Love and Debt

Worried about the perception that he's spending way too much -- with the national debt having topped $12 trillion -- President Obama will today discuss his goal of saving $40 billion in contract costs by Fiscal Year 2011, and how his administration has already cut $19 billion by reviewing the contract process.

In March, as you may recall, President Obama cited a recent study of 95 Pentagon projects with cost overruns totaling $295 billion and pledged to reform the procedure for government contracting.

The president today will also herald the winner of a contest for ideas to save money -- VA Medical Center fiscal support clerk Nancy Fichtner of Loma, Colorado – who suggested the VA stop throwing away medications given to vets in hospitals, upon discharge, and instead let them take them home with them.

Of course, had the president, wielding his veto pen, insisted that Congress remove earmarks from the 2009 Omnibus spending bill (8,570 earmarks at a cost of $7.7 billion) or the pending Omnibus spending bill (9,287 projects at a cost of nearly $13 billion), he would have already realized more savings than what he's announcing today.

In his valedictory interview with the president, Charlie Gibson asked him: How can you sign such a bill and be serious about deficit reduction?

The president said: "people need to understand where our real debt and deficit comes from. It's not the trillion dollars of Recovery Act spending and, you know, the carryover of TARP that we inherited when we came in. It's actually the fact that we have a structural deficit. We take in 18 percent of gross domestic product in taxes, and we spend 23 percent. So here's what we're going to have to do. I've been very clear -- and this will be reflected in my budget and my State of the Union address next year -- that trying to either raise taxes or cut spending next year would be the wrong thing to do for an economy that's still coming out of a recession and is still very fragile.

"What we have to do is identify ways that, mid-term and long term, we are pulling the deficit down and reducing our debt," he continued. "That has to be a priority. And what are the things that are required to do that? The main priorities are going to have to be dealing with Medicare and Medicaid, our health care costs, and that's why health care is so important. I think that we can reduce non-defense discretionary spending in a significant way. We've got to wind down this war in Iraq on a timely basis. I mean, there are going to be a host of tough decisions that we're going to have to make over the next year, and I'm prepared to make them."

So what will this health care bill do? Will it reduce the deficit?

CBO says the Senate compromise bill will "yield a net reduction in federal deficits of $132 billion" over the next decade.

A study of the House and an earlier version of the Senate bill -- conducted by the Lewin Group (which is owned by UnitedHealth Care) and commissioned by the Peterson Foundation -- backs that up.

CBO says the bill will also increase the federal spending commitment by "about $200 billion over that 10-year period, driven primarily by the gross cost of the coverage expansions (including increases in both outlays and tax credits).”

And there's the rub -- the bill right now is paid for by $518.5 billion in tax increases and $471 billion in Medicare cuts.

Based on Congress's past behavior, you can reasonably wonder if some of those taxes will be eliminated, and many of those Medicare cuts will be undone, as with the "doc fix" -- reductions in Medicare payments to physicians that Congress once voted for, and has since voted to undo time after time.

I asked the president about this a few weeks ago:

TAPPER: One of the concerns about health care and how you pay for it -- one third of the funding comes from cuts to Medicare.

OBAMA: Right.

TAPPER: A lot of times, as you know, what happens in Congress is somebody will do something bold and then Congress, close to election season, will undo it.

OBAMA: Right.

TAPPER: You saw that with the "doc fix".

OBAMA: Right.

TAPPER: Are you willing to pledge that whatever cuts in Medicare are being made to fund health insurance, one third of it, that you will veto anything that tries to undo that?

OBAMA: Yes. I actually have said that it is important for us to make sure this thing is deficit neutral, without tricks. I said I wouldn't sign a bill that didn't meet that criteria. And what I also said in that speech to the joint session was that I'm willing to put in some safeguards where if we don't obtain the savings that have been promised, that we've got to make adjustments in terms of the benefits, because the goal here is to reduce costs for families, give them more security, but do so in a way that is not adding to our deficit, that, in fact, over the long-term, if we can bend the cost curve, will reduce our deficit.

And I promise you, we're already starting to look at the, you know, fiscal year 2011 budget and the out years. And although we are in the midst of recession and we inherited a big structural deficit, nobody is more mindful of me -- than me of the fact that we can't have a -- a bill that simply blows up an additional entitlement that's not paid for.

TAPPER: So Congress needs to know that you'll veto any attempt to walk back what they pass?

OBAMA: Congress needs to know that when I say this has to be deficit neutral, I mean it.

- jpt

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