Testifying before the House Budget Committee today, U.S. Treasury Secretary Tim Geithner told Chairman Paul Ryan the following: “We’re not coming before you to say we have a definitive solution to that long-term problem. What we do know is we don’t like yours.”
Actually, President Obama sort of did have a definitive solution. He created a debt commission, which devised a long-term debt reduction plan. Which the president rejected. And instead, we get this new budget proposal, which makes no effort to deal with Medicare, Medicaid, and Social Security — the long-term drivers of U.S. federal debt. The debt curve never gets bent, as the above White House (!) chart shows. (Yes, the chart comes from the White House’s Office of Management and Budget.) It just goes up and up and up — until the heat death of the universe or the economy is struck by a Greek-style debt crisis.
Here’s what the bipartisan Committee for a Responsible Federal Budget says about the president’s plan:
Over the long-term, the President’s budget would not constrain rising debt, as retirement and health care costs continue growing faster than the economy. According to the Administration’s own estimates, debt would grow as a share of the economy past 2022 exceeding 93 per cent by 2035 and nearly 125 per cent by 2050. These levels would be both economically constraining and ultimately unsustainable.
Well, the president’s budget at least cuts $4 trillion in debt over 10 years, as the White House claims, right? Again, the CRFB:
Well, the answer depends on what savings are compared against, and what is counted as savings – but in no case does the President have comparable deficit reduction to the Fiscal Commission. To reach his $4.3 trillion in savings through 2021, the President’s budget counts $1.6 trillion (excluding interest) of already-enacted savings. In addition, it includes two elements which the Fiscal Commission assumed in its baseline – a drawdown of the wars ($740 billion through 2021) and the expiration of the upper-income tax cuts ($830 billion through 2021). If the Commission’s plan were scored the same way as the President’s $4.3 trillion, we estimate it would save roughly $6.5 trillion through 2021.
Well, at least the president’s budget keeps the debt problem from getting any worse over the next decade, right? Not really. Despite $1.7 trillion in tax increases, debt as a share of GDP — already at a historically high level — actually ticks up a bit to 76.5 per cent from 67.7 per cent in 2011 and 74.2 per cent in 2012.
And even to achieve this, the Obama White House has to assume rosy economic growth. Again, the CRFB
OMB’s economic assumptions are somewhat more optimistic than CBO’s, as well as the Blue Chip consensus ranges. The Administration projects real GDP growth to be 2.7 per cent in 2012 and 3.0 per cent in 2013, compared to 2.2 per cent and 1 per cent, respectively, from the CBO. Importantly, much of this difference is due to the fact that CBO assumes a temporary economic contraction in 2013 due to all the tax cuts expiring and the automatic spending sequester going off at the same time in the start of 2013.However, OMB continues to be more optimistic than CBO beyond this contractionary period, with estimated growth rates of 2.5 per cent per year by the end of the decade as opposed to 2.4 per cent by CBO. On the whole, these faster growth rates likely lead to a more favourable fiscal picture than what CBO would show using its economic projections. By our estimates, if OMB were to employ CBO assumptions debt would stabilise at about 80 per cent of GDP as opposed to 76 per cent.
My baseline case has been that Obama has no interest in being Clinton 2.0, the Debt Cutting President. He wants to be FDR 2.0, the Expanding Welfare State President. He wants that to be his legacy. Let Ryan or Chris Christie or Marco Rubio be the Austerity President in 2017. And what does Geithner care? He’s on his way out this year. At one point during the hearing, Ryan brought out this chart illustrating the impact of the Ryan debt plan, the one Geithner said “we don’t like”:
And here was the exchange between Geithner and Ryan, after Ryan pointed out the terrifying budget baseline (in red):
GEITHNER: You could have taken [the chart] out [to the year] 3000 or to 4000. [Laughs]
RYAN: Yeah, right. We cut it off at the end of the century because the economy, according to the CBO, shuts down in 2027 on this path.
And that’s no joke, Mr. Geithner.
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