Obama's Deficit Speech: Finally, A Little Moral Outrage... and No Gimmicks

Last Updated Apr 13, 2011 6:47 PM EDT

It's good to be wrong. Unlike my prediction yesterday, President Obama let Republicans have it, ripping their plan to effectively end Medicare and Medicaid while slashing taxes on the rich. To his credit, he also spoke urgently about the need to preserve vital government services, protect the poor and middle-class, and balance spending cuts with higher tax revenue.

In a move that might even be called "courageous," a term that many pundits were eager to confer on Rep. Paul Ryan's, R-Wis., cowardly "Path to Prosperity," Obama even pledged to find savings in the nation's defense budget. Now that's a gutsy move as the 2012 election looms.

The speech also contained what many Americans, including me, have been waiting for: a level of outrage from Obama that matches their own. Here's what he had to say about Ryan's idea of cutting taxes for the wealthiest Americans:
[T]his is a vision that says even though America can't afford to invest in education or clean energy; even though we can't afford to care for seniors and poor children, we can somehow afford more than $1 trillion in new tax breaks for the wealthy. Think about it. In the last decade, the average income of the bottom 90% of all working Americans actually declined. The top 1 percent saw their income rise by an average of more than a quarter of a million dollars each. And that's who needs to pay less taxes?
Obama was equally aggressive in decrying Ryan's plan to privatize Medicare and Medicaid:
I will not allow Medicare to become a voucher program that leaves seniors at the mercy of the insurance industry, with a shrinking benefit to pay for rising costs. I will not tell families with children who have disabilities that they have to fend for themselves.
As Paul Krugman suggests, this willingness to cast Ryan's plan in stark moral terms is a welcome change for the president. It's not the bracing partisan language, although that, too, is refreshing. It's that it suggests Obama understands what's at stake for the overwhelming majority of Americans in the deficit debate.

Still stumping for bipartisanship
Despite his strident rhetoric, where Obama drew the line in challenging Republicans was in questioning the basic economic assumption that deep spending cuts are essential for economic growth. Obama concedes that Social Security is "not the cause" of the federal deficit, for instance. But in the next breath he urges both parties to "work together now to strengthen Social Security for future generations." That's a sizable concession for a leader prone to negotiating with himself. As The New Republic's Jon Chait says:
The weakness in Obama speech was his call for a bipartisan deal on the deficit. One might wonder: If the Republicans are determined to undertake such monstrous policies, how can he find common ground with them?
Read my lips: New taxes
And although Obama pledged to roll back Bush-era tax cuts for "millionaires and billionaires," he also seemed to shy away from addressing a less palatable truth: Unless we're willing to cut key government services to the bone -- which polls suggest we're not -- taxes also may have to rise a little for the middle class.

That was the lesson Ronald Reagan learned after the U.S. deficit soared following his 1981 tax cut. He promptly raised taxes three times over the next five years, mostly by closing off loopholes. Government revenues rose and the deficit came down, even as Reagan maintained spending levels. Roughly a decade later, George H.W. Bush would pay an enormous political price for reneging on his "read my lips, no new taxes." Early in his administration, Bill Clinton also used a mixture of broad-based tax hikes and spending cuts to put the federal budget on track for an eventual, if short-lived, surplus.

As unpopular as those policies were at the time, they helped balance the nation's books. That said, there's a strong case to be made that some of the taxes fell disproportionately on lower-income families. It would've been nice to hear Obama endorse something like a financial transaction tax to ensure that doesn't happen again.

The difference now is that Obama, who said in the speech that there would be $3 in spending cuts and interest savings for every $1 coming from increased tax revenue, faces a much deeper hole and a far more uncompromising political adversary than his predecessors. It remains to be seen if he can erase the deficit without spreading the pain.

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  • Alain Sherter On Twitter»

    Alain Sherter is an award-winning business journalist who has written for The Deal, MarketWatch and Thomson Financial Media.

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