President Obama came out with a newer and even more conciliatory bargaining offer to House Republicans yesterday, which on the surface appears to be evidence that a big budget deal may be at hand. Obama is offering to drop his revenue target to $1.2 trillion over a decade and is putting a host of spending cuts on the table, including to-be-determined Medicare cuts and a stingier cost-of-living adjustment method for Social Security. Since this is not Obama’s “final offer,” it stands to reason that any agreement with Boehner will move further right.
So should liberals freak out? Maybe a little — but they’re not freaking out over the right stuff.
The Huffington Post is playing up the brutal cuts to retirement programs, but this may be the wrong target. The place to begin here is public opinion. As always, the essential fact is that Americans oppose government in the abstract but favor it in the particular. Today’s Washington Post poll provides the most recent snapshot of a landscape that has remained depressingly unchanged. People strongly want to cut the deficit, and they strongly favor spending cuts to do it, but they just as strongly oppose cutting Social Security, Medicare, or Medicaid. (They do strongly favor raising taxes on the rich.) One thing this shows is that Obama’s proposed solutions to the long-term deficit are popular and the GOP’s are highly unpopular. But another thing it shows is that government programs other than Social Security, Medicare, and Medicaid are deeply vulnerable.
In Washington, these programs fall into the category of “discretionary spending,” which means they’re doled out every year by Congress. These categories are the whole guts of the federal government — infrastructure, regulation, security, and on and on. Because they fall into a broad catchall category, and because government spending in the abstract lacks a political constituency, it’s very easy for Congress to just ratchet the whole category down. And that’s exactly what has happened. Last year’s budget deal set domestic discretionary spending to drop to historically low levels. The Bowles-Simpson plan would have done the same thing. Obama's latest offer ratchets that level down even farther.
Now, the caveat is that agreeing to cut discretionary spending in general is not the same thing as sitting down every year and figuring out how to allocate the cuts to food-safety inspections and highways and the FBI and so on. Doing that turns out to be hard. In the nineties, Bill Clinton and the Republicans also agreed to ridiculously low caps on domestic discretionary spending. But as the economy grew and the budget deficit kept falling below expectations, Congress was able to undo many of the cuts that were terrible policy and nobody — not even conservatives — really wanted to carry out when they came face to face with them.
This is why revenue is so key. An improving deficit picture is the necessary backdrop for Congress to have the space to avoid carrying out a series of policy changes that are usually too small to show up on the radar of public opinion but are really terrible policy. Obama’s offer has some painful cuts to Social Security and Medicare but — on the basis of sketchy descriptions so far — is at least compatible with avoiding harm to the most vulnerable. And very strong public opposition to any cuts in retirement programs gives Obama a strong hand to defend his position.
Revenue is the weak spot. The offer locks in a revenue level — $1.2 trillion over a decade higher than current policy — that’s really too low to fund the government at an acceptable level. It’s better than the $800 billion deal Obama offered last summer, but it's still pretty bad.
The good news is that budget projections are incredibly hard to make years in advance. There’s plenty of room for a positive surprise. Health-care costs seem to be coming down, and I’m optimistic the reforms in the Affordable Care Act can control health-care inflation by more than the Congressional Budget Office forecasts. Or maybe the economy will grow a little faster than we project.
But the bottom line is that the lower the revenue, the less margin for error there is to loosen the fiscal straitjacket that will bind vast swaths of the federal government. The politics of it makes it much easier for Obama to give away cuts to discretionary spending — which he did last year to virtually no objections from his base — than to give away retirement spending.