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March 27th, 2017

Insight

Entitlement reform, RIP

Charles Lane

By Charles Lane

Published May 2, 2016

As you have probably heard by now, the stakes in November's presidential election could not be higher. Control of the Supreme Court hangs in the balance. Ditto the fate of millions of undocumented immigrants. U.S. foreign policy could be in for its biggest shake-up since the Cold War.

Yet in one crucial respect the election might make no difference at all.

Seventy-five percent of planned federal spending between now and the end of the next two presidential terms is mandatory: Social Security, Medicare and other entitlement programs, plus interest on the national debt, according to Congressional Budget Office forecasts. That money is going out the door no matter who's president.

Eugene Steuerle of the Urban Institute has come up with an "Index of Fiscal Democracy" to express this vast, automatic commitment of resources, and the preemption of actual political choice it represents. The higher the index, the more possibilities we have for actually governing ourselves.

At present, the index stands at 19.7, which is the percentage of federal receipts left over after mandatory spending and interest, according to data compiled by Steuerle's collaborator Caleb Quakenbush.

By 2026, however, the index will sink to 1.7, absent reforms. That's the sliver of money we'll have to pay for research, natural disasters, defense and everything else. By contrast, in 1962, the index stood at 65.3; in 2007, 34.3.

Moreover, if the primary results demonstrate anything so far, it is that voters of both parties oppose trimming entitlements, especially the two giants, Social Security and Medicare, that benefit the elderly.

They have revealed this preference by anointing two front-runners who both promise to "protect" the programs.

Republican Donald Trump has long believed it was political suicide for Republicans to advocate "cuts" to Social Security and has campaigned accordingly. New Jersey Gov. Chris Christie ran on "telling it like it is" about entitlements and laid out a plan including a higher retirement age. He was last seen grinning obediently at Tuesday night's victory party for The Donald, whom the defeated Christie has endorsed.

Democrat Hillary Clinton has pledged not only to oppose reductions in Social Security benefits and cost-of-living adjustments but also to expand benefits for widows, paid for by higher taxes on high-earners.

This was admittedly modest compared with Bernie Sanders's promise to boost benefits by $65 per month and pump up inflation adjustments, paid for by millionaires, natch.

But Clinton still moved toward the party's left, which has promoted a new "expand Social Security" orthodoxy, both at the presidential level and for congressional candidates, and put tremendous pressure on the former secretary of state.

Meanwhile, neither Trump nor Clinton proposes much more than tweaks to Medicare, though Trump, in a concession to GOP doctrine, backs converting Medicaid for the poor to a state-administered block grant, leavened by his promise to "take care of people that are dying on the street."

Never politically popular, entitlement reform now looks politically dead. It's so dead that even the truth-telling types at No Labels would barely touch anyone's benefits.

The bipartisan policy organization, headed by former Utah governor Jon Huntsman (R) and former senator Joseph I. Lieberman (I), has just issued a campaign-year "playbook," containing policy ideas that had to a) make sense substantively and b) poll well. Thus constrained, they chose to shore up Social Security mainly through higher payroll taxes - that is, using a politically difficult tax increase to preserve most existing benefits rather than for new needs.

There's no mention of adopting the more accurate "chained" consumer price index to adjust benefits for inflation, as the Bowles-Simpson debt-reduction commission proposed in 2010. A version developed by the liberal Center on Budget and Policy Priorities projected 10-year savings of $112 billion while protecting the poorest elderly.

On Medicare, No Labels, like Trump and Clinton, nips at the edges, suggesting "more telemedicine" and reining in malpractice suits.

Yet there are many well-developed structural reform proposals for Medicare, some of which have had bipartisan support, that would cut costs without harming health or imposing undue hardship on the poor.

For example: Medicare includes a hodgepodge of cost-sharing requirements, which many patients cover by buying "Medigap" policies, thus eliminating out-of-pocket costs but encouraging consumption. The Congressional Budget Office has estimated that establishing uniform cost-sharing and restricting Medigap plans could save $111 billion over 10 years.

In fairness, the past eight years have not been a total loss for reform. Congress and the Obama administration agreed on modest savings to Social Security Disability Insurance and modernized military pensions. They also ended an irrational formula for increasing Medicare physician reimbursements each year. Minor as they were, these changes took major political effort. It will be harder still to make progress after a campaign like this one.

The only way to do it, in fact, would be for the winner to break their promises. .

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