with intransigence and rigidity coming from both the Right and the Left. It will not happen if the Right never budges an inch on taxes. It will not happen if we liberals do not provide our president with the breathing room he needs, accusing him of selling out at every turn. And if it doesn't happen, we will edge closer and closer to the edge, and the closer we get to the edge, the more drastic the changes will need to be.
Liberals can choose between the president's sensible proposals to adjust the programs while protecting the vulnerable, or we can wait until we get to the brink and a Republican president forces changes we hate, ala Reagan who raised the retirement age, dumped double the burden on the self-employed, and taxed social security and unemployment benefits, with Democrats' help. We have a choice now. But we won't have that choice forever. The clock is ticking.