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January 22nd, 2017

Insight

Charles Lane

By Charles Lane

Published Nov. 16, 2015

On Jan. 15, 2009, President-elect Barack Obama told The Washington Post that the United States was "at the end of the road" in putting off reform of entitlement programs. He promised "hard decisions," adding: "You have to have a president who is willing to spend some political capital on this. And I intend to spend some."

With Obama and congressional Republicans having struck a two-year budget deal, the likely final act of fiscal policymaking until his successor arrives in 2017. It's time to ask: What does the Obama-era record show?

The answer depends, in part, on the policy goal you have in mind. If you're worried about the actuarial sustainability of the two biggest entitlement programs for the elderly - Social Security and Medicare - the news is relatively positive, especially about the latter.

As of the day Obama took office, Medicare's trustees projected that its hospital trust fund would be insolvent by 2017. Today, they say 2030. The additional 13 years reflect the unexpected slowing of health-care cost increases, surely a highlight of Obama's presidency.

Whether it is an Obama achievement, of course, is debatable: The recession and sluggish recovery dampened health-care demand, which, in turn, curbed overall costs. Still, systemic reforms in Obamacare, especially the impending tax on gold-plated employer-paid insurance, probably deserve some credit for "bending the cost curve."

Social Security, meanwhile, lost three years of projected solvency on Obama's watch: In 2009, Social Security's trustees predicted it would run out of cash in 2037; this year they said 2034. That's still enough time to find a permanent solution, however. And the latest budget deal helped modestly; it extended the solvency of the program's disability portion through 2022 while making minor but real cost-saving reforms.

If your goal is not just salvaging these programs, however, but enabling the government to balance its budget while meeting new domestic and defense challenges - that is, to govern - the Obama era shapes up more like another eight years of can-kicking.

Due in part to the aging of the population and a resumption in health-care cost growth, the major health-care programs and Social Security will absorb 11.9 percent of economic output in 2025, up from 10.2 percent in 2015, according to the Congressional Budget Office.

Meanwhile, discretionary spending - the military, border patrol, education, the National Institutes of Health and so on - will fall from 6.5 percent of output to 5.1 percent. Note: This 1.4-percentage-point decrease nearly matches the 1.7-point increase in entitlements. Both defense and non-defense spending would be well below post-World War II norms.

Oh, yes: The CBO projects interest on the federal debt will more than double over the next decade, from 1.2 percent of national output to 2.8 percent.

The latter statistic is a reminder that the Federal Reserve's zero-interest rate policy has implicitly fostered the political impasse over fiscal policy, by reducing its short-term costs.

Zero-interest won't last forever - which is a major reason that the CBO projects the budget deficit, currently a moderate 2.4 percent of output, to resume growing unsustainably in 2018.

By 2025, the CBO says, 77 cents of every federal dollar will go to health care, Social Security, other mandatory programs and interest on the debt, while the deficit as a share of GDP will be 54 percent higher than it is now.

The CBO's estimates came out before the latest budget deal, but the entitlement tweaks in the package don't alter the picture fundamentally. Rather, like the two-year Ryan-Murray deal before it, the package uses gimmicks and budgetary low-hanging fruit - pension insurance charges, a raid on accumulated Justice Department fines, and the like - to pay for some, not all, of the relief it gives from spending caps on the discretionary budget.

Thus, "hard decisions" remain to be made, just as on the day Obama took office. Perhaps Democrats and Republicans could keep patching every couple of years, indefinitely. Maybe lightning will strike again on health-care costs. Only structural change - to entitlements and the tax code, which must raise more revenue more efficiently - can guarantee the government's fiscal stability and policy freedom.

Historians may debate forever whether Obama or House Speaker John A. Boehner, R-Ohio, bears more blame for the failure of a proposed tax-and-entitlement "grand bargain" in 2011; what seems undeniable is that neither possessed sufficient political capital at the time.

Since then, the power and influence of anti-compromise forces in the two parties have only grown, especially in the chaotic, reflexively anti-tax GOP - but also among Democrats. The latter party's emerging orthodoxy rejects even minor cost-of-living trims to Social Security that Obama once embraced, and demands increased benefits instead.

In 2017, a new president will face roughly the same predicament Obama did in 2009. The only difference may be that the costs of resolving it, political and financial, have grown.

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