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Posts Tagged ‘entitlements’

Economic Populism Is a Dead End for Democrats

December 3rd, 2013

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If you talk to leading progressives these days, you’ll be sure to hear this message: The Democratic Party should embrace the economic populism of New York Mayor-elect Bill de Blasio and Massachusetts Sen. Elizabeth Warren. Such economic populism, they argue, should be the guiding star for Democrats heading into 2016. Nothing would be more disastrous for Democrats.

While New Yorkers think of their city as the center of the universe, the last time its mayor won a race for governor or senator—let alone president—was 1869. For the past 144 years, what has happened in the Big Apple stayed in the Big Apple. Some liberals believe Sen. Warren would be the Democratic Party’s strongest presidential candidate in 2016. But what works in midnight-blue Massachusetts—a state that has had a Republican senator for a total of 152 weeks since 1979—hasn’t sold on a national level since 1960.

The political problems of liberal populism are bad enough. Worse are the actual policies proposed by left-wing populists. The movement relies on a potent “we can have it all” fantasy that goes something like this: If we force the wealthy to pay higher taxes (there are 300,000 tax filers who earn more than $1 million), close a few corporate tax loopholes, and break up some big banks then—presto!—we can pay for, and even expand, existing entitlements. Meanwhile, we can invest more deeply in K-12 education, infrastructure, health research, clean energy and more.

Social Security is exhibit A of this populist political and economic fantasy. A growing cascade of baby boomers will be retiring in the coming years, and the Social Security formula increases their initial benefits faster than inflation. The problem is that since 2010 Social Security payouts to seniors have exceeded payroll taxes collected from workers. This imbalance widens inexorably until it devours the entire Social Security Trust Fund in 2031, according to the Congressional Budget Office. At that point, benefits would have to be slashed by about 23%.

Undeterred by this undebatable solvency crisis, Sen. Warren wants to increase benefits to all seniors, including billionaires, and to pay for them by increasing taxes on working people and their employers. Her approach requires a $750 billion tax hike over the next 10 years that hits mostly Millennials and Gen Xers, plus another $750 billion tax on the businesses that employ them.

Even more reckless is the populists’ staunch refusal to address the coming Medicare crisis. In 2030, a typical couple reaching the eligibility age of 65 will have paid $180,000 in lifetime Medicare taxes but will get back $664,000 in benefits. Given that this disparity will be completely unaffordable, Sen. Warren and her acolytes are irresponsibly pushing off budget decisions that will guarantee huge benefit cuts and further tax hikes for Gen Xers and Millennials in a few decades.

As for the promise that unrestrained entitlements won’t harm kids and public investments like infrastructure, public schools and college financial aid, haven’t we seen this movie before? In the 1960s, the federal government spent $3 on such investments for every $1 on entitlements.

Today, the ratio is flipped. In 10 years, we will spend $5 on the three major entitlement programs (Social Security, Medicare and Medicaid) for every $1 on public investments. And that is without the new expansion of entitlement benefits that the Warren wing of the Democratic Party is proposing. Liberal populists do not even attempt to address this collision course between the Great Society safety net and the New Frontier investments.

On the same day that Bill de Blasio won in New York City, a referendum to raise taxes on high-income Coloradans to fund public education and universal pre-K failed in a landslide. This is the type of state that Democrats captured in 2008 to realign the national electoral map, and they did so through offering a vision of pragmatic progressive government, not fantasy-based blue-state populism. Before Democrats follow Sen. Warren and Mayor-elect de Blasio over the populist cliff, they should consider Colorado as the true 2013 Election Day harbinger of American liberalism.

This piece was originally published via The Wall Street Journal. 

A Deal on Social Security Hiding in Plain Sight

October 23rd, 2013

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Starting this year, seniors new to Social Security can expect to be pickpocketed. While Congress was fighting over default, the Congressional Budget Office quietly moved up its projected date for Social Security insolvency to 2031. In that year, without a fix to the program, recipients will take an immediate and draconian 23 percent cut in benefits.  So a majority of new retirees today will face a meaningful cut in payments in their lifetime.

We need to fix this, and the newly created budget conference appointed at the conclusion of the debt ceiling crisis is the place to do it. It may seem impossible for a dysfunctional Congress to touch the “third rail” of politics given its disappointing performance in all areas. But a deal on Social Security may not be as far-fetched as it seems.
First, there is more agreement on Social Security solutions among Democrats and Republicans than meets the eye. And second, a deal to fix Social Security may be the only way to make progress on every fiscal issue that concerns Democrats and Republicans—from sequester to the debt ceiling—providing an incentive for both parties to act.

Read the rest of this entry »

How to Save Social Security

May 31st, 2013

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There are a lot of charts, numbers, and projections in the annual report released by the Social Security Trustees Friday, but they really boil down to this: Social Security’s trust fund has 20 years to live.

Started in 1935 as the first major strand in America’s safety net, Social Security will arrive at insolvency at the venerable age of 98. By ignoring this reality, Congress is guaranteeing that the program’s reserves will expire, forcing benefits for the retired and disabled to immediately fall by 23 percent starting in 2033.

But the retired and disabled won’t be the only victims. The rising cost of Social Security and health care programs is crowding out investments in kids and future generations. In the mid-1960s, the federal government spent three dollars on investments — in education, research, and infrastructure — for every one dollar on entitlements. In 2023, it will spend one dollar on investments for every five dollars on entitlements. That means less money for teaching kids, curing diseases, and building roads.

The question now is whether the same dysfunctional Congress that cannot seem to muster enough votes to name a post office can touch the third rail of politics, to keep Social Security from going down and taking public investments with it.

To that we answer a loud no and yes. No, Congress is unable to develop and pass a Social Security solvency plan with the necessary super majority in the Democratic Senate and a majority in the Republican House. That piece of legislation is a fantasy. But the same two chambers could pass a law that outsources the job to a commission, to develop the plan and leave Congress in the position with only two choices: vote yes on the commission plan to save Social Security or vote no to let its financing dry up. Read the rest of this entry »

Entitlement reform key to U.S. future

February 27th, 2013

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This piece was originally published in Politico.

As the sequester blame game hits fever pitch this week, Republicans’ stance on taxes is simply indefensible, falling hundreds of billions short of even their own prior positions. But as Democrats, we also share a large portion of responsibility for the coming cuts to domestic discretionary spending, as the party has decided in both action and rhetoric that meaningful fixes to the major entitlement programs of Medicare, Medicaid and Social Security are off-limits.

Think about it. Over the past three years, from debt ceiling deals to the supercommittee and the fiscal cliff, social insurance programs have escaped virtually unscathed while every other category of spending took some hit and revenue grew. And because of the sheer enormousness of the Big 3 entitlements, Democrats face a serious new crisis that is closer to home and will linger long past the sequester: There is now barely a farthing left in the budget for any new investments.

Over the past century, Democrats can boast two major economic legacies. The first is the safety net programs of the New Deal and the Great Society — successful programs that lifted the elderly and vulnerable out of poverty. The second is the New Frontier investment programs defined and expanded under President John F. Kennedy. These investments in science, space, defense, education, as well as highways, rails, ports and medical breakthroughs helped power the U.S. economy during the latter half of the 20th century.

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Hmm? Entitlements aren’t crowding out investments??

August 3rd, 2012

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Dylan Matthews posted on our paper this afternoon, and we appreciate the opportunity to continue the dialogue. So let’s get started.

Should Social Security be left out of this discussion, as Mr. Matthews suggests? Is it really only the health care entitlements we need to contain?

He is correct, and we showed in our paper, that over the past 50 years, all of Social Security’s growth relative to GDP has occurred in the first 20 years and has stayed roughly static since. But five percent of the economy is a lot. It’s roughly equal to Medicare, Medicaid and CHIP combined. And it’s not going to stay static – that is a certainly. In less than two decades, Social Security is poised to jump from 5.0% to 6.0% of GDP, according to CBO. One point may not seem like a big deal, but it represents a 20% rise in the cost of Social Security relative to the size of the economy. That’s not peanuts, especially since (as Mr. Matthews rightly points out and we also show in our paper) our health care entitlements will sprint ahead much faster. Read the rest of this entry »

A Formula for Super Committee Success

October 27th, 2011

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This piece was originally published by Politico.

With less than a month before the supercommittee’s deadline, pressure is again building for a grand bargain. President Barack Obama submitted a large plan; House Speaker John Boehner is urging the supercommittee to take up tax reform and various bipartisan coalitions are calling for trillions in deficit reduction.

A $4 trillion grand bargain would be ideal — but we’ve seen this movie before. Here’s how it ends: The clock runs out; a major deal isn’t done; the blame game starts; financial markets dip; and voters lose even more confidence in government. Maybe it’s time to write a new scenario.

So here’s a plan that could snatch victory from the jaws of defeat. It’s a no-gimmicks, bipartisan, 67-line item proposal that can achieve what the supercommittee was statutorily designed to do: come up with $1.2 trillion in deficit reduction.

Think of it as sort of an emergency blueprint for the committee to keep under glass — until it becomes clear that a grand bargain is unachievable.

First, take a big-tent, bipartisan approach that brings together ideas from across the ideological spectrum. It can include items from Obama’s proposal; Sen. Tom Coburn’s Back in Black plan, a $9 trillion deficit-reduction plan with spending cuts and revenue raisers; the National Commission on Fiscal Responsibility and Reform report and proposals from outside, nonpartisan groups. This provides a common foundation for compromise.

Second, allow each side to remain faithful to its core principles — but don’t require them to cross a policy or political Rubicon. The last attempt to reach a grand bargain was ultimately felled as a result of Republicans’ ironclad allegiance to tea party activists and Grover Norquist’s no-tax pledge.

Democrats contributed to the collapse through their resistance to sweeping entitlement reform.

Our plan doesn’t ask either side to cross their major lines in the sand — rather it postpones that grand bargain until after the 2012 election. How? We don’t touch top tax rates, capital gains or make an example of millionaires and billionaires. But we do raise real revenue by scotching tax earmarks for things like timber industry tree planting and NASCAR race tracks and by restraining some tax deductions.

On entitlements, we guard the structure of programs like Medicare and Social Security but generate savings by making small changes in the way they do business.

Third, the plan includes roughly one-third revenue hikes, one-third defense and one-third mandatory cuts — so all parts of government would take their fair share. This also would include enough savings to pay for the president’s jobs proposal — or whatever common-ground package ultimately emerges from Congress. So we’re not just cutting the deficit but helping drive short-term growth.

Finally, our plan is not a political game-changer — by design. Republicans would still be able to claim that they’ve fought the Washington urge to raise taxes, and Democrats would remain dug in as the protectors of programs like Medicare and Social Security. And an agreement of this size would be a victory for the president — but not a large enough triumph to alter the 2012 landscape, which is clearly one of the calculations that Republicans are making.

We’d love to see the supercommittee come together and solve our long-term, structural budget crisis. But bridging a hardened partisan divide in just a month is a bit much to ask any committee — no matter how super.

Committee members and the leadership of both parties must be clear: Failure has consequences, and sequestration should not be the fallback. At a time of unprecedented economic instability and public distrust in government, we can’t afford another display of Washington dysfunction.

The committee needs a real fail-safe contingency plan ready.