Obama’s Budget Plan: Goals, but No Plan to Achieve Them

President Obama presented his plan to reduce the deficit by $4 trillion over 12 years.  His plan sets out goals for deficit reduction, but no plan for achieving those goals.

The biggest component in rising projected government expenditures is health care.  The president wants to cap Medicare spending per beneficiary at the GDP growth rate plus half a percent.  Setting aside the fact that because of the baby boom generation moving into Medicare this is still a substantial increase, Medicare is an entitlement program, and a cap can’t be effective unless the program is redesigned to deny benefits to recipients if they exceed some cap (or the program in total exceeds the cap).  Surely the president doesn’t mean that if the program exceeds the cap Medicare recipients would be told “We’re not paying for your care because we’ve exceeded our budget.”

President Obama says Medicare and Medicaid expenditures would be limited by “reducing waste, increasing accountability, promoting efficiency and improving the quality of care.”  That’s what we’ve been doing since these programs were established, and so far it hasn’t worked.  A cap can’t be effective unless the program stops making payments once the cap is reached, and that kind of cap can’t work for Medicare and Medicaid.

If the projected federal debt as a share of GDP doesn’t show a downward trend, the president’s plan would trigger an automatic spending reduction, except for spending on Social Security, Medicare, Medicaid, and low-income programs.  (Not mentioned is interest on the federal debt, which would have to be exempt from the reduction too, unless default on those payments is part of the plan.)  Essentially, the president is saying that if spending is still out of control, those portions of expenditures that are most responsible for it being out of control, and are well over half the federal budget, will be exempt from any automatic reduction.  Sounds good, but in reality it will be unworkable.

The president’s proposal sets goals for deficit reduction, but it avoids the difficult decisions on how to control expenditures that are veering out of control.  Any deficit control measure that has a prayer of working has to include a specific plan stating how the Medicare, Medicaid, and Social Security programs will be reformed so their growth stays in line with overall economic growth.  The president’s proposal does not do that.

The president’s proposal is rhetoric, and not an actual plan.  It sets goals without articulating how those goals can be accomplished.

Randall G. Holcombe is Research Fellow at the Independent Institute and DeVoe Moore Professor of Economics at Florida State University. His Independent books include Housing America: Building Out of a Crisis (edited with Benjamin Powell); and Writing Off Ideas: Taxation, Foundations, and Philanthropy in America .
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