Issue #18, Fall 2010

Attention: Deficit

Should progressives embrace entitlement reform? Or look elsewhere to narrow the gap? An exchange between two leading fiscal experts.

John Sides, a political scientist at George Washington University, has concluded: “In Congressional elections, just as in presidential elections, the president and his party are not punished for running up the debt. They are punished for a weak economy.” If the goal is to regain public trust in government, there’s little evidence that strengthening fiscal conditions will matter much, and a lot of reason to believe that cutting Social Security and Medicare would only further alienate Americans.

On the second point, as I have argued, nothing has happened to date to support the belief that spending on the elderly deters new initiatives geared toward other generations. The health-care and stimulus bills are only the most recent examples. Big social-insurance programs directly and indirectly improve economic security for all generations. By reducing poverty rates among the elderly from more than 35 percent before 1960 to around 10 percent today, Social Security, Medicare, and Medicaid (which assists low-income Medicare beneficiaries) have significantly alleviated pressures on families to house and otherwise care for older members. That’s a huge quality-of-life improvement for all ages. Moreover, most proposed benefit reductions over time would take deeper and deeper bites out of the payments owed to successive generations as they retire.

On the third point about tax increases, asking the 16 to 20 percent (depending on one’s source) of older Americans with income above $75,000 to accept “a little less,” as Sawhill proposes, would make barely a dent in the shortfall. The same would go for imposing a cap on Medicare and Medicaid spending, since it would be unlikely to yield lasting reductions based on abundant past experience with similar ceilings. The kinds of benefit cuts that would hammer away at federal outlays enough to bring down future deficits would also have to significantly weaken the economic security of American families who are far from comfortable. For example, raising the normal retirement age to 70 by 2036 would lead to a 10 percent reduction in Social Security benefits for workers between the ages of 40 and 44, according to the Center for Economic and Policy Research. That price is too heavy to pay and unnecessarily painful relative to other options.

Sawhill didn’t respond to my question about which country is doing a better job than the United States in finding the right balance between individual responsibility and protection against costly risks that we all face. I would argue that pretty much every other advanced nation does a much better job, especially with respect to health care. They all get far more for their medical spending than we do. Since rising health-care costs are the only reason we are having this debate about high future deficits, progressive reformers should be focusing on making the system more cost-effective, rather than ratcheting back past, hard-won accomplishments.

In addition to the fallout from the severe recession, states are cutting back on a broad range of services mainly because they have little leverage to control their soaring costs for Medicaid. Shifting those responsibilities over time entirely to the federal government would greatly alleviate state fiscal pressures and create promising opportunities to control health-care costs system-wide. Without question, increasing federal involvement in the health-care system is a highly problematic political challenge in this country, particularly given existing health-care arrangements and the small-state bias of the Senate and its sundry supermajority rules. But it is the fight progressives should be focusing on.

A team of researchers led by Yale political scientist Jacob S. Hacker just released a report documenting that the proportion of households that experienced at least a 25-percent drop in available income has risen over the last 25 years, with projections showing a new high in 2009. As employers have dropped or curtailed health-care coverage and shifted workers from defined-benefit pensions to volatile and poorly performing defined-contribution plans, the only reliable protections for average Americans have been Social Security and Medicare, buttressed by Medicaid. Those programs are the beachhead upon which progressives should continue to advance.

Many public policy debates periodically heat up and then cool down. But the discussion we have been having on entitlements and the deficit will soon reach a full boil–and will likely continue for years to come.

 

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Issue #18, Fall 2010
 
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response: Attention: Deficit:

A few quick points: Baby-boom retirement drain on SS will lessen as we die off. Healthcare public option must pass. Early critics of SS predicted crash in insurance industry. Didn't happen. Seniors working solely for healthcare and deferred benefits can't vacate workplace for juniors to be hired.Yes:raise payroll-tax cap.Yes:Federalize Medicare. State programs can't compete with natl. health ins. cos. Losing trust in govt? Trust big biz more? Wealthy must finance greater good.

Sep 15, 2010, 7:57 PM
Nathar Anayee:

Thank you for the great ideas.
It is hard to seperate the Federal finance from the politic, but if we do! we can get more working space to concentrate on the finance

Mar 19, 2011, 11:58 AM
Randy Johnson:

So far as the definition of S.S. as an "entitalment" and being full of I.O.U.'s these are not entitlements. They were paid into by the people. Also if the politicians would quit giving themselves entitlements, "free healthcare, pensions after one term, etc." the American public would be much more receptive to reduced benefit amounts.

Mar 30, 2013, 11:07 AM

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