Rival visions

AFTER months of inconclusive skirmishing, Washington's budgetary battle-lines are being drawn in earnest. Neither the Republicans nor the Democrats won outright victories in December's set-to over taxes or last week's showdown over the budget for the remainder of this fiscal year. Moreover the stakes were tiny relative to the task at hand (see chart). But with Barack Obama giving his response on April 13th to the long-term budget plan unveiled a week earlier by the Republicans in the House of Representatives, both sides are now fully engaged. Their ideas about putting America's finances to rights, although vague, are starkly opposed.

Mr Obama produced an only slightly less ambitious goal for deficit reduction than the House Republicans, albeit working from a more forgiving baseline: $4 trillion over 12 years compared to $4.4 trillion over 10 years. But the means by which he would achieve it are very different. Whereas the Republicans want to cut taxes, Mr Obama would raise them by more than $1 trillion. He wants to further strengthen his health reforms, which the Republicans want to scrap altogether. He proposes cuts in military spending—the one area where Republicans were reluctant to swing the axe. Much like Paul Ryan, the congressman who drew up the Republican plan, Mr Obama seems to have embraced the supposedly bipartisan goal of deficit reduction, but by means calculated to reassure his base and outrage his opponents.

Indeed Mr Obama spent much of the speech in which he described his plan spelling out his differences with the Republicans and denouncing the vision of America embodied in their proposal. Wealthier Americans, he reiterated several times, should pay more in taxes, not less; poorer ones should not bear the brunt of spending cuts. The Republican proposals, he claimed, would deprive 50m people of health insurance, leave bridges and roads to crumble unrepaired and allow such countries as Brazil, China and South Korea to surpass America in education and technological know-how, all for the sake of lowering taxes on the rich.

Instead, Mr Obama proposes to cut spending by $2 trillion and increase taxes by $1 trillion, all of which would save $1 trillion in extra interest payments, the White House calculates. Of the spending cuts, $400 billion would come from the armed forces, $480 billion from health care, $360 billion from other recurring items such as agricultural subsidies, and $770 billion from the “discretionary” part of the budget, meaning the spending that must be renewed each year. All the extra revenue would come from eliminating loopholes in the tax code. Mr Obama also said he would allow taxes on the rich to rise in 2012, as they are currently slated to do (but not on everyone else, as they are also slated to do). But since he was already assuming that that increase would go ahead, despite Republican vows to stop it, it is not included in his numbers.

Perhaps the starkest difference between the two plans concerns health care. Mr Ryan proposes to give older Americans vouchers to buy private insurance, instead of paying for the lion's share of their medical bills directly. The value of the vouchers would rise more slowly than medical costs have done of late, however, leaving the elderly footing more of their bills. Mr Obama says that he refuses to leave seniors “at the mercy of the insurance industry, with a shrinking benefit to pay for rising costs”. Instead, he would try to tackle medical inflation head on, by giving more power to the cost-control board set up as part of the Democrats' health-care reforms. But it is not at all clear that the board would in fact be able to find savings of the magnitude Mr Obama envisions without reducing the quality of care or passing more costs along to patients.

That is not the only instance in which Mr Obama has left the fine print to others. The defence cuts would be determined by a “fundamental review” conducted by the top brass. Big savings from Medicaid, the health-care scheme for the poor that Mr Ryan wants to entrust to the states, will somehow be achieved in consultation with governors, but without the federal government ceding control. Most glaringly, Mr Obama provides neither the details of the tax reforms he has in mind, nor a mechanism for drawing them up.

In theory, the president's framework, as he called it, makes allowance for the fact that some of his woollier proposals may not yield the desired results by means of a “fail-safe” mechanism. It would institute across-the-board spending cuts from 2014 should the national debt continue to grow faster than the economy. Republicans are keen on such schemes in principle. But they have a poor record in practice, as they tend to be overridden by Congress. Worse, Mr Obama wants to count tax breaks as spending (which can be cut), and to exclude expensive social programmes from the automatic reductions—steps that transform the concept from a peace offering to a provocation in Republican eyes.

Sure enough, Republicans wasted no time in denouncing Mr Obama's ideas as hollow, timid and partisan—an unconstructive declaration of class warfare. Before he had even revealed them, many insisted that they would not countenance any tax rises. Doctrinaire Democrats, for their part, complained that the president is too willing to cut social spending, and too reluctant to tax the rich to pay for them. It does not help that zealots on both sides are still smarting from the deal the president and the leaders of both parties in Congress struck on April 8th to cut spending in the current fiscal year.

However, Mr Obama himself acknowledges that his plan is only an opening bid, unlikely to become law in its present form. And the deal over this year's budget suggests that the leadership of the two parties, at least, is not bent on confrontation. On the contrary, they found a shrewd formula to accommodate one another. The cuts, of $78.5 billion, were close to the $100 billion, the Republicans had demanded. But they were mostly confined to the areas the Democrats found least painful.

It may be precisely because Mr Obama anticipates fierce haggling with the Republicans over the next few months that he conceded so little ground in his speech. The Republicans, in turn, are threatening financial chaos by refusing to raise the cap Congress sets on the federal government's borrowing, even as the debt nears the $14.3 trillion limit, unless Mr Obama concedes ground on the budget. A bipartisan group of senators, meanwhile, continues to work on a deficit-reduction scheme inspired by the fiscal commission set up by the president last year. Their proposal, likely to be unveiled in May, will probably fall somewhere between the president's and the House Republicans'. A detente is still possible, despite all the martial rhetoric.