“Insurance Against Need, Guaranteed Return”: Why Democrats Must Get Smart On “Entitlements”
In a season of depressing budget news, the worst may have been that a majority of U.S. House Democrats signed a letter urging President Barack Obama to oppose any benefit cuts to Social Security, Medicare, Medicaid and other entitlements. That’s the last thing we need.
To hold the line on harmful cuts to discretionary spending, Obama and the Democrats must educate the public about the necessity of entitlement reform. Otherwise, the poor and needy — largely spared by the automatic reductions under sequestration — will get hit much harder down the road.
Liberals are right to reject Republican proposals that would slash social-welfare programs even as they refuse to consider closing tax loopholes for the wealthy. And I agree that the sequestration will cut into the bone of important government functions and investments in the future.
That makes two more reasons to start talking seriously about how we will pay for the insanely expensive retirement of the baby boomers.
How expensive? Anyone reaching retirement age in the next 20 years (including me) will take more than three times as much out of Medicare as he or she contributed in taxes. By 2030, the U.S. will have twice as many retirees as in 1995, and Social Security and Medicare alone will consume half of the federal budget, with the other half going almost entirely to defense and interest on the national debt. It’s unsustainable.
If Democrats don’t want to talk about these programs, they can say goodbye to every other pet program. We can preserve Medicare in amber only at the expense of investments in pre-kindergarten programs or cancer research.
To reform entitlements, we should assess what these programs were meant to do in the first place.
For starters, Presidents Franklin D. Roosevelt and Lyndon B. Johnson didn’t call them entitlements. Jimmy Carter’s administration borrowed the term from Anarchy, State and Utopia, a 1974 book by Robert Nozick, a political philosopher. “Entitlement” sounds selfish and at odds with the dignity and peace of mind that Social Security and Medicare are meant to provide.
It distorts the animating idea behind these programs, which is social insurance.
FDR didn’t have strong feelings about benefit levels, retirement ages or eligibility standards. He focused on what he called guaranteed return. By that he meant that having paid into the system through a kind of insurance premium (though in fact it was merely a payroll tax), Americans should rest easy that some money would be there for them if they lived long enough to need it. The whole point was “insurance against need.”
“Guaranteed return” and “insurance against need” should continue to be the two guiding principles of social-insurance reform.
“Guaranteed return” means no privatization or voucher system for these programs. FDR would have strongly opposed President George W. Bush’s plan to allow Social Security contributions to be invested in the stock market. He thought subjecting retirement income to what he called “the winds of fortune” was a breach of the social contract. Imagine what would happen to someone who retired in 1929 or 2008? No guaranteed return.
“Insurance against need” suggests keeping the focus on poor and middle-class recipients who depend on the money most. That means means-testing, giving wealthier retirees less. FDR, who favored high levels of taxation on the rich, would have been fine with taxing their benefits, too, as long as they were guaranteed to get at least something back.
Liberals generally oppose means-testing social-insurance programs. For decades they’ve argued that if the wealthy don’t get a heaping portion of Social Security and Medicare, it will undermine the political support of the programs and turn them into a form of welfare. Once that happens, the theory goes, the programs will be ended.
Like the word “entitlements,” this hoary idea should be retired. Social Security and Medicare are now so deeply in the marrow of the American middle class that they will never be seen as welfare. The question is not whether to reform them, but how.
Roosevelt structured Social Security as an insurance program with “contributions” through the tax code “so no damn politician can ever take it away.” He didn’t specify anything about the level of taxation or cost-of-living increases, which weren’t an issue in the 1930s but would become one shortly after World War II.
Today, only the first $110,000 in income is subject to the 7.65 percent tax that pays for Social Security and Medicare. Lifting the cap to higher income levels (say $250,000 or $400,000) could eventually generate hundreds of billions of dollars.
Republicans consider this a tax increase. That’s only true outside the context of these programs. The change could be structured so that no one paid in more than actuarial tables say they would take out. That would still raise billions and be consistent with the idea of paying for your own retirement if you can afford it.
For lifting the cap to have any chance, it would have to be matched by reforms such as adopting the chained consumer-price index, a new way to measure cost-of-living adjustments that Obama apparently favors. Liberals oppose chained CPI because it would theoretically result in lower benefits. But less frequent cost-of-living increases aren’t the same as cuts, especially if the current system is, as many experts believe, based on an inaccurate assessment of inflation.
Maybe there are better ideas for reforming social insurance. The point is, we better start talking about them. Otherwise, grandpa and grandma and their fellow Grateful Dead fans are going to eat all the food on the table.
By: Jonathan Alter, The National Memo, March 1, 2013
“Simpson-Bowles Rebaked”: Playing To The Peanut Gallery
Simpson and Bowles have returned to the stage with a far worse plan than the one they had before. Their old formula sought $2.9 trillion in cuts and $2.6 trillion in revenues, while this new one that they touted at a Politico breakfast this morning seeks just $1.3 trillion in revenues and jacks the cuts up to $3.9 trillion.
The change is driven not so much by any kind of ideological shift or decision that we need more pain as it is driven, or so says Ezra Klein, by their apparent decision this time not to create their own new thing wholly from scratch irrespective of what the pols are saying, but to use Obama’s and Boehner’s latest offers as sort of starting points and guides:
This isn’t meant to be an update to Simpson-Bowles 1.0. Rather, it’s meant to be an outline for a new grand bargain. To that end, Simpson and Bowles began with Obama and Boehner’s final offers from the fiscal cliff deal. That helps explain why their tax ask has fallen so far: Obama’s final tax ask was far lower than what was in the original Simpson-Bowles plan, while Boehner’s tilt towards spending cuts was far greater than what was in the original Simpson-Bowles.
That said, while this plan doesn’t include more tax increases than Obama asked for, it does include significantly more than the $1 trillion in spending cuts than Boehner asked for — about $500 to $700 billion more, if I’m reading it right. In increasing the total deficit reduction, Simpson and Bowles have put the weight on the spending side of the budget.
But why would they shift so dramatically in the Republicans’ direction? Derek Thompson of The Atlantic sees two reasons:
First, there aren’t enough people in Washington who want to raise taxes on anybody making less than $250,000 to make the original $2.6 billion figure work. Second, Congress has demonstrated a fairly strong appetite for scheduling budget cuts.
Well, alas, he’s undoubtedly right about that. But really, this is not to be taken seriously. I’m not usually part of the Entitlement Chicken Little Caucus, because I concede that something needs to be done, provided that “something” is first and foremost to change the way Medicare reimbursements are made, which would save many trillions over the years, and then see what else needs to be done. But to be “responsible” people inside the Beltway you must thirst for seniors and future seniors and poor people and future poor people to sacrifice more. Simpson and Bowles are just playing to that peanut gallery, for which a Politico breakfast is the perfect audience.
One might generously say that Simpson and Bowles are just bowing to the extant political reality. But I thought their job was to suggest the most responsible way forward. They of all people should be standing up to GOP intransigence, not accepting it.
By: Michael Tomasky, The Daily Beast, February 19, 2013
“Willfull Ignorance”: Short-term Memory Loss Grips Republicans In Washington
ABC News’ George Stephanopoulos devoted a good chuck of “This Week” to discussed automatic sequestration cuts yesterday, and asked Rep. Tom Cole (R-Okla.) for his prediction. The Republican congressman said President Obama came up with the sequester — a claim that simply isn’t true — before saying his caucus is “prepared to negotiate on redistributing the cuts.”
It led to this exchange:
STEPHANOPOULOS: And you’re saying all cuts. Republicans are accepting absolutely no revenues?
COLE: No. Look, absolutely none. The president’s accepted no spending cuts back in the fiscal cliff deal 45 days ago, so you get all — no spending cuts back then. Then you’re going to get no revenue now.
Around the same time, Sen. John McCain (R-Ariz.), who appears to spend more time on Sunday shows than in the Senate, said he’s open to some revenues as a way to replace the sequester, but added, “[W]e have raised taxes. Why do we have to raise taxes again?”
Of course, by that logic, there’s no reason not to ask, “We have cut spending. Why do we have to cut spending again?”
It’s troubling that Republican policymakers have such short memories, and seem to have no idea what policies they voted for as recently as 2011. It’s one of the more breathtaking examples of willful ignorance in recent memory.
But if we assume that lawmakers like Cole and McCain are sincere, and they literally can’t remember the basics of recent budget policy, then it’s probably worthwhile to set the record straight.
In 2011, Democrats and Republicans agreed to between $1.2 trillion and $1.5 trillion in spending cuts, depending on how one tallies the numbers. The cuts included no new revenue.
In 2012, Democrats and Republicans agreed to a deal that raised revenue by about $650 billion. The new revenue included no new cuts.
In 2013, Republicans are saying they remember what happened in 2012, but the 2011 policy has been blocked from memory.
This is crazy. Folks like Cole and McCain keep saying the 2012 deal didn’t include spending cuts, so the sequester has to be 100% in the GOP’s favor now, without exception. Why? Because Republicans haven’t gotten spending cuts.
Except they already did get spending cuts. Indeed, the cuts from 2011 were twice as big as the revenue from 2012.
Even if the parties agreed to an entirely balanced agreement this month to replace the sequester — roughly $600 billion in revenue and $600 billion in cuts — Republicans would still be getting the much better end of the deal. The total for the entire package, negotiated in parts over the course of two years, would be over $4 trillion in debt reduction — with a cuts-to-revenue ration of about six to one.
For that matter, Obama isn’t calling for “tax increases”; he’s calling for new revenue through closed tax loopholes and ending certain tax deductions. As recently as last month, Republican leaders said such a policy doesn’t count as a “tax increase,” though it’s suddenly become outrageous now that the president agrees.
This really isn’t that complicated. Either Republicans have a child’s understanding of fiscal policy, the memory capacity of a goldfish, or they think Americans are fools. At this point, I’m no longer sure which, though I’m open to suggestion.
By: Steve Benen, The Maddow Blog, February 11, 2013
“Let’s Destroy The Village”: Four Years Later, Paul Ryan Wants More Of The Same
Just when I thought that the National Review Institute demonstrated that Republicans are ready to compromise, Paul Ryan outlined a somewhat apocalyptic vision of budget negotiations there on Saturday.
According to POLITICO, Ryan said “that the nation will face ‘tepid growth and deficits’ under President Barack Obama and Republicans must prudently ‘buy time’ and ‘keep the bond markets at bay — for the sake of our people.'” Like a third-rate objectivist action hero, he is.
Ryan continued:
“Unfortunately, the Democrats are unlikely to accept our proposals. They refuse to consider real reform. But we will lay the groundwork for future endeavors. So when reform is possible, we will be ready.
“The president will bait us. He’ll portray us as cruel and unyielding,” Ryan said. “Look, it’s the same trick he plays every time: Fight a straw man. Avoid honest debate. Win the argument by default.
But neither the President nor any other Democrats need to portray Ryan as “cruel and unyielding” because his policies do a fantastic job of that on their own.
Ryan has time and time again demonstrated that he isn’t interested in paying down the national debt or in “reforms to protect and strengthen Medicare and Medicaid,” as he claimed on Saturday. He’s interested in turning Medicare into a voucher program and in slashing Medicaid’s budget by over a trillion dollars — his logic reminiscent of that infamous Vietnam era talking point “destroying the village in order to save it.” And speaking of bombs, Ryan has repeatedly refused to consider cutting one of the most draining and unnecessarily large parts of the budget: defense spending. He also refuses to consider forcing those with mountains of idle or otherwise unproductive cash to pay for these programs, and isn’t content with Democratic compromises thus far, refusing to appreciate the $2.2 trillion in cuts agreed to during the 112th Congress, because he’s cranky about the $620 billion in tax increases.
Moreover, he isn’t even right about the one thing that libertarian types are supposed to be intimately familiar with — the bond market. As I pointed out a few weeks ago, interest rates are about as low as they can be and aren’t expect to rise, and demand for U.S. Treasury bonds is robust. This suggests that the market has confidence in the U.S. government’s ability to honor its debts, and that federal borrowing isn’t “crowding out” private sector investment.
Who’s avoiding honest debate, Congressman Ryan?
POLITICO also reported that Ryan’s outlook contrasts sharply with Speaker Boehner’s. The latter is attempting to compromise with Democrats by forcing the Senate to pass a budget so that the two houses can find some middle ground. But if Ryan uses his budget committee chair to turn this into another fiscal knock-down drag-out fight — something that makes virtually no sense in light of his party’s November drubbing, and Congress’ low approval rating — the ensuing conference committee might make the super committee look like serious adults.
So much for learning from the past four years.
By: Samuel Knight, Washington Monthly Political Animal, January 26, 2013
“Crisis To Crisis Management”: Congress’s Continual Game of Political Chicken
The proposal from the House of Representatives to push off the debt ceiling crisis for three months came with an ironic rhetorical frame: If the Senate will, in that time frame, pass a budget, we can start facing our long-term fiscal challenges instead of managing crisis to crisis. Oh, and if they don’t pass a budget all lawmakers will stop drawing salaries.
The basic idea that crisis to crisis management is the worst form of governance for our country is right on the money: Short-term continuing resolutions and other stop-gap measures ensure inefficiency because government agencies are hamstrung by their inability to plan beyond a few months. And absolutely the Senate should present a budget that lays out a vision for how to put our country on a path towards a healthy fiscal future. But, the politics over the debt ceiling in the last three years have been a leading contributor to the culture of avoiding hard decisions in favor of incendiary rhetoric we see in Congress today.
The debt ceiling debate in the summer of 2011 spawned the so-called “super committee” and so-called “fiscal cliff.” So, in the past two years we’ve seen the creation and failure of the super committee, an underwhelming fiscal cliff deal that paired special interest tax breaks with an increase to the rates for higher income individuals, and a short delay of the looming threat of sequestration, the across the board spending cuts that were supposed to motivate the super committee—and Congress—to come together to act. In the next two months we have another opportunity to avoid the sequester and the expiration of the current continuing resolution, the bill that funded government for six months at fiscal year 2012 levels in lieu of passing actual appropriations bills. And of course a debt ceiling vote is on the horizon.
All of these crises are manufactured. Those willing to put off raising the debt ceiling to make a political point are willing to hurt our economy and our standing in the world to make that same point.
At the root of these manufactured crises are a winner-take-all approach to the disagreements between and even within the political parties. At each crisis, Democrats and Republicans demand a total victory and a grand bargain only to end up placating one another with crumbs of a bad deal and promise to revisit the issues at the next manufactured crisis. Our nation cannot afford this continual game of political chicken. We cannot afford the impact of defaulting on our debts. Policymakers need to work together and come up with reforms to spending, taxes, and entitlements. No more political theater, no more back room discussions on grand bargains. It’s time for the hard work of legislating solutions to the nation’s fiscal challenges.
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