Obama's Budget Plan: Modest Cuts for Seniors, Big Cuts on Everything Else

The furor over President Obama's proposed cuts to Social Security benefits has obscured a key fact about his latest 10-year budget plan: Which is that, despite those cuts and even bigger cuts to Medicare, the plan only modestly slows spending on seniors even as it proposes significant cuts to nearly every other government function over the next decade. 

And herein lies a profound dilemma for an aging nation facing rising global competition: How much should we spend on old people versus things like education, infrastructure, scientific research, and other investments required to build long-term prosperity?

I have written often here that, if anything, Social Security benefits will need to be more generous in future decades given the empty nest eggs of many retiring Baby Boomers (courtesy of the failed 401(k) experiment). Also, Medicare should ideally impose even fewer out-of-pocket expenses in coming years. Today's seniors are already getting crushed by exorbinant out-of-pocket expenses; tomorrow's seniors will face even bigger expenses given epidemic levels of diabetes and dementia now forecast by health experts. And the demands on Medicaid -- which now pays for nursing home care for indigenent seniors -- will only skyrocket. 

Meanwhile, though, the United States faces an urgent need to invest more in its human and physical capital, as well as in scientific research. If we don't, we'll not only fall behind rising powers like China and India, but we also won't be able to generate enough wealth to support entitlement spending on seniors. 

So how does President Obama's budget handle this dilemma? In a worst-of-all-worlds manner. Spending on Social Security is slated to increase over the next decade -- from 5 percent of GDP to 5.5 percent. Medicare spending also would go up as more Boomers retire. Yet the President's budget would make both these programs less generous and the chained-CPI proposal, in particular, would mean significant benefits cuts a few decades out. 

In short, the President ignores the fact that tomorrow's seniors will need more help, not less. 

But far more troubling are the historic cuts to non-defense domestic spending that Obama is proposing. Such spending would fall from 4 percent of GDP in 2012 to 2.5 percent in 2023. In practice, this means that President Obama proposes lower spending in real dollars on things like education than we saw under President George W. Bush. (You can see the numbers if burrow into the historical budget tables provided by OMB.)

So, for example, in 2005 dollars, the United States spent $79 billion on all education and job training in 2004 (way up from the 1990s). Last year, we spent almost exactly the same amount, but the slope is now downward for education spending, and OMB estimates that the federal government will spend $71 billion in 2018 on education and job training. (In 2005 dollars.) And that number will be even lower in 2023. 

Spending on education went up under Bush, it will ultimately go down under Obama. 

Meanwhile, infrastructure spending is pretty much flat, save for a surge under the stimulus program. The U.S. spent $66 billion on infrastructure in 2004; it will spend $64 billion in 2018, according to OMB estimates. (Again, these are 2005 dollars to control for inflation; actual figures are higher.) Make no mistake: such flat spending is a cut against the backdrop of population growth and growing repair needs.

So basically the choice President Obama is making comes down to this: Asking seniors to tighten their belts while whacking a range of investments in America's future. 

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