Ethics & Public Policy Center

Five Stray Thoughts on the Obama Budget

Published in National Review Online on February 3, 2015

Various observers, including some around here, have offered good overviews of the 2016 budget the Obama administration released yesterday. So rather than a general overview, here are a few notes I made while reading through the budget—five items that stuck out or haven’t gotten enough attention.

First, the administration has reduced its growth expectations for this year. Although the narrative language surrounding the budget is all about turning corners and the like (and surely the economy is doing better than it has been), the basic growth projections underlying the numbers don’t look great. This past summer, when the Office of Management and Budget published its mid-session review (a budget update produced each July), it projected that the economy would grow at an annual rate of about 3.5 percent in 2015. In this budget, OMB has downgraded that expectation to 3.1 percent. That would still make for a pretty strong year if it happens (the strongest since 2005), though maybe only by 21st century standards (between 1950 and 2000, the American economy grew at an average annual rate of 3.7 percent; since 2000 we have averaged 1.9 percent) but it’s a rather large difference, and suggests they consider some basic economic indicators to have turned south some since July.

They also expect, as they did in July, that 2015 will be the strongest growth year of the coming decade and that the economy will settle into a stable level of growth of around 2.3 percent a year in the coming years. Even that, though, is based on a projection that implicitly assumes there will be no recessions over the next 10 years, which would make for 16 years without a recession—by far the longest stretch in the postwar era. So even under this relatively rosy scenario, the strongestyear for growth of the coming decade will see slower growth than the averageannual growth rate we experienced in the 1940s, 50s, 60s, 70s, 80s, or 90s. And these projections assume that the president’s various policy proposals will be enacted and would help the economy—both of which are dubious propositions, to be sure, but would tend to improve the projections. So OMB is telling us that something fundamental has changed in our economy and that our persistent expectations of a bounce-back to 20th century growth are misplaced. They’re not alone in saying so, of course, but the political language of the narrative sections of this budget document make for an odd fit with the underlying economic expectations—an odd fit that defines a lot of our politics now, on all sides, and has for more than a decade.

Second, spending is apparently the sum of all questions and answers. The administration’s past budgets have tended to argue that an injection of federal spending will make it possible for the economy to grow; this budget mostly argues that a stronger economy makes possible an injection of federal spending. This is literally a loopy worldview.

Third, the president wants a lot of tax increases but they are oddly scattered and highlight the Democrats’ political challenges. The aborted effort to tax college-savings accounts (the proposal was supposed to be in this budget but was killed by an uprising among Democratic lawmakers) has gotten a lot of attention on this front, and rightly so. On the merits, I thought it was interesting if ultimately misguided: It seems likely that colleges just swallow the value of the subsidy given to savers so that the subsidy ultimately inflates costs, but if we’re not going to address the counterproductive policies that do the most to enable that (above all the open-ended student loan system and the restricted accreditation process) then surely we can’t just make things harder on savers and think we’ve done some good. But the politics proved even more interesting and suggested, as a number of people have noted in recent days, just how difficult the Democrats’ political task will be in the coming years. To even just sustain the welfare state they have now, let alone to add to it as they would like, they will need to raise taxes on the middle class, and at this point it is pretty clear they just can’t do it.

Republicans have something of an equal and opposite challenge, of course. They don’t want to sustain that welfare state, they want to transform its parts into a lean and market-friendly safety net that will help people access the benefits of our free economy rather than shield them from it. But that kind of transformation will require reducing the benefits that middle-class people now receive, which wouldn’t be much easier than raising their taxes. Republicans are in a better place than the Democrats because they’re proposing reforms that will be attractive in their own right and that should make sense in 21st-century America, and in many cases they can be advanced without displacing current recipients of benefits. Paul Ryan’s Medicare proposal is a good example—it would transform the way the government makes insurance coverage available to the elderly in a way that could save huge amounts of money but wouldn’t reduce the value of the benefit and wouldn’t change anything for current beneficiaries. But even on that front, where Republicans have become far more unified in recent years, they still put the reform off toward the end of the budget window and it remains to be seen if they’ll have the fortitude to pull the trigger when they have the chance. I’d rather be the party offering appealing reforms that can avert fiscal disaster in the coming decades than the party asking for more and more money just to fund the programs we now have, but neither party will have an easy time of it.

With the college-savings account proposal gone, I count eight new taxes or tax increases in the budget (a capital gains tax increase, the Buffett tax, capping retirement-account contributions, taxing pass-through business income, a global profits tax, a large-bank tax, a tobacco tax increase, and a limit on itemized deductions to 28 percent) though I may well have missed others. With the exception of the tobacco tax increase, which punishes evil sinners of course, all of them try to further tap the very highest income earners, and they just don’t add up to enough to fund 21st-century liberalism as it is now conceived. Something will have to change.

Fourth, and much related, 21st-century liberalism as it is now conceived seems pretty exhausted and devoid of ideas. Faced with an unfriendly Congress and two years to go in his term, President Obama could have used this budget to sketch some bold ideas or make advances in some areas where the left is stuck. And maybe that’s even what the White House takes itself to be doing here—the proposals in this budget certainly aren’t intended to attract Republicans, after all. But if so, the budget suggests the Democrats are more stuck than any of them admit. The White House did all it could to make the menagerie of miniatures that comprise the policy agenda of this budget seem like a big pivot to the middle class or a revolution in tax policy, and they had some help from the political press. But what they’ve proposed here amounts to very little.

It wouldn’t appreciably change the circumstances of middle-class families (the Tax Policy Center, for instance, offers the comically precise calculation that “those making between $49,000 and $84,000—the middle quintile of earners—would actually see their taxes go up by an average of $7 under Mr. Obama’s proposals”) and would involve relatively modest redistribution to the bottom. And as a practical matter it basically consists of offering a few additional benefits to families with two earners who send children to commercial daycare centers. These proposals generally signal an emphasis on children and families, which might suggest the direction of liberal thinking in the coming years, but they also signal a dearth of policy creativity that should worry the Democrats—who need it even more than Republicans.

When it comes to policy, the Democrats are very much in the grip of mid-20th-century nostalgia, and still seem to be searching for the next big program to champion rather than thinking about what progressivism could look like in our time. Republicans, to be fair, are often in the grip of late-20th-century nostalgia. The first party to notice the present will have a real advantage for a time, and it does seem like that might turn out to be the Republicans, but eventually I imagine both will get there. It seems to me that some of our core domestic policy debates in the coming decades might well involve, in very broad terms, conservatives arguing for private options in otherwise public services and liberals arguing for public options in otherwise private services—a relatively coherent left/right divide implicitly rooted in the proposition that only competition can meaningfully overcome the daunting knowledge problems that have always confronted policymakers on nearly every front and that are growing even more acute in our increasingly fractured political economy. The right would want to broaden the scope of private experimentation, choice, and the resulting competitive pressures while the left would want to narrow it and fill gaps, but the debate would not revolve around the dream of technocratic social democracy solving problems through economies of scale that has given shape to our welfare state. Conservatives are much closer to their part in that debate (and its terms would surely be friendlier to conservatives than liberals) but here and there you can see some hints of early movement on the left as well. This budget just isn’t one of them.

Fifth and finally, a smaller point to notice: The budget includes a rather nebulous billion-dollar request for aid to Central America described as intended “to minimize the pressures of illegal immigration on the United States.” The descriptions around it, and in a New York Times op-ed on the subject by Joe Biden last weekend, are awfully vague and jump much too easily from talking about pressure on the border to a variety of extremely broad objectives, none of which seem like things you would buy with a billion dollars. I take this to suggest that the administration expects renewed pressure at the southern border later this year, surely in part as a response to the president’s unilateral executive amnesty, and that if that happens they want to be able to say that they proposed to do something about the “root causes” but Congress didn’t act. We shall see.

I did say these would be stray thoughts, didn’t I?


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