It’s always hazardous to predict the issues that will define the next presidential selection. But leading thinkers in both parties say that events of the past two weeks have locked in place a major part of the 2012 general-election contest.
The debate will revolve around a big question more often dodged than confronted: How much government are Americans willing to pay for? Before the conversation is over, the answer could produce uncomfortable moments for President Obama and Republicans alike, not to mention voters themselves.
The catalyst for this debate was the overwhelming House Republican vote on April 15 for the transformational long-term budget blueprint crafted by Rep. Paul Ryan, R-Wis. His plan won’t become law—it has no chance in the Senate—but it fleshes out, in previously unmatched detail, a conservative instruction manual for retrenching Washington.
Many Republican strategists believe that the document will heavily shape the platform of the eventual GOP presidential nominee. “I don’t think you can get through the primary without being supportive of the Ryan plan, unless you have your own, and it is still going to borrow heavily from Ryan,” said one senior GOP strategist who asked not to be identified.
At the White House’s highest levels, officials share the belief that Ryan’s blueprint will be a fulcrum of the 2012 debate. The White House wants to keep attention on Ryan by pursuing a deal with Republicans linked to the debt-ceiling increase that would commit both sides to a target for deficit reduction, establish a fail-safe mechanism to enforce the target, and then tee up an extended debate in 2012 about how to reach those fiscal goals.
The White House believes it can win that argument because Ryan’s commitment to large tax reductions requires him to impose much deeper, politically incendiary spending cuts than Obama embraced in his deficit plan last week—such as Ryan’s proposal to replace the existing Medicare program for Americans under 55 with a voucher (or “premium-support”) system. In fact, although Ryan and Obama champion deficit reduction, they are pursuing very different goals: Ryan is simultaneously seeking to reduce the size of government, while Obama envisions federal spending stabilizing at a much higher level. That is the real crux of the argument between them—and the essence of the choice the two sides will present to voters next year.
Since the 1970s, federal spending has averaged about 21 percent of the nation’s economic output, and federal revenue has averaged about 18 percent, with deficits making up the difference. Ryan intends to lock in revenue at about 19 percent of the economy. Meanwhile, according to a Congressional Budget Office analysis, his plan would initially stabilize spending at around 21 percent but eventually squeeze it to 19 percent in 2040 and to less than 15 percent in 2050. Federal spending as a share of the economy hasn’t been that low since 1951, before not only Medicare and Medicaid but even the interstate-highway system existed.
Before Ryan, the debate had been less about whether Washington can reduce spending from its average recent level than about how much outlays would have to rise to respond to the explosive combination of mushrooming health care costs and a senior population that is growing as the baby boomers gray. “Demographic changes alone will increase spending way above historical norms,” says fiscal expert Len Burman, who teaches public affairs at Syracuse University.
To reduce total federal spending amid those pressures requires Ryan to massively shift costs from government to seniors (through his Medicare voucher plan) and to roll back discretionary domestic and defense outlays to less than half of the lowest spending level as a share of the economy that the U.S. has seen in any year since World War II. So a serious debate over Ryan’s plan could compel voters to examine how many government services they would surrender to maintain low taxes.
A serious debate over Obama’s vision would pose the opposite question. The president’s 2012 budget envisions federal spending receding from its current elevated levels but then settling in around 23 percent of the economy. Given the demographic pressures, some increase above the modern average spending level is probably a more realistic assumption than Ryan’s. Hitting even Obama’s target would require significant spending reductions.
But Obama can’t plausibly pay for that government while upholding his promise to raise taxes on only those earning $250,000 or more. “If you want a government that is providing even close to the level of services we’ve become used to, you’re going to need more revenue than you get just … from high-income people,” Burman says.
Even Alan Greenspan, who provided critical support for the George W. Bush tax cuts, argued this week on Meet the Press that all of the cuts should be allowed to expire. Doing so would return tax rates to their level under President Clinton—when the economy created more than 22 million jobs (compared with 1 million under Bush). As long as that option remains a political orphan, an otherwise illuminating fiscal debate will remain incomplete, and even misleading.
This article appears in the April 23, 2011, edition of National Journal.