Tuesday, January 19, 2010

Obama's Fiscal Fantasy World

After President Obama devoted much of 2009 to health care and global warming—two issues far down Americans' list of concerns—the White House says he will pivot to jobs and deficit reduction in his State of the Union speech in a few weeks. The White House is considering dramatic gestures, perhaps announcing a spending freeze or even a 2% or 3% reduction in nondefense spending.
But Americans shouldn't be misled by the election year ploy: Mr. Obama rigged the game by giving himself plenty of room to look tough on spending. He did that by increasing discretionary domestic spending for the last half of fiscal year 2009 by 8% and then increasing it another 12% for fiscal year 2010.
So discretionary domestic spending now stands at $536 billion, up nearly 24% from President George W. Bush's last full year budget in fiscal 2008 of $433.6 billion. That's a huge spending surge, even for a profligate liberal like Mr. Obama. The $102 billion spending increase doesn't even count the $787 billion stimulus package, of which $534 billion remains unspent.
Mr. Obama can placate congressional Democrats by arguing that all that extra spending he has already crammed through can cover their spending desires at least through the 2010 congressional elections.

Mr. Obama is thinking of tapping another pocket of cash. Now that the banks are repaying—with interest and dividends—the $240 billion the Bush administration lent them, the Obama administration is considering recycling those dollars into new spending on "green" technology and more stimulus, despite provisions Congress wrote into the law creating the Troubled Asset Relief Program that requires that repaid TARP funds be used exclusively for deficit reduction.
Meanwhile, defense spending is being flattened: Between 2009 and 2010, military outlays will rise 3.6% while nondefense discretionary spending climbs 12%.
All this leaves Mr. Obama in the enviable position of appearing tough on spending while growing the federal government's share of GDP from its historic post-World War II average of roughly 20% to the target Mr. Obama laid out in his budget blueprint last February of 24%.
There are also those pesky entitlements. This mandatory spending has grown to 66% of the budget, up from 29% in 1965. Serious budgeters understand spending cannot be brought under control unless these mandatory outlays are part of the mix.
One idea on Capitol Hill is to create a commission that would propose a package of entitlement reforms that Congress would have to vote on as a package, up or down, take it or leave it—much like the base closing commission.
The Obama White House likes this idea in part because the proposal calls for including some congressional Republicans but would reserve a majority of the seats on the commission for Democrats. That would put Democrats in charge while also making the GOP share in the political pain that would come with whatever the commission proposes. Conservatives worry, with justification, that a commission's purpose would be to provide Republican cover for tax increases and a permanent increase in the size of the federal government.
What's more, the White House may only be interested in an election-year gesture. White House staff are apparently considering creating a presidential commission that would look like it's working on deficit reduction but that would be established by executive order. Of course, without congressional authorization, there's no way to force Congress to vote on a commission's recommendations.
About Karl Rove
Karl Rove served as Senior Advisor to President George W. Bush from 2000–2007 and Deputy Chief of Staff from 2004–2007. At the White House he oversaw the Offices of Strategic Initiatives, Political Affairs, Public Liaison, and Intergovernmental Affairs and was Deputy Chief of Staff for Policy, coordinating the White House policy-making process.
Before Karl became known as "The Architect" of President Bush's 2000 and 2004 campaigns, he was president of Karl Rove + Company, an Austin-based public affairs firm that worked for Republican candidates, nonpartisan causes, and nonprofit groups. His clients included over 75 Republican U.S. Senate, Congressional and gubernatorial candidates in 24 states, as well as the Moderate Party of Sweden.
Karl writes a weekly op-ed for the Wall Street Journal, is a Newsweek columnist and is the author of the forthcoming book "Courage and Consequence" (Threshold Editions).
Email the author atKarl@Rove.comor visit him on the web atRove.com. Or, you can send a Tweet to @karlrove.
Whatever Mr. Obama says in his State of the Union, Republicans need to be tougher on spending and deficits. Later this month, Senate Republicans are planning to force their colleagues to go on the record on how to spend returned TARP funds by demanding that Democrats vote on the issue. Some House Republicans are also considering calling for a return to the level of discretionary domestic spending that existed when Mr. Obama entered office last January.
Few things focus the attention of politicians as much as approaching elections. Democrats are aware that spending and deficits are big reasons Republicans have a nine-point lead on the Rasmussen Poll's generic ballot.
Independents are particularly sensitive about deficits, spending and taxes, whose growth they see aversely affecting jobs and the economy. They give Mr. Obama only a 21% approval on handling the deficit. Only 10% of independents want to spend unused bank bailout money on other government programs.
At the beginning of his term, Americans believed Mr. Obama would follow through on his campaign promises about "cutting wasteful spending" and going "through the federal budget, line-by-line, ending programs that we don't need" and putting "an end to the run-away spending the record deficits."
After a year of living in his fiscal fantasy world, Americans realize they have a record deficit-setting, budget-busting spender on their hands. Voters are now reading the fine print on all that Mr. Obama proposes and as they do, his credibility, already badly damaged, suffers.

Mr. Rove, the former senior adviser and deputy chief of staff to President George W. Bush, is the author of the forthcoming book "Courage and Consequence" (Threshold Editions).

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