‘Grand bargain’ on deficit reduction: RIP?

Sometimes, a speech is significant not for the points it makes, but for the points it doesn’t make.

President Obama’s State of the Union address Tuesday – billed as the blueprint for his second term, not just the next year – appears to be one such case. Missing in action, policy analysts say, was anything new toward a “grand bargain” on federal deficits.

Mr. Obama applauded the $2.5 trillion in deficit reduction over 10 years already achieved, and pledged to reach his longstanding target of $4 trillion. That would be enough to stabilize the ratio of debt to the nation’s economic output for that period, but it does little to address the long-term imbalance that looms in Medicare, Medicaid, and Social Security, says former Clinton White House policy chief William Galston.

The annual budget deficit has sunk below $1 trillion for the first time in Obama’s tenure, the nonpartisan Congressional Budget Office (CBO) reported last week. But the good news is temporary. The deficit curve will bend upward before long. Already, the debt as a share of GDP is slated to clock in at 76 percent by the end of FY2013 – a historic high, per the CBO.

“Obama appears to have decided that there is no possibility of resolving the larger fiscal issues on terms that he and his party would find acceptable,” writes Mr. Galston, a scholar at the Brookings Institution in Washington. “So he will hand these issues off to the next president, who will no longer enjoy the luxury of delay.”

In his address, Obama spoke of the need for “modest reforms” in Medicare, without elaboration. More clear is what he opposes. He rejects raising the age of Medicare eligibility above 65, his spokesman said Monday. In his speech, Obama rejected any cuts to Medicare or Social Security as part of a deal to get around the deep cuts in defense spending in the March 1 “sequester.”

Obama also departed from his prepared text to suggest that deficit reduction is not the urgent matter some make it out to be.

“Why is it that deficit reduction is a big emergency, justifying making cuts in Social Security benefits, but not closing some loopholes?” Obama said.

That added line, in fact, alarmed some on the left by raising the idea that cuts to Social Security could be part of the solution to over-large deficits. The sensitivity on both sides is palpable.  

The Republicans, for their part, have also shown no willingness to make a “grand bargain.” They say they’re done with tax increases, after conceding in the Dec. 31 fiscal cliff deal to a tax rate hike on the top 0.7 percent of taxpayers.

Obama made a raft of proposals in his State of the Union address that involve government spending, including expanding access to preschool; creation of “manufacturing innovation institutes;” and a “Fix-It-First” program to repair the nation’s deteriorating infrastructure. And he promised not to add a dime to the deficit.

But that’s hardly a ringing call for aggressive deficit reduction.

Leading deficit hawks applauded Obama for identifying health-care costs and an aging population as the drivers of the nation’s skyrocketing debt. But they called on him to be bolder in addressing the problem.

“The president needs to embrace a bolder savings target for deficit reduction to truly put the debt on a downward path as a share of the economy,” writes Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “The $1.5 trillion of deficit reduction the president is calling for simply won't be enough to put the debt on a sustainable path. We need at least $2.4 trillion."

Republicans don’t even buy Obama’s assertion that he has put forward a plan to reduce the deficit by $4 trillion over the next decade. Last October, Politifact.com called the claim “half true.” Part of it – $1.7 trillion dollars’ worth – depends on when one starts counting the savings, the nonpartisan fact-checking site concluded.

In the official Republican reply to Obama’s address, Sen. Marco Rubio (R) of Florida gave the president no quarter, calling on him to “abandon his obsession with raising taxes and instead work with us to achieve real growth in our economy.”

So both sides seem as far apart as ever. And as Obama himself suggested, the nation for now seems trapped, going “from one manufactured crisis to the next” without any larger resolution to its budget imbalance.