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Trying Not to Freak Out About Obama's Speech, I Am

President Obama's big speech on the federal budget comes tomorrow. And during that speech, according to the Washington Post, Obama will be "promoting a bipartisan approach pioneered by an independent presidential commission." The commission is the one led by Erskin Bowles and Alan Simpson. The news that Obama might use tomorrow's event to promote their work is a worrisome sign.

To be clear, the Post story doesn't say how specific or meaningful Obama's embrace of Bowles-Simpson will be. It's possible Obama will simply point to the commission's work as one possible alternative to the proposal from House Budget Chairman Paul Ryan, who has called for ending Medicare and Medicaid as we know it while extending massive tax cuts to the wealthiest Americans. The Post also reports that Obama will highlight the ongoing negotiations among six bipartisan senators, which suggests Bowles-Simpson won't be the only option he cites. But even a modest, qualified endorsement of Bowles-Simpson is risky, because it could launch the debate over deficit reduction onto a dangerous path.

The Bowles-Simpson plan has its virtues. Among other things, it would reduce agriculture subsidies and defense spending. It would impose a new gasoline tax, in order to finance the building of infrastructure. It boosts Social Security payments for the some of the very poorest retirees. All of these make it far, far preferable to Ryan's plan.

But the Bowles-Simpson plan also has major flaws. Chief among them: It would limit federal spending to 21 percent of gross domestic product. The only way to do that is to rely more heavily on reducing spending than on raising revenue. Sure enough, spending cuts in the Bowles-Simpson plan outnumber tax increases by about two-to-one. Among the cuts would be a $100 billion reduction in discretionary spending that would affect a wide range of programs for the poor, as well as entitlement reductions (via Social Security, Medicare, and Medicaid) that could take a serious toll on disabled and elderly of modest incomes. 

While meaningful deficit reduction will inevitably mean plenty of spending cuts, the Bowles-Simpson plan simply takes this approach too far. As the Center on Budget and Policy Priorities noted in its analysis:

If the co-chairs had not adopted the misguided principle of holding federal outlays in future decades to no more than 21 percent of GDP and had produced a plan that was more balanced--one that did not propose to extract two-thirds of its deficit reduction from program cuts and only one-third from increased revenues and that instead struck an even balance--they could have avoided some or all of the elements of the plan that risk doing the greatest harm and could have done so without raising taxes too much. ... The notion that limiting federal expenditures to 21 percent of GDP in coming decades represents an extreme position--and will require draconian cutbacks and produce undesirable results--is broadly shared among budget analysts (except those on the Right end of the political spectrum). At a recent Brookings Institution event on deficit reduction, panelists in or near the center of the political spectrum concurred that to meet the nation’s needs 20 years or so from now, revenues will need to be in the 23 percent to 25 percent of GDP range. 

The idea of finding a better balance between revenue and expenditures, in order to bolster government programs for the poor and middle class, is hardly fanciful. A proposal from former Clinton Administration adviser Alice Rivlin and former Senator Pete Domenici, put together through the Bipartisan Policy Center, envisions federal spending rising to 23 percent of GDP by 2030 and beyond that afterwards. It does so by calling for a rough, one-to-one balance between spending cuts and new revenues. The Our Fiscal Future proposal from the Century Fund, Demos, and Economic Policy Institute also envisions larger government spending by relying more heavily on new revenues. (For more on the merits of this approach, see the lead editorial from this week's edition of TNR, which makes this argument explicitly.) 

A danger of endorsing Bowles-Simpson, even implicitly, is that it could marginalize these sorts of options, perhaps removing them from the debate altogether. And it would do so preemptively, making it more likely that any final deal is even worse. As Paul Krugman notes today, "by endorsing an already right-leaning document, Obama will of course define the center as being somewhere between the right and the far right." The president and his advisers are sensitive to the accusation that they negotiate with themselves. But plunking down a big presidential marker on Bowles-Simpson might be tantamount to doing that. 

What should the president do instead? He obviously can't avoid mentioning Bowles-Simpson. It's his commission, after all. And, again, the plan has real virtues worth highlighting. But Obama could do the country, and himself, a big public service by citing a few of these other plans--and making sure they stay part of the conversation.