Mr. Obama: Your Trial Balloon on Deficit Reduction Needs Puncturing

Achieving the Almost Impossible, A Deficit Reduction Deal That Gets No Votes in Congress

The New York Times reports on the current deficit reduction talks using what is almost certainly a leak from the White House to test the public acceptance of a major reduction in federal spending on social programs, Medicare and Medicaid over the next 10 years. 

President Looks for Broader Deal on Deficit Cuts

and the Washington Post goes even further, reporting that the President is also putting cuts in Social Security on the table for the Republicans to devour.

In the reports the President is reported to want to go beyond the $2 trillion in agreed upon cuts in spending, and double that to $4 trillion.  He would also extract $1 trillion in revenue increases from the Republicans.

 

There are, of course, a few problems here.

 

1.      The $2 trillion figure itself is substantially higher than the $1.3 trillion that had been reported as the agreed upon cuts.

 

2.      The $4 trillion in cuts, averaging $400 billion a year in reductions in key social programs, education support, Medicare and Medicaid would have severely negative effects on the economy and on those programs that are cut.  At $130 billion a year the economy might be able to sustain some growth as these cuts are small relative to overall economic activity.  With a $400 billion spending cuts plus a$100 billion a year tax increase, a  fiscal un-stimulus, expansion of the economy would be very difficult.

3.      As the story points out, agreeing to cut Medicare and Medicaid would leave the Democrats with no real position in the election,

 

“Depending on what they decide to recommend, they may not have Democrats,” Senator Sheldon Whitehouse, a Rhode Island Democrat, said in an interview. “I think it is a risky thing for the White House to basically take the bet that we can be presented with something at the last minute and we will go for it.”

To the degree that any deal wins bipartisan support on slowing the growth of Medicare, for example, it would deprive Democrats of what has been one of their most potent arguments heading into 2012: their assertion that Republicans would gut the traditional Medicare system and leave older Americans vulnerable to rapidly rising health care costs.

 

That the Democrats in the Congress would agree to such a program, or self inflicted non-lethal suicide as The Dismal Political Economist would describe it seems impossible, but then Democrats in the past have certainly been willing to go down a self-destructive path. (See “tax compromise, December, 2010).

4.      As for Republicans, they should be gleeful and giddy at such a deal, but their “no tax increase” mentality would certainly scuttle any meaningful increase in revenues. They may agree to  commit to tax changes down the road, (wink, wink, nod, nod) but even Democrats are probably(?) smart enough to reject that. 

 

The Republican opposition to even consider revenue increases though is beneficial in that it may be the only hope for the Democrats in getting Mr. Obama to go down a different path than the one he proposes.  It may also be that the President is engaging in very smart politics, making the Republicans an offer they can't refuse, which they then refuse.  No evidence of the President being this politcally savvy has been seen in the past.

 

So now we have the trial balloon floating eagerly in the air over the pages of the New York Times and the Washington Post.  Quick, someone stick a pin in this monstrosity before it floats out of control and into the Congress.