Deficit reduction: Why it's smart for Obama to jump in late

President Obama’s speech Wednesday laying out a plan for deficit reduction answers a long-burning question: When will the president join the debate on how to avoid a national fiscal train wreck?

But don’t necessarily expect to hear specifics on deficit reduction. Indeed, White House officials have said that he will lay out a “vision” but won’t go into a lot of detail. Still, Mr. Obama will at least create the appearance that he has joined the debate, following the release last December of his bipartisan fiscal commission’s plan and then more recently, the GOP budget proposal for fiscal 2012 by Rep. Paul Ryan (R) of Wisconsin, chairman of the House Budget Committee.

Obama’s own 2012 budget, released in February, skirted the issue of unsustainable entitlement spending – foremost, on Medicare and Medicaid – and led to a drumbeat of questions over when the president would take up the issue. But even if Obama’s numbers on the two big medical entitlements are “to be determined,” he now has plenty to talk about: Chairman Ryan’s plan, which quietly passed his committee last week.

“It was smart for him to wait, because now he can use the Ryan plan as a benchmark,” says John Kenneth White, a political scientist at Catholic University in Washington. “He can say, ‘We’re not turning Medicare into a voucher system.’ ”

Ryan has said his plan is not a voucher system, though critics disagree. The Ryan budget called for nearly $6 trillion in deficit reduction over the next 10 years, in part by ending Medicare as an entitlement and providing “premium support” for seniors in the private insurance market. But critics say it acts more as a voucher plan because the government's level of "premium support" does not keep up with rising health-care costs.

Medicaid, the federal health-care system for low-income people, would become a block-grant program to the states, limiting the federal government’s outlay.

Bill Clinton's playbook

“What’s striking to me is how reminiscent this is of the 1990s,” says a veteran congressional Democratic aide. “The political landscape changed for President Clinton, and he then played on Republican turf. What he’s trying to do is accommodate the tide that swept over Washington in last year’s election.”

Just as that worked for Clinton politically, so too can it work for Obama. “He has extraordinary leeway with the Democratic base, because he’s not getting primaried,” says the aide.

That opens up a big opportunity for Obama with independent voters, who give high support to compromise – not grand partisan gestures. Obama and the Democrats’ last-minute dealmaking with the Republicans last Friday to avoid a government shutdown allowed the president to come across as a split-the-difference moderate, even if the Democrats ended up giving away a lot more than they intended.

But there are bright lines Obama probably won’t cross – and one of them is changing Social Security, which has many years of solvency left in its trust fund, according to liberal groups. Medicare and Medicaid are a different story. They are significant drivers of the nation’s looming fiscal crisis. Now that Ryan has put out a plan for radical change to both, Obama can jump in with something less dramatic but still claim he’s addressing the problem.

Signals of compromise

Until now, Obama has been saying that his health-care reform would end up saving money in the long run, and cites Congressional Budget Office numbers to bolster his assertion. Ryan crunches the numbers differently, and says his plan would save $1.4 trillion over 10 years by repealing Obama’s health-care reform.

Now, it appears, the Obama administration wants to move beyond the argument that his health-care reforms will save money, and is willing to contemplate further savings in federal health-care spending as a compromise.

“We’ve had a lot of savings in health care, [but] we have to do more,” senior White House adviser David Plouffe said on “Meet the Press” Sunday. “So you’re going to have to look at Medicare and Medicaid and see what kind of savings you get.”

Another major departure point for Obama vis a vis the Ryan plan is taxes. Ryan lowered the top marginal tax rate for both individuals and corporations to 25 percent. On Wednesday, Obama is expected to repeat his call for a tax increase on the wealthiest Americans, which he included in his budget. Though he dealt away that proposal in the tax compromise with Republicans last December, he is still keeping that idea on the table, almost as a symbolic marker, since the current Republican-controlled House would never pass it.

On a larger scale, Obama also faces public opinion. Polls show widespread concern over the nation’s skyrocketing debt – but not much willingness to make budget cuts, except in foreign aid (a minuscule fraction of the federal budget). Obama could scare the public by painting a picture of a nation in default over unmanageable debt, à la Greece. But that’s not his style. He likes to talk about investing in education, research and development, and infrastructure.

“Fear is the easy way to go, but if you want to connect with middle-class Americans, you have to talk about hope,” says Ryan McConaghy, director of the economic program at Third Way, a centrist Democratic think tank.