Obama targets federal deficit

The president wants a commission to address the national debt, projected to double by 2020, with Medicare and Medicaid consuming about a quarter of spending.

By Doug Trapp — Posted Feb. 8, 2010

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President Obama, lawmakers and others are setting up what they term a serious attempt to control the growth in annual federal deficits and the national debt. Health programs -- the single largest source of federal spending -- are expected to be a major focus of the discussion.

During his Jan. 27 State of the Union address, Obama announced an executive order calling for a bipartisan fiscal commission to address the nation's debt, which is at $12.3 trillion and growing.

"This can't be one of those Washington gimmicks that lets us pretend we solved a problem. The commission will have to provide a specific set of solutions by a certain deadline," he said.

The president said his commission would be modeled on a proposal by Senate Budget Committee Chair Kent Conrad (D, N.D.) and the panel's highest-ranking Republican, Sen. Judd Gregg (N.H.). Fifty-three senators voted for the Conrad-Gregg Bipartisan Task Force for Responsible Fiscal Action Act on Jan. 26 -- seven short of the 60 votes needed to end a filibuster. Still, Conrad said getting 53 votes, including those from 16 Republicans, was a positive step.

"This vote sends a clear signal that the Senate wants a special process to address our country's burgeoning debt," Conrad said in a Jan. 26 statement. Gregg was more pessimistic, saying in a separate statement that day that the vote shows "Congress is more concerned with the next election than the next generation."

The Conrad-Gregg commission would have proposed legislation to balance federal spending and revenues after the November 2010 elections. If enough panel members agreed, the House and Senate would have been required to hold a vote on the proposals before Christmas.

Senators did not support the Conrad-Gregg panel for several reasons. Senate Finance Committee Chair Max Baucus (D, Mont.), for example, said he wanted to be able to amend the panel's recommendations. Baucus said previous bipartisan budget agreements -- such as in 1990 and 1997 -- were adopted without a commission and with amendments. Also, some lawmakers worried that the commission would propose tax increases or guarantee cuts to Medicare and Social Security.

Health programs on the block?

Health care spending looms large in the long-term federal budget. Medicare and Medicaid spending alone is expected to account for $1.3 trillion -- or about 25% -- of federal spending by 2020. That's up from about 9% of the federal budget in 1990, according to an analysis by the Peter G. Peterson Foundation, a think tank focusing on federal fiscal responsibility and health and Social Security reform, among other issues.

"There's no way that Medicare and Medicaid can continue on their current path. That's just impossible," said Marc Goldwein, visiting scholar at UC Berkley Institute on Government Studies and policy director for the Committee for a Responsible Federal Budget.

Conrad expressed similar sentiments. "I understand the importance of Medicare in people's lives. I've seen it in my own family. But the suggestion that we don't have to do anything is just not being straight with people," he said Jan. 28.

Maintaining health programs while restraining spending has posed a difficult balancing act for members of Congress, said Steve Bell. He's a former staff director and chief of staff for retired Sen. Pete Domenici (R, N.M.) and a visiting scholar at the Bipartisan Policy Center, a think tank focused on middle-ground solutions in health care, the budget and other areas. Lawmakers don't want to cut Medicare, Social Security and other popular programs or enact reforms that could be characterized as cuts.

But without changes, the national debt could reach about 100% of the gross domestic product by 2020, Goldwein said. The nation's debt is more than 50% of GDP today.

Ever-higher national debt would lower confidence in the U.S., Goldwein said. "Our investors and our creditors start to worry that we're not going to pay it back. So they demand higher interest rates." This would lead to more expensive mortgages and other loans and slower economic growth, he said.

The national debt is a slow-motion problem that requires significant action, but politicians have a difficult time generating public support for the moves needed to reduce or control it, Bell said. "Taking away benefits that have already been given by the government is one of the most difficult things to do."

However, Goldwein said Medicare and Medicaid reform need not reduce the quality of care. Medicare, for example, could provide incentives for less costly care that's just as effective.

The Obama administration is pushing to get the U.S. on track with a standard that requires annual budget deficits to remain below 3% of GDP.

"As long as you are growing the economy at a faster rate than you're growing your indebtedness, then you're able to pay your bills," Bell said. The alternative is a long, downward economic slide, with public programs such as Medicare losing their capacity to provide care, he said.

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Public health spending dominates budget

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Click to see data in PDF.

Medicare and Medicaid spending will account for the largest single portion of the federal budget between fiscal years 2010 and 2020, the Congressional Budget Office projects. Although this will contribute to a doubling of the national debt, the Obama administration anticipates eventually containing annual budget deficits to a more manageable 3% of the gross domestic product.

Sources: "The Congressional Budget Office Budget and Economic Outlook: 2010-2020," Peter G. Peterson Center, January; Congressional Budget Office, January (link)

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