This column by ACRU General Counsel and Senior Fellow for the Carleson Center for Public Policy (CCPP) Peter Ferrara was published May 9, 2013 on Forbes.com.
House Republicans are proving effective in restraining the runaway federal spending desired by President Obama and Congressional Democrats. That does not remotely mean that the House Republican majority has solved Washington’s spending, deficit and debt problems. But while they looked helpless at the turn of the year when Obama and the Democrats rolled over them in enacting Obama/Democrat tax increases on capital investment, official federal government budget numbers show that the House Republican majority has restrained the spending increases that President Obama and Congressional Democrats have been seeking.
Even more importantly, Congressional Republicans appear to have learned how to exercise their power to keep doing this in the future. But for big spending reductions, entitlement reform is necessary. House Republicans have proposed entitlement reforms that would at least reduce federal spending as a percent of GDP. Those reforms would actually critically benefit seniors and the poor. But to achieve that, the American people need President Obama and Congressional Democrats to drop their Breshnev doctrine on entitlement spending, and open their minds to fundamental structural reforms of these hopelessly outdated programs, which would benefit everyone, seniors and the poor included.
President Obama evidenced the opposition of the Democrats to any spending restraint at all in so bitterly opposing the mild sequester cuts. Those cuts amount to $1.2 trillion over 10 years. But President Obama and Senate Democrats have proposed spending $50 trillion over those 10 years in their own recent budget proposals.
The sequester only cuts 2% of federal spending out of the increase in spending, not reducing current levels of spending. But Obama and the Democrats insisted that such mild spending restraint would impose huge suffering on the American people. They proposed instead replacing the spending increases with yet another tax increase, which would be the third already this year, with the trillion dollar tax increases of Obamacare going into effect, and an estimated $600 billion in tax increases from the expiration of the Bush tax cuts for the nation’s investors, employers, and successful small businesses.
Obama did his best to whip up public hysteria over the impact of the sequester cuts. We all saw that first hand. But House Republicans would not budge on the sequester spending restraint, just as Obama would not budge on the tax increases at the beginning of the year.
Even after the sequester cuts went into effect, Obama tried to whip up a public backlash against Republicans to get them to retract the cuts, and increase spending still further. But the reality was as I predicted in an earlier column, almost no one felt any effect of the sequester cuts in their daily lives.
President Obama tried to change that by administering the federal government to hurt the American people, to get his way. When House Republicans tried to pass legislation to give the President complete discretion to apply the 2% cuts solely to waste, fraud and abuse, the President rallied Congressional Democrats to refuse to go along, saying there is no way he could choose between cutting spending for hungry children or cutting spending for sick children. That further indicates that President Obama and his Democrats are implacably opposed to any spending restraint, even 2% of federal spending out of spending increases. It implies that Obama and the Democrats believe there is no significant waste, fraud and abuse in federal spending. It is all spent on hungry children, or sick children, or disabled children.
James Carville laughed on national television over how President Obama would abuse air travelers to get his way on the sequester, maximizing the cuts for the busiest airports, and the most possible flights. And sure enough, the Obama Administration did precisely that, somehow translating a 4% cut to projected FAA spending, as chosen by the Obama Administration in first specifying the sequester cuts, into flight delays for 40% of flights, as reported by the Wall Street Journal.
But Obama and the Democrats were too obvious, and air travelers are too sophisticated and knowledgeable, for that ploy to work. So the backlash was against Obama and the Democrats, and they were the ones to back down. Congressional Democrats quickly joined with Congressional Republicans to pass legislation to restore the FAA spending, offsetting it with cuts elsewhere, and Obama signed it.
But this was no innocent episode. The American people are not pawns to be abused in some political game. At a minimum, the experience shows that the government cannot be trusted to run the FAA for the public good. The FAA consequently must be privatized and depoliticized, as has been done so successfully in so many other countries, notably Canada.
But this episode also constitutes abuse of office. The President is not granted any authority to intentionally harm the American people to score political talking points. His oath of office is to take care that the laws be faithfully executed, and this FAA abuse was not faithful execution of the laws and duties of office. This adds further to the growing record of misconduct justifying removal from office, including dereliction of duty in regard to Benghazi, and not being honest with the American people about it.
President Obama told us that the sequester spending cuts would be bad for the economy. But the economy has performed better than expected since the sequester cuts went into effect. This shows yet again that the Keynesian economic doctrine that increased federal spending, deficits and debt are the foundation of economic recovery is directly contrary to reality. At this point, anyone who publicly advocates this illogical foolishness proven wrong by real world experience should be seriously shamed. Yet, this silliness is the foundation of the President’s economic policies. What we have learned by hard experience under President Obama is that he does not learn from experience.
Spending cuts are actually pro-growth, not contractionary. They reduce the federal drain on the private sector involved in either taxes or borrowing. That is why they were one of the four planks of Reaganomics, which produced a generation long, 25 year, economic boom from 1982 to 2007, the greatest economic boom in American, and, therefore, world, history in terms of increased output, or production.
The Continuing Resolution
Because the Senate Democrat majority has not even acted on a budget for several years until this year, the federal government is not operating under a budget, but under periodic continuing resolutions (CRs) authorizing continued spending for a time, the last being enacted on March 31.
These CRs give House Republicans the opportunity to impose a freeze on discretionary spending, or at least on domestic discretionary spending. House Republicans can argue that such a freeze does not even involve any cuts. It just continues the same level of spending as the prior year. In the current budget and economic crisis, the public would easily support that.
Determining budget numbers for a current, ongoing budget year, without an enacted, formal budget, is difficult. But based on official government data I have obtained, this seems to be close at least to what the House Republicans are doing with federal spending under the CR process.
Budget authority for federal discretionary spending for fiscal 2013 was the same in the March CR as for fiscal 2012. That CR also fully incorporated the sequester cuts into authorized outlays for fiscal 2013 and beyond, making them part of the current budget baseline.
Moreover, discretionary spending outlays authorized by the March CR, counting supplemental war spending, shows a net total cut for 2013 discretionary spending as compared to 2012 discretionary spending, equal to about $40 billion, as best I can determine from current budget documents. But if the supplemental spending for Hurricane Sandy emergency relief of $50 billion is counted, total discretionary spending for 2013 rises slightly from 2012. Still it seems close enough overall for an effective discretionary spending freeze, at least.
House Republicans can continue that freeze for the entire four years of Obama’s second term, or until Senate Democrats work out an overall budget with them. But if this discretionary spending freeze continues for a while longer, soon Obama will be taking credit for it, just as he has taken credit for the fracking oil and gas boom. That has occurred only because it is on private and state lands, and he has not yet been able to catch up to it and shut it down, like he has sharply reduced oil and gas production on federal land.
The Debt Limit
In February, Congress agreed to a three month truce with President Obama on the debt limit, suspending it for three months until May 19. Speaker Boehner has said the House wants $1 in spending cuts for every dollar increase in the debt limit. President Obama has said that he is not going to negotiate with the Republicans over the debt limit. In Obama’s opinion, it is the Republicans’ responsibility to increase the debt limit to whatever level it needs to be to accommodate his spending, meaning President Obama is not willing to even talk with Republicans about any further limitation on his spending. He is more willing to talk to the Iranians about their illegal manufacturing of nuclear weapons than with Republicans about controlling his spending.
Under the three month debt limit truce, the debt limit on May 19 will be whatever the total outstanding national debt is at that time. That will probably be around $17 trillion. That is already more than the entire GDP for the year. The Obama Administration itself projects that under the President’s own budget, the national debt will be over $25 trillion in 10 years. The entire economy today is only about $16 trillion.
In this context, Speaker Boehner’s position is quite reasonable. If President Obama wants to add another trillion to the runaway national debt, he needs to agree to another trillion in spending restraint over the next 10 years.
But President Obama argues that if Republicans refuse to increase the debt limit as necessary to accommodate all of his spending, that would amount to defaulting on the national debt. That argument is like telling your credit card company that you can’t make your monthly payments unless you get an increase in your credit limit. What do you think your credit card company would say if you told them that?
Keeping the debt limit where it is would not involve a default on the national debt. Total revenues flowing into the federal Treasury are several times as much as the total debt interest due this year. Any outstanding debt that comes due can be rolled over with new debt without going over the debt limit.
But to gain public support for their position on the debt limit, Republicans are going to have to explain this to the public in an effective, compelling way. The news media has already begun to repeat Obama’s debt default fairy tale regarding the debt limit as if it is fact. Republicans need a highly articulate spokesman on this issue to take on President Obama directly on this point, and explain why he is wrong in terms the public can understand. Senator Cruz from Texas should seize this opportunity, and effectively become the national spokesman for the party.
Positive, Win Win Entitlement Reform
Republicans also need to become more articulate about entitlement reform. To become viable, the phrase entitlement reform cannot evoke in the public mind the question, what are they going to try to do to seniors and the poor now.
Modern, cutting edge, entitlement reform would benefit seniors and the poor, while reducing costs to taxpayers. The welfare reform of 1996 sent the federal financing for the old, New Deal, Aid to Families with Dependent Children (AFDC) welfare program back to the states in the form of fixed, finite, block grants. Instead of the federal funding for a state increasing the more the state spent on the program, effectively paying the states to spend more, and increase welfare dependency, the reform gave states the power to run the program as they chose, based on mandatory work for the able-bodied, under the financing rule that if the state program cost more, the state would have to pay 100% of the increase itself. But if the state program cost less, because the state was effective in getting welfare dependents out to work, the state could keep 100% of the savings.
After 10 years under this reform, two thirds of the poor formerly dependent on the program went to work. Their incomes were documented to increase by 25% on average. Yet the costs of the program for taxpayers were 50% less than they would have been otherwise under prior trends.
This same reform can and should be extended to all of the nearly 200 federal, means tested, welfare programs, to the great benefit of the poor and taxpayers. Extending the reform to Medicaid would benefit the poor in particular, because the program currently pays so little to doctors and hospitals for care for the poor, that they cannot get timely, effective health care. Some die prematurely as a result. If the states were given total control over Medicaid, with the federal financing for the program coming in fixed, finite, block grants as above, the states could experiment with giving the poor better access to health care through health savings accounts, managed care, and/or vouchers for the purchase of private health insurance. CBO has already scored a similar proposal by Paul Ryan as saving nearly $1 trillion over 10 years as a result. Similar proposals by others in Congress have been scored as saving even more.
Similarly, Ryan’s Medicare reforms would benefit seniors by simply extending the more modern and popular Medicare Parts C and D to the old fashioned and bureaucratic Medicare Parts A and B. This would achieve the same reductions in future Medicare spending as Obamacare does, but through senior choice and market competition, rather than the health care denials for seniors that would result from Obamacare’s policy of slashing payments to doctors and hospitals for the care they give to seniors to less than what the government pays under Medicaid for care for the poor. This would achieve the scored savings for these reforms, while empowering seniors with better Medicare than they will have under Obamacare.
In addition, with freedom to choose personal savings, investment and insurance accounts in place of at least some and eventually all of Social Security, seniors would gain higher rather than lower benefits after a lifetime of such savings and investment. They would also enjoy the freedom to choose their own retirement age, rather than the government imposing the same, increased retirement age on everyone, whether that was suitable for particular individuals or not. At death, seniors could leave the remaining funds in the accounts to their children or other designated heirs. But this would involve the greatest reduction in government spending in world history, as Social Security benefits would be financed through the private sector rather than through taxes and government spending.
Such reforms also involve pro-growth policies, reducing tax, spending, deficit and debt burdens, while increasing productive, private sector activities. More of the poor would be working and contributing to the economy. The personal accounts for Social Security would involve mighty rivers of savings and investment flowing into the economy now, increasing economic growth, jobs, wages, family incomes, and prosperity for working people today.
Such positive, pro-growth, win win, entitlement reform would put President Obama and the 20th century Democrats on the defensive, and inspire mighty grassroots support. With that, the Republicans could demand progress on such entitlement reform, in return for increasing the debt limit.