Here are four broad reactions to the new proposal.
First, this is a short-term budget, not a long-term budget. There are three forces driving our long-run government spending and deficit problem:
2. unsustainable growth in per capita health spending; and
3. unsustainable promises made by past elected officials, enshrined in entitlement benefit formulas.
The Presidentís proposal addresses none of these forces. It instead spends most of its effort on everything but those factors.
His proposed Medicare and Medicaid savings, while large in aggregate dollars, are quite small relative to the total amount to be spent on those programs, and he lets the largest program in the federal budget (Social Security) grow unchecked. While Bowles and Simpson focused their efforts on the major entitlements and also addressed other spending areas and taxes, the Presidentís proposal does the reverse, focusing on other mandatory spending, taxes, and defense. Thatís a short-term focus.
Second, this proposal ďfeelsĒ to me like the recently concluded discretionary spending deal. Itís the size of a typical deficit reduction bill that Congress usually does every five or so years. Iím sure the affected interest groups are even now preparing to invade Washington to explain how a 3-5% cut will devastate them. The problem is that our fiscal problems are now so big that they require much larger policy changes.
Third, while framed as a centrist proposal, the substance leans pretty far left. Itís deficit reduction through (triggered) tax increases on the rich, plus defense cuts, plus unspecified other mandatory cuts and process mechanisms that might cut Medicare provider payments. Centrist Democrat proposals do all of these things, but they also reform Social Security and Medicare, usually through a combination of raising the eligibility age, means-testing, and raising taxes.
Fourth, the Presidentís speech was campaign-like in its characterization of and attacks on the Ryan plan.
The Presidentís proposal could be the opening bid in a negotiation with Congressional Republicans. When you combine this substance with the Presidentís aggressive partisan attacks and framing of the Ryan budget, however, itís hard to see how this leads to a big fiscal deal this year or next. A small incremental bill, which ďcutsĒ spending by a couple hundred billion dollars over the next decade, is possible. But the chances of a long-term grand bargain in the next two years just plummeted from an already low starting point.