In his Wall Street Journal interview with John Boehner, writer Steve Moore didn’t bury the lede:
What stunned House Speaker John Boehner more than anything else during his prolonged closed-door budget negotiations with Barack Obama was this revelation: “At one point several weeks ago,” Mr. Boehner says, “the president said to me, ‘We don’t have a spending problem.’”
On the face of it, such a statement is completely ridiculous — and a bit scary. Just have a look at the alternative fiscal scenario from the Congressional Budget Office.
In it, the CBO assumes a) Medicare’s payment rates for physicians remain unchanged from the current amounts, and b) the sequester’s automatic spending reductions required by the Budget Control Act don’t take effect — although the original caps on discretionary appropriations in that law remain in place.
Under this scenario, federal spending would average 23% of GDP over the next decade — climbing as the decade drew to a close. Not only is that level of spending three percentage points higher than average federal spending from 1987-2007, it represents a sustained level of spending unheard of in US history. The only comparable period outside of World War Two was the 1980s military buildup, when spending averaged 22.7% of GDP from 1981-1986. But at least that budget binge set the stage for lower defense spending in the future. It was temporary.
The current spendathon shows no end in sight. As long as the US can keep borrowing, it goes on and on and on — and up and up and up. The CBO:
Indeed, when you look at what drives US budget deficits over the next decade, it’s spending that’s above normal vs. tax revenue right at its historical average of around 18%.
Now, we find out later in the piece that President Obama does qualify his curious statement:
The president’s insistence that Washington doesn’t have a spending problem, Mr. Boehner says, is predicated on the belief that massive federal deficits stem from what Mr. Obama called “a health-care problem.” Mr. Boehner says that after he recovered from his astonishment—”They blame all of the fiscal woes on our health-care system”—he replied: “Clearly we have a health-care problem, which is about to get worse with ObamaCare. But, Mr. President, we have a very serious spending problem.” He repeated this message so often, he says, that toward the end of the negotiations, the president became irritated and said: “I’m getting tired of hearing you say that.”
A few thoughts on that:
1. It reaffirms that health care reform was about creating an new entitlement, not getting health care spending under control.
2. I assume what Obama means is that the long-term debt problem is due to Medicare and Medicaid, not discretionary spending. And he’s more or less right about that. According to CBO’s alternate fiscal scenario, the US will spend 35.7% of GDP in 2037 vs. 22% in 2012. Where does that 13.7 percentage point rise come from?
– Medicare spending increases by 3.0 percentage points, from 3.7% to 6.7%
– Medicaid spending increases by 2.0 percentage points, from 1.7% to 2.7%
– Social Security spending increases by 1.2 percentage points, from 5.0% to 6.2%
– Interest on the debt increases by 8.1 percentage points, from 1.4% to 9.5%
And discretionary spending? It actually falls by 2.0 percentage points, from 11.6% to 9.6%.
3. But health care spending by the government is still spending. Obama’s rhetorical legerdemain is unhelpful. It obscures the reality that how the federal government spends health care dollars — such as through fee-for-service Medicare — contributes to health care cost inflation by encouraging overuse of pricey health care services. It’s not some exogenous factor. We should be injecting choice and competition into the system wherever possible.
4. If Washington wants Main Street to trust it on entitlement reform, it should use discretionary spending as a proof-of-concept that it can improve the efficiency of government programs. Don’t just cut it across the board, reform and modernize it. Bring on the Romney Commission.
Is spending a problem? It sure is Mr. President.