After mostly satisfying the base of his party with a forceful restatement of the liberal creed on Wednesday, President Obama invited the co-chairs of his fiscal commission to the White House the next day, symbolically embracing an approach to deficit reduction that the Democratic base had rejected last December. Has the president managed to thread the needle and satisfy the principal elements of the coalition that he needs to reassemble to win reelection? What is the relationship between political optics and policy substance? Because the first wave of commentary on the president’s speech has emphasized the former, it’s time to look at the latter. While it’s hard to know for sure, evidence and logic suggest that President Obama’s budget is far less aggressive about deficits than his embrace of Messrs. Bowles and Simpson would suggest.
The president proposed a clear target: $4 trillion in deficit reduction over twelve years (or less). Although he did not specify the baseline from which reductions would be made, the language of the speech suggests that he took his FY2012 budget proposal as his point of departure. According to the CBO, that proposal would produce aggregate deficits of about $9.5 trillion over ten years. A back-of-the-envelope projection suggests that the total deficit over twelve years would be in the neighborhood of $12 trillion. In effect, then, the president is proposing to reduce his budget’s total deficit by about one-third between now and 2023. The remaining two-thirds would be added to the national debt.
The debt-to-GDP ratio is a key measure of the country’s actual debt burden. Under the president’s FY2012 budget proposal, according to the CBO’s projections, that ratio would rise from 69 percent in 2011 to 87 percent in 2021. Another back-of-the-envelope analysis suggests that it would rise to a bit more than 90 percent by 2023. If the projected overall debt burden is reduced by $4 trillion, as the president now proposes, the debt-to-GDP ratio in 2023 would be about 75 percent. By contrast, the proposal of the president’s National Commission on Fiscal Responsibility and Reform (A.K.A. the Bowles-Simpson commission) yields a debt-to-GDP ratio of 60 percent in 2023. Relative to the CBO estimate of the president’s FY2012 budget, then, the plan proposed in his speech would reduce the debt-to-GDP ratio about half as much (15 points) as would his fiscal commission’s plan (30 points).
This conclusion presupposes that I’ve gotten the analysis right. The evidence is less than conclusive, in part because there are multiple competing baselines, and in part because the fact sheet backing up the president’s speech can be charitably characterized as sketchy. But here’s a hint that I’m on the right track: In describing its proposed “failsafe” trigger, the White House fact sheet states that “[a] debt failsafe will ensure that our nation’s debt is on a declining path as a share of our economy. If by 2014, budget projections do not show that the debt-to-GDP ratio has stabilized and is declining in the second half of the decade, the failsafe will trigger an across the board spending reduction, including on spending through the tax code.” This leaves it unclear exactly when the president’s plan would put the ratio on a downward course (anytime between 2015 and 2019 would be consistent with the language). Under Bowles-Simpson, the debt to GDP ratio peaks in 2013 and declines every year thereafter.
That’s one piece of evidence that the president’s plan is less fiscally demanding than Bowles-Simpson. Here’s another: The president is described as confident that with a “robust economic recovery” working in tandem with a bipartisan deficit reduction agreement, the debt-to-GDP ratio will be declining by the second half of the decade, obviating the need to trigger the failsafe. It’s natural to wonder about the economic growth assumptions supporting this confidence. We already know that the OMB is significantly more bullish than the CBO. That doesn’t mean the administration is wrong, of course. But it does suggest that the president’s bottom line is more driven by growth projections, and less by policy-driven deficit reductions, than is Bowles-Simpson’s.
Nor is it clear that the debt failsafe would prove equal to the task. The White House says that it would not apply to Social Security, Medicare benefits, or “low-income programs.” It’s not clear whether this phrase is meant to include Medicaid as well as programs like food stamps. But even if it doesn’t, the cuts triggered by the failsafe would fall mainly on discretionary spending and tax expenditures, from which the president is already proposing to wring about $2.2 trillion in deficit reduction over the next twelve years. Cutting more from that pot, and not entitlements, seems unrealistic.
It’s easy to dismiss all these eye-glazing technicalities as politically beside the point. After all, the commentariat’s verdict is already in: The president didn’t have a plan, and now he does. That’s true, and the debate will shift accordingly. But if and when the bicameral, bipartisan negotiation the president called for in his speech actually convenes, the numbers and details will start to matter more than perceptions. There’s nothing necessarily wrong with putting deficit reduction on a shallower glide path than Bowles-Simpson recommends. But rebuilding the public’s confidence requires all parties to the negotiations to be as transparent as possible about the consequences of their plans.