The Loud and Clear Message In President Obama's Budget


ACRU Staff


February 24, 2012

This column by ACRU General Counsel and Senior Fellow for the Carleson Center for Public Policy (CCPP) Peter Ferrara was published February 24, 2012 on

Last week, I discussed the central economic policy of President Obama’s budget and accompanying Presidential budget message. What drives economic recovery and growth according to the President and his budget is federal spending, deficits and debt, the fundamental tenets of the Keynesian economics that arose in the 1930s.

If you agree with that, then President Obama is your man for reelection in 2012. If you think that’s nuts, however, then the message of the budget to you is that America needs a new President.

But the budget and accompanying Presidential rhetoric includes several other messages as well.

One message is that the President and the Democrat Party will not cut federal spending. The President proposes in this budget to increase federal spending by $1.5 trillion on net over the next 10 years, with the federal government to spend $47 trillion over that time! By 2022, President Obama’s budget proposes to spend $5.82 trillion in that one year alone, virtually double the 2008 federal budget of $2.983 trillion, the year before Obama took office.

This is in the context of the national debt held by the public roaring to $20 trillion by 2022, as proposed in the President’s own budget. That compares to $5.8 trillion in 2008. The gross federal debt, which includes the money the taxpayers owe in the Social Security trust fund and similar federal debts, which will have to be paid, is projected in Obama’s own budget to total nearly $26 trillion by 2022, over 100% of GDP that year. But even in this exploding national debt crisis, the Democrats will not cut spending.

Yet, the President insists in his budget message, “Meeting the spending targets in this Budget meant some very difficult choices: reforming, consolidating, or freezing programs where we could; cutting programs that were not effective or essential and even some that were, but are now unaffordable; and precisely targeting our investments. Every department will feel the impact of these reductions as they cut programs or tighten their belts.” That is how the President describes a budget that increases spending on net by $1.5 trillion, spending $47 trillion over the next 10 years. This shows how far President Obama’s soft, smooth rhetoric can be from reality. Remember that the next time you hear him talk.

Similarly, the President says in his budget message, “[T]his budget will cut the deficit by $4 trillion over the next decade.” But that includes $2 trillion in deficit reduction already enacted into current law under the Budget Control Act of 2011 and other measures last year. The President can’t claim savings for his new budget that were already enacted into law last year.

Moreover, the President is taking credit here for the spending cuts Tea Party Republicans forced on him to get his debt ceiling increase and other continued funding last year, over his demand for a “clean” debt limit increase. President Obama rhetorically blowtorched the Republicans for forcing him to the wall over the debt limit increase to get those spending cuts, and continues to do so. But in his budget message, he wants to take credit for those results.

The President also includes in his supposed $4 trillion in deficit reduction another trillion in savings from winding down the wars in Iraq and Afghanistan. But those funds were never requested and were never going to be spent, unless the 2007 Iraq surge, and last year’s Afghanistan surge, were going to continue for another 10 years.

The President’s budget also doesn’t include over $300 billion in additional spending just enacted in the Medicare “doc-fix,” to pay doctors and hospitals so seniors on Medicare can continue to get essential medical care. But the budget does include $300 billion in assumed debt interest savings from all of these supposed deficit reductions in the budget that are not new deficit reductions.

That leaves an actual net deficit reduction proposed in this budget of $400 billion over 10 years, only about 10% of what Obama claims, and less than 5% of the additional deficits and debt that would otherwise result over the next 10 years. That net deficit reduction results from $1.9 trillion in still further tax increases over the next 10 years proposed by President Obama in this budget, in addition to all the tax rate increases already enacted in current law for next year, and the $1.5 trillion in net additional spending increases proposed in this budget.

But those still further tax increases, even if enacted, won’t raise anywhere near that projected $1.9 trillion in additional revenues. In fact, if those tax increases, along with all the other tax rate increases already enacted for next year, cause another recession next year, as I and others think likely unless the rate increases are reversed, the result will be lower rather than higher revenues, and still higher deficits and debt as a result.

The same absolute aversion to any spending cuts by President Obama and the Democrats is shown by the battle over extending the temporary payroll tax cut for the rest of this year. The Republican House passed that payroll tax cut extension in January, with spending cuts to offset the lost revenue in full. But the Democrat majority Senate refused to even consider it with the spending cuts, and President Obama continually assailed the Republicans for supposedly wanting to raise taxes on working people while keeping tax cuts for the rich.

To avoid that continued charge, and blame for any renewed downturn in the economy this year, the House Republicans passed the temporary payroll tax cut extension without any spending cuts, which adds another $100 billion to the deficits and debt. The Democrat Senate was only too happy to pass that.

Another message sent by the budget is that entitlement reform is completely off the table while Obama is President. Indeed, President Obama and the Democrats can’t even discuss the issue intelligently. They run ads showing thoughtful reformers like Paul Ryan throwing old ladies in wheelchairs off of cliffs, and DNC Chairwoman Debbie Wasserman Schultz repeatedly tells us that Ryan’s careful Medicare reforms “would literally be a death trap for seniors.”

President Obama further demonstrates this in his budget message, saying regarding his budget, “What it does not do–and what I will not support–are efforts to turn Medicare into a voucher or Medicaid into a block grant. Doing so would weaken both programs and break the promise that we have made to American seniors, people with disabilities, and low income families–a promise I am committed to keeping.”

But such reforms would actually greatly benefit American seniors, people with disabilities, and low income families. Medicaid today pays doctors and hospitals such low fees that the poor on the program face great difficulties in finding timely health care. They suffer documented worse health outcomes as a result.

In one case, a boy from a low income family suffered a bad toothache. His mother struggled to find a dentist in the area that would take Medicaid. When she finally found one, she had to wait weeks for the appointment. By the time the boy got there, the tooth decay had spread to an infection of the brain.

So she struggled to find a specialist who would take Medicaid and who could see the boy. She got her son on the waiting list. But the boy never made it. He died from the brain infection before his appointment.

With a Medicaid block grant to the states, states could use the block grant funds to provide financing for each poor family to choose the private health insurance of their choice. Insurance companies that wanted to p
articipate in the program could do so only on the condition that they would agree to accept any Medicaid family that chose them, without exclusion of “pre-existing” conditions, the same rule that prevails for the Federal Employee Health Benefits Progam. Private insurers pay market rates sufficient for their insured customers to obtain timely health care, or else they wouldn’t be able to market their insurance successfully. The poor would consequently be freed from the Medicaid ghetto under such reform. They would enjoy the same health care as the middle class, because they would have the same health insurance as the middle class.

Obamacare cuts Medicare payments for doctors and hospitals so sharply that after a decade Medicare would pay them only a fraction of what Medicaid pays. Yet, the Chief Actuary of Medicare reports that already today two-thirds of hospitals lose money on Medicare patients. Under Obamacare, doctors and hospitals, especially the most advanced specialists providing the most critical care, would increasingly have to withdraw from Medicare just to stay in business. Seniors would consequently lose access to the most advanced care. Congress in recognition of this problem only began to restore some of the cuts in the recently enacted “doc fix.”

Yet, Obamacare also subjects Medicare to a politically unaccountable Independent Payment Advisory Commission of Washington bureaucrats with the power to impose even more cuts to Medicare payments for doctors and hospitals, without approval from Congress! Under the enacted law, Congress could override the cuts only by adopting other cuts for Medicare.

Moreover, Obama’s new budget includes another $360 billion in additional cuts to Medicare and Medicaid, mostly for payments to doctors and hospitals, or otherwise arbitrarily denying seniors health care.

But Ryan’s proposed Medicare “vouchers” or premium support payments for private insurance would enable seniors to escape Medicare’s death trap once again through private insurance that pays sufficient rates to enable seniors to continue to access essential health care. Moreover, Ryan’s changes would not apply to anyone in retirement today or anywhere near retirement, unlike Obamacare’s draconian cuts. Seniors would consequently benefit from these Ryan reforms. In fact, under the latest Ryan proposal, seniors could stay with traditional Medicare if they wanted, but, as discussed above, good luck getting the right care when you really need it under the policies of Obamacare.

Access to timely health care of course is of greatest concern to the disabled, so they would actually benefit the most under these reforms. For both Medicare and Medicaid, these reforms would empower seniors, the poor and the disabled to choose Health Savings Accounts (HSAs), which maximize patient power and control over their own health care, and have proven most effective in controlling costs with new market incentives for consumers and health care providers.

In fact, all of the nation’s long outdated entitlement programs could be fundamentally reformed to serve their social welfare goals far more effectively, at just a fraction of current government spending costs. That was the central theme of my book last year, America’s Ticking Bankruptcy Bomb. But that requires new thinking, which is exactly what President Obama, the Democrats, and today’s so-called liberals refuse to do. That is why I don’t see anything liberal about them any more.



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