SOTU: Obama wants to cut deficit while “investing”

If you were looking for a substantive discussion of the problems facing the United States, last night’s State of the Union address was a let down.

President Barack Obama spent 62 minutes speaking in mostly generalities and explaining to us how great government spending is, but also warning the Congress that he will veto bills containing earmarks – special projects that are inserted into legislation that go bypass the normal budget process. President Obama also pledged to take measures to cut spending by enacting a five-year freeze on non-defense discretionary spending. While he may consider this to be some great feat, Obama’s proposal will only save $400 billion during that time. This is a drop in the bucket compared to the $6 trillion in budget deficits projected by the Congressional Budget Office.

Obama noted in his speech that non-defense discretionary spending represents a relatively small portion of the budget – around 12 percent, using his numbers, and added that “we have to stop pretending that cutting this kind of spending alone will be enough.”

He’s right. But he has not given any clear indication as to what spending cuts are on the table. We know for sure that he wants to raise taxes on the evil and hated “rich,” a move that will hurt our economic competitiveness.

For all the grief he and his fellow Democrats has given to Republicans for being the “Party of No,” Obama does not want to make the tough choices necessary to end this ungodly addiction to spending.

Consider this, in the same speech President Obama was pitching a paltry speeding freeze, he spoke often of investment. Of course, since “stimulus” has become a political non-starter; thanks largely to his behemoth spending bill passed shortly after he took office two years ago, “investment” is the new buzz word for statists to push their wasteful pet spending.

Among these “investments” will be more spending for high-speed rail projects, high-speed internet, tax credits, more education spending, energy subsidies, and more spending for our seemingly endless operations in Afghanistan – although he promises that we will soon begin withdrawal from the country, don’t believe it; we’re going to be there for years to come. Obama claims to want a spending freeze, but he also wants to spend more money. On what planet does that make sense?

During the speech, President Obama said, “We are living with a legacy of deficit-spending that began almost a decade ago.” Um, no. Deficit spending did not begin a decade ago. As fact-checkers quickly noted:

[T]he nation’s debt did not begin under President Bush. The historical data show the government ran deficits from at least 1970 to 1998. (The CBO’s most recent summary of historical data only goes back to 1970.) So that includes deficits under Republicans Richard Nixon, Ronald Reagan and George H.W. Bush, as well as Democrats Jimmy Carter and Bill Clinton (for much of his presidency).

Obama also launched a defense of his signature issue…health care reform. While he agreed that the onerous 1099 provision needed to go, he also said he was open to hearing other ways to fix the law. A fact-check had this to say on that point:

Republicans may be forgiven if this offer makes them feel like Charlie Brown running up to kick the football, only to have it pulled away, again.

Obama has expressed openness before to this prominent Republican proposal, but it has not come to much. It was one of several GOP ideas that were dropped or diminished in the health care law after Obama endorsed them in a televised bipartisan meeting at the height of the debate.

And as Democrats often do when discussing ObamaCare, he talked as if the requirement for insurance companies to cover preexisting conditions is something that Republicans want to eliminate. While I may disagree with them, Republicans made a point in the so-called “Pledge to America” to “ensure that those with pre-existing conditions gain access to the coverage they need.” It sounds like they agree with Obama. There are many problems with the law, including the threat it represents to state budgets. But most glaring is the fact that it forces individuals, through the police power of government, to purchase a product that they may not necessarily want or need.

On repealing the health care law, Obama said that “nonpartisan economists have said that repealing the health care law would add a quarter of a trillion dollars to our deficit.” Yes, the Congressional Budget Office did come to that conclusion. However, there are some questions as to whether that is true or not. The AP fact-check notes:

The idea that Obama’s health care law saves money for the government is based on some arguable assumptions.

To be sure, the nonpartisan Congressional Budget Office has estimated the law will slightly reduce red ink over 10 years. But the office’s analysis assumes that steep cuts in Medicare spending, as called for in the law, will actually take place. Others in the government have concluded it is unrealistic to expect such savings from Medicare.

In recent years, for example, Congress has repeatedly overridden a law that would save the treasury billions by cutting deeply into Medicare pay for doctors. Just last month, the government once again put off the scheduled cuts for another year, at a cost of $19 billion. That money is being taken out of the health care overhaul. Congress has shown itself sensitive to pressure from seniors and their doctors, and there’s little reason to think that will change.

Other think-tanks have pointed out that Democrats got the desired result by double-counting Medicare savings:

Over the next decade, Obamacare includes $529 billion in cuts to Medicare and $70 billion in revenue from the new CLASS program. CBO’s score assumes that these savings and revenues will offset the cost of new programs in the legislation. But Medicare savings are also pledged to extend the program’s solvency. Revenue from CLASS, a new long-term care insurance program, is the result of premiums collected to pay out benefits in outlying years and will not pay for new programs, either. Claiming that these dollars will pay for Obamacare is akin to trying to make a mortgage payment and buy a Macbook with the same paycheck: In the real world, you can spend money only once.

Economist Greg Mankiw also recently noted the faulty logic of these claims:

I have a plan to reduce the budget deficit.  The essence of the plan is the federal government writing me a check for $1 billion.  The plan will be financed by $3 billion of tax increases.  According to my back-of-the envelope calculations, giving me that $1 billion will reduce the budget deficit by $2 billion.

Now, you may be tempted to say that giving me that $1 billion will not really reduce the budget deficit.  Rather, you might say, it is the tax increases, which have nothing to do with my handout, that are reducing the budget deficit.  But if you are tempted by that kind of sloppy thinking, you have not been following the debate over healthcare reform.

Healthcare reform, its advocates tell us, is fiscal reform.  The healthcare reform bill passed last year increased government spending to cover the uninsured, but it also reduced the budget deficit by increasing various taxes as well.  Because of this bill, the advocates say, the federal government is on a sounder fiscal footing.  Repealing it, they say, would make the budget deficit worse.

There were two points that immediately come to mind where I agreed with Obama. The first being his call to cut the corporate income tax, currently the highest in the industrialized world, to make us more competitive. Needless to say, this is long overdue. The other is the need to pass long-stalled free trade agreements.

In case you missed it, here is the official Republican response given by Rep. Paul Ryan (R-WI), who started off really slow before warming up to the camera. This sort of setting isn’t the environment that he does well in. But much like Obama’s speech, the GOP was short of details:

 
 


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