James Pethokoukis

In the space of less than 24 hours, the Congressional Budget Office managed to stomp all over President Barack Obama’s dovish debt speech. That Obama failed to use the State of the Union address to explicitly endorse any of his own debt panel’s major budget-cutting recommendations was, shall we say, a glaring omission. Now that failure appears absolutely blinding. Give us the bad news CBO bean counters:

For 2011, the Congressional Budget Office (CBO) projects that if current laws remain unchanged, the federal budget will show a deficit of close to $1.5 trillion, or 9.8 percent of GDP. The deficits in CBO’s baseline projections drop markedly over the next few years as a share of output and average 3.1 percent of GDP from 2014 to 2021.

The deficits that will accumulate under current law will push federal debt held by the public to significantly higher levels. Just two years ago, debt held by the public was less than $6 trillion, or about 40 percent of GDP; at the end of fiscal year 2010, such debt was roughly $9 trillion, or 62 percent of GDP, and by the end of 2021, it is projected to climb to $18 trillion, or 77 percent of GDP.

Those projections, however, are based on the assumption that tax and spending policies unfold as specified in current law. Consequently, they understate the budget deficits that would occur if many policies currently in place were continued, rather than allowed to expire as scheduled under current law.

If Medicare’s payment rates for physicians’ services were held constant as well, then deficits from 2012 through 2021 would average about 6 percent of GDP, compared with 3.6 percent in the baseline. By 2021, the budget deficit would be about double the baseline projection, and with cumulative deficits totaling nearly $12 trillion over the 2012–2021 period, debt held by the public would reach 97 percent of GDP, the highest level since 1946.

Well, at least Obama didn’t ignore the debt issue completely. Deficit reduction was included as one of his five economic “pillars,” along with innovation, education, infrastructure and government reform. And he did call for a temporary freeze on some spending categories. But his narrow formulation exempts sixth-sevenths of federal outlays for savings of less than $400 billion over ten years (only a quarter of the $1.6  trillion his commission called for) vs. perhaps $12  trillion in total new debt. Last week, a group of influential Republicans called for $2.5 trillion in cuts over a decade.

There had been hope Obama would at least suggest trimming Social Security, as his bipartisan debt commission suggested last December. But the idea was dropped after much howling from liberal interest groups. Yet, strangely, Obama said it was necessary to “find a bipartisan solution to strengthen Social Security for future generations.” He should check his in-box because it’s been sitting in there for more than a month.

The White House has clearly decided that a “pro-growth” message will serve Obama well in his 2012 reelection bid, with the space race reference meant to evoke the can-do 1960s.To hammer home the point, Obama emphasized the need to keep investing in the “Apollo projects” of today. In other words, let the GOP be the Party of Austerity and root-canal economics.

The speech isn’t necessarily Obama’s final take on the matter, of course. Progress can be made outside the media spotlight. In 1997, secret talks between the Clinton White House and congressional Republicans almost led a bold deal to fix Social Security.

Obama might want to try a similar tactic and quietly meet with the guy who gave the Republican TV response, Rep. Paul Ryan. The rising GOP star and debt panel member has created a plan with a former Clinton economist to sharply cut future health costs, the primary driver of America’s long-term debt woes. Otherwise, U.S. debt may just keep rocketing higher.

Whenever I would ask folks at the White House about how they planned on dealing with America’s long-term debt problem, they would more or less tell me the same thing: “Wait for the deficit commission.” Well, Obama’s panel has come and gone. And in his speech last night, he failed to explicitly endorse any of its budget-cutting recommendations. This part particularly frosted my pumpkin:

The bipartisan Fiscal Commission I created last year made this crystal clear. I don’t agree with all their proposals, but they made important progress. And their conclusion is that the only way to tackle our deficit is to cut excessive spending wherever we find it – in domestic spending, defense spending, health care spending and spending through tax breaks and loopholes.  … To put us on solid ground, we should also find a bipartisan solution to strengthen Social Security for future generations.

What, did Obama not check his in-box? His bipartisan commission gave him a Social Security fix, not to mention a host of other ideas. Now perhaps this is all about some grand negotiating strategy. But it sure seems like the White House has clearly decided that a “pro-growth” message will serve Obama well in his 2012 reelection bid, with the Sputnik space race reference meant to evoke the can-do 1960s. To hammer home the point, Obama emphasized the need to keep investing in the “Apollo projects” of today. In other words, let the GOP be the Party of Austerity and root-canal economics. Except, sunny and smiling Paul Ryan refused to play the role. He gave a common-sense perspective on the budget deficit, an issue which the 2010 midterm results suggest is a big one with many Americans.

Yes, the corporate tax cut stuff was pretty good. But nothing in the speech hinted at any sweeping tax and spending reforms on the horizon. Maybe with Obama’s approval ratings back over 50 percent, the White House thinks it can afford a cut-and-paste agenda and squeeze out a 51-48 victory in 2012. A nod to tort reform here, more R&D investment there.  More to come later …