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Furchtgott-Roth: Obama must come back to the table

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WASHINGTON -- President Obama made it clear in his Monday press conference that he will not negotiate with Congress about raising the $16.4 trillion debt ceiling. He's in charge.

"We've got to break the habit of negotiating through crisis over and over again," said Obama. "And now is as good of a time as any, at the start of my second term, because if we continue down this path, then there's really no stopping the principle."

It took CBS' Major Garrett to remind Obama that as a senator, he had voted against an increase in the debt ceiling in 2006. Other presidents, such as Ronald Reagan in 1985, George H.W. Bush in 1990 and Bill Clinton in 1997, agreed to deficit reduction as a condition of increases in the debt ceiling.

America has a spending problem. Federal spending has risen from 20 percent of GDP in 2007 to 24 percent in 2012, far above the postwar historical average of 20 percent.

House Republicans have passed a budget that will cut $5 trillion over the next decade and bring spending back to 20 percent of GDP by 2015. In contrast, the Democrat-controlled Senate has not passed a budget in more than three years.

During the "fiscal cliff" debate, the discussion of spending cuts was so poisonous (again, despite the huge run-up in spending over the last four years) that cuts were not included in the final package negotiated at the last minute by Vice President Biden and Senate Minority Leader Mitch McConnell.

Instead, the 111th Congress suspended the PAYGO requirement that tax cuts need to be offset by spending cuts and deferred spending decisions until later. Well, later has now arrived.

Does America want to run a European-style welfare state, with periods of unemployment benefits closer to two years than the prior level of six months, and free or subsidized health care and university education for all? If so, we need a European level of taxes. In the 27 countries of the European Union, tax revenues average 39 percent of GDP. But, as we read daily, Europeans have not avoided deficits and fiscal chaos with their high levels of taxes. Far from it. Outlays as a percent of GDP average 49 percent, according to the EU's statistical arm, Eurostat.

Alternatively, do Americans want to keep the concept of entitlements as a safety net for low-income Americans, rather than those in the middle class? Such a reform would move America back to historical levels of outlays.

This is the choice that Congress and the public are not debating.

The European route is to be avoided. Europe's economy is disintegrating, with high budget deficits and unemployment rates. Far better than permanent expansion of the state is to cut spending back to historical levels. But cuts are not easy.

The sequester, which cuts $1.2 trillion over the next decade, was postponed for two months under the recently passed tax bill. The amount of $1.2 trillion is less than America's deficit for fiscal year 2011.

Under the sequester, spending does not even decline, according to Congressional Budget Office projections, but continues to grow steadily. Few realize that congressional spending cuts for any given year are subtracted not from the prior year's spending, but rather from a projected budget that grows on autopilot.

This is particularly true of the big entitlement programs -- Medicare, Medicaid and Social Security -- that are projected to continue to grow rapidly. That explains how Congress can say it is cutting spending over 10 years, yet produce a series of budgets that continue to grow.

Despite Obama's remarks in his press conference, negotiation is central to governing America. Presidents can only sign bills sent to them by Congress -- and Congress is in charge of spending. Let's hope Congress can step on the brakes.

Examiner Columnist Diana Furchtgott-Roth (dfr@manhattan-institute.org), former chief economist at the U.S. Department of Labor, is a senior fellow at the Manhattan Institute for Policy Research.

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Diana Furchtgott-Roth

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The Washington Examiner