Opinion

Reihan Salam

The one budget proposal worth seizing

Reihan Salam
Mar 5, 2014 00:02 UTC

President Obama’s new budget for fiscal year 2015 is almost entirely free of surprises. The Obama administration supports a number of large tax increases, most but not all of which target high-income households, and so the budget assumes that revenues will grow faster than expenditures over the coming decades and that debt levels will decline. One key reason the White House is able to paint so rosy a picture is that its economic assumptions are different from those of the more buttoned-up Congressional Budget Office. Specifically, the Office of Management and Budget, which is responsible for crafting the president’s budget proposal, maintains that the U.S. economy will be 2 percentage points bigger in 2024 than it will be in the CBO’s projection.

This might not sound like a huge difference. But it matters more than you might think. The CBO has devoted considerable time and effort to understand why its 2010 prediction of a robust economic recovery failed to materialize, and it found that the post-crisis recovery really has been as dismal as it feels. Sluggish capital investment has contributed to sluggish productivity growth, and the labor market recovery hasn’t been strong enough to draw the long-term unemployed back into steady jobs.

With this sobering picture in mind, the CBO has lowered its estimate for America’s economic growth potential over the next decade to a mere 2.5 percent, far lower than the 3.3 percent that’s been the average growth rate for the U.S. economy since 1950. CBO projects that real GDP growth will actually fall to 2.2 percent in the second half of the next decade, which is to say they assume things will get worse rather than better. It turns out that even quite small changes, on the order of a 0.1 percentage point difference in the average annual growth rate, can have enormous fiscal consequences. So it’s very noteworthy that between 2010 and 2014, the CBO’s forecast for average real GDP growth over the next decade has gone from 3 percent to 2.5 percent.

How does the White House justify its more optimistic assessment? It seems that the Obama administration is counting on comprehensive immigration reform to deliver large economic benefits. The CBO has estimated that immigration reform could increase the size of the U.S. economy over the next decade by as much as 3 percentage points. It remains to be seen if the benefits of the immigration reform favored by the president will outweigh the benefits. I’m skeptical. It is easy to imagine that a more selective, skills-based immigration policy could be an enormous boon to the U.S. economy, as the economists Xavier Chojnicki, Frédéric Docquier, and Lionel Ragot have suggested. Yet the president favors a substantial increase in less-skilled immigration that could prove quite expensive in an era of rapid technological change.

Regardless, there is no question that factoring in the potential benefits of immigration reform is a new development in presidential budgeting. It could speak to the fact that realistic estimates of America’s growth potential have fallen so much over the course of the Obama presidency that the president’s staffers felt an obligation to get creative.

The ‘grand compromise’ that wasn’t

Reihan Salam
Feb 24, 2014 21:36 UTC

One of President Obama’s defining convictions is that he is the most reasonable man in our nation’s capitol. He seems to view opposition to his agenda as a reflection of intellectual or moral failures (my opponents don’t understand the underlying issues well enough, or their hearts aren’t big enough), or as a product of naked cynicism (my opponents are dishonest, and they will do anything to defeat me). To prove his point, the president will occasionally tout an idea from the other side of the aisle, or rather an idea he imagines to be from the other side of the aisle. And when his political opponents don’t embrace the idea, well, that means that they are acting in bad faith.

So I was delighted by the news that the Obama administration is changing its tune on Social Security in its forthcoming budget proposal. Last year, the president included a Social Security reform compromise in the budget proposal he presented to Congress. This year he has decided not to do so. But the truth is that the president’s Social Security compromise wasn’t a compromise at all. His decision to jettison it is a refreshing change of pace. And while the reforms aren’t officially part of the 2015 budget proposal, they remain relevant because Obama is treating them as a concession he’ll make if Republicans agree to raise taxes.

According to the president and his allies, the White House was only willing to compromise on Social Security, by cutting benefits, if Republicans were willing to give a little too, by agreeing to higher taxes. The problem is that his idea for cutting Social Security benefits is actually pretty bad, and it would also raise taxes. In other words, the president’s offer to the GOP is, “Hey, why don’t you share the blame for this thing that will make Social Security worse for seniors and raise taxes, and in return for my generosity you’ll let me raise taxes even more?” You will be shocked to learn that Republican lawmakers were not thrilled by this idea.

For states, Washington’s budgetary seduction proves too hard to resist

Reihan Salam
Feb 6, 2013 14:22 UTC

Federalism’s days appear to be numbered. The reason isn’t so much that the power of the federal government has increased, though that’s part of it. Instead, the slow-motion death of federalism flows from the fact that a wide array of federal programs have seduced state governments into playing Washington’s tune.

This week, for example, Ohio Governor John Kasich, a conservative who first came to prominence as one of the foot soldiers of the 1994 Republican Revolution, announced that he supports the federal expansion of Medicaid, one of the central pillars of President Barack Obama’s Affordable Care Act (ACA). Opposition to ACA, and to the enormously expensive Medicaid expansion, had until recently been considered a conservative litmus test.

Kasich is the fifth Republican governor to embrace the Medicaid expansion, alongside Arizona’s Jan Brewer, Nevada’s Brian Sandoval, New Mexico’s Susana Martinez, and North Dakota’s Jack Dalrymple. And he almost certainly won’t be the last. Florida Governor Rick Scott, a former healthcare executive who strongly opposed to the Obama administration’s health reform effort in his 2010 campaign, is widely expected to do the same.

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