JONATHAN CHAIT DECEMBER 21, 2010
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It's starting to look more plausible that President Obama will try to cut a budget deal with Republicans. Bob Kuttner thinks Obama plans to spring a proposal in the State of the Union address:
The tax deal negotiated by President Barack Obama and Senate Republican leader Mitch McConnell of Kentucky is just the first part of a multistage drama that is likely to further divide and weaken Democrats.
The second part, now being teed up by the White House and key Senate Democrats, is a scheme for the president to embrace much of the Bowles-Simpson plan — including cuts in Social Security. This is to be unveiled, according to well-placed sources, in the president’s State of the Union address.
Meanwhile, there may be some actual bipartisan support brewing, reports the Washington Post:
Fresh off an election in which the ballooning budget deficit weighed heavily on voters' minds, a hugebipartisan majority of senators agreed last week on a tax-cut package that would add hundreds of billions of dollars to the national debt.
But two of the 81 senators who backed that deal - Mark Warner (D-Va.) and Saxby Chambliss (R-Ga.) - want it known that bipartisanship isn't achievable only when everyone's getting a tax cut.
Chambliss and Warner are the leaders of a new, informal gathering of senators who have been meeting periodically since the summer to discuss ways to curb the deficit. The group includes more than 20 senators, with a roughly even partisan split. They have brought into their discussions high-profile guests, including Federal Reserve Chairman Ben S. Bernanke and former U.S. Comptroller David M. Walker.
What unites the group is the belief - shared by President Obama's bipartisan deficit commission - that there is no "silver bullet" to fix the country's fiscal woes.
"The way you do it is put everything on the table," Chambliss said Wednesday, appearing with Warner before a group of reporters.
"Put everything on the table" is code for a deal that includes higher revenue, thus violating the GOP's Prime Directive. I don't see how a deal like that could ever get through the GOP House, but the fact that Senate Republicans are even willing to engage a negotiation on such terms is significant. (Of course, Senate Republicans negotiated on health care reform and cap and trade only to melt away under pressure from the base.)
That said, it's worth thinking about what kind of deal Democrats should accept. I don't believe that Social Security cuts should be off the table. The question is what Democrats should demand in return. They are actually in a strong position. If the Bush tax cuts expire, it will basically solve the medium-term deficit problem. If Obama stands firm on the upper-income tax cuts, Republicans will block the middle-class tax cuts (which, for them, are just a loss leader to get tax cuts for the rich). That would take care of the medium-term deficit problem, as ending all the Bush tax cuts would save even more money than the Bowles-Simpson plan.
There remains a long-term solvency issue for Social Security, as well as the far more significant problem of explosive health care costs. The Affordable Care Act is a pretty strong start to clamping down on health care costs. Of course, the GOP's insistence on blocking implementation funds is a major barrier to solving this problem.
So where does that leave us? First, I don't think Democrats need to insist on tax hikes in return for Social Security cuts. They just need to preserve their ability to stand firm on the Bush tax cuts in 2012, and then actually stand firm on them. They do need to demand that Republicans give in on their insane desire to slash spending in the midst of the economic crisis, as well as their jihadist demands to defund the Affordable Care Act. Some kind of investment in physical infrastructure is needed -- this would be in keeping with a long-term wonk desire to shift the focus on government from promoting consumption to promoting investment.
So the outlines of a deal, to me, would be: Republicans agree to fund the government over the next two years without imposing cuts or defunding already-passed reforms, and to upgrade public infrastructure. In return, they get some long-term cuts in Social Security. This would be in keeping with the economic consensus in favor of short-term fiscal loosening and long-term fiscal tightening. Republicans would object to paying upfront for a deal where they don't see anything for many years, but the flipside would be that Democrats would trade away significant long-term changes in return for temporary policy. And then both parties fight over the Bush tax cuts in 2012.
I don't expect such a deal to actually pass. But if Obama can offer reasonable terms, he'll hold the public opinion high ground if Republicans walk away and threaten to shut down the government.
30 comments
Aren't there some cosmetic changes to Social Security--changes that don't actually do much, like raise the retirement age slightly in 2050 or some such--that would give the Republicans cover for the inevitable tax increases and elimination of deductions that are coming? If I were a congressional Republican I'd take such a deal in a heartbeat so I could claim I had "saved" Social Security.
- timteeter
December 21, 2010 at 12:21pm
Why target social security; it's projected to have a surplus for the next 30 years, or longer if the economy ever recovers. Of course, this isn't about "fixing" social security because there is nothing that needs to be fixed. Rather, it's about the social security trust fund, or more specifically, how to repay the roughly $2.6 trillion that the federal government "borrowed" from the trust fund. Senator McConnell has made it clear that it won't be repaid with income tax collections, at least not if he has anything to do with it. What he would like to do is create a "crisis", and increase highly regressive payroll taxes to "solve" the crisis. As long as people like Chait continue to fall for the fiction that social security has a looming deficit that needs to be "fixed", social security will be at risk of the type of "fix" that McConnell has in mind.
- rayward
December 21, 2010 at 12:41pm
The Republican base will almost certainly torpedo a deal but Barack Obama might be able to leverage this issue, as you say, Jonathan.
- liberal reformer
December 21, 2010 at 2:28pm
The economy is the most important issue and the deficit should be second. The Republicans feel the best thing for the economy is for government to get out of the way, which means no increased taxation and no regulation; and that tax cuts or credits are the most effective economic stimulus. The Democrats have been unwilling to maintain a public position that fiscal expenditures and regulation will more effectively maintain a strong economy and strengthen a weak economy. Under those terms, I believe any deficit deal will put the economy at risk.
- Nusholtz
December 21, 2010 at 3:07pm
- Why was Mitch eager to deal with the President this Fall? Clearly it didn't make Mr. Obama a one termer. Yep, McConnell may not like Obama but he won't cede control of the GOP to the yahoos that will party the GOP away. Giving up his earmarks was the last straw. We'll hear nothing and we'll see nothing but if the President can help Mitch preserve the party he knows and loves? The result will be one odd couple. And Biden probably reminded Mitch there were a few other Senators willing to make history if he didn't want to play.
- michaelg
December 21, 2010 at 4:48pm
I'll believe it when I see it. Although, I recon they could pull it off by just claiming that the deal Obama gives them is what they wanted all along and so they've got Obama right where they want him...after all, elected republicans are incapable of lying so they have to be telling the truth, and it has to be the truth because the elected republicans said so. right?
- GSpinks
December 21, 2010 at 5:23pm
Oh, he'll try to cut a budget deal with the Republicans? I shudder to think of the draconian results. Social Security was just fine before this latest 2% cut -- I'm not sure what good my $100 a month 'refund' will do me, but it will hasten the day Social Security goes bankrupt. I'm absolutely astonished that anti-deficit Republicans DEMANDED their 700 billion dollars in deficit-maintaining tax-cuts, and will now DEMAND cuts in social programs because the deficit is too high. And not only did Obama let them do the first half, he'll now cooperate with them on the second half? This is the kind of "compromise" America does not need. It's the economy, stupid! Stay the course!
- AllanL5
December 21, 2010 at 6:06pm
Why social security? If the goal is to clear the deficit and letting the Bush cuts expire does that, and then some, and if Obama is going to run on that for 2012 but by then he'll have cut (gutted?) social security...what's the point of the victory? Haven't you just taken income from the weakest and most vulnerable by then already? I'm not sure how enabling "long term" Republican goals is progressive. Doesn't that mean they win over the long term?
- IggyPop
December 21, 2010 at 7:35pm
"violating the GOP's Prime Directive." AWESOME Star Trek analogy!!! I wish I thought of that. Yet it's actually not even strong enough. The Prime Directive often gets broken or bent on the shows. With the Republicans the entire party is built around making taxes for the rich as low as possible; anything else is trivial to them by comparison.
- RHSerlin
December 21, 2010 at 9:28pm
I doubt any deal of any kind can be done with this new Congress. Plus, The GOP ran one of the most outright dishonest campaigns in recent memory. Remember they ran against their TARP program and as the guardians against Medicare cuts. This gave them their win with their new reliable base: over 65 white people. Why would Obama shield them from the inevitable implosion they must have if they really start gutting these programs for the elderly which you would have to do if you want to keep tax rates at the low level of GDP the GOP wants.
- MikeB.
December 21, 2010 at 9:52pm
What the heck is to be gained by putting the old, sick and weak out on the street? Have we become barbarians?
- Sophia
December 22, 2010 at 2:43am
Er, who can trust this weak , poor, naive Prez? OK, so he has got most of what he wanted - and START ratification too, the week before Christmas - but surely he can't negotiate and can't stand up to Republicans and hates Democrats and ... oh dear ...
- icarusr
December 22, 2010 at 4:55am
Virtually every single plan being discussed about the deficit includes something about Social Security. Unfair, yes, but that's the way it is. So what does Obama do? Get dismissed right at the beginning by declaring that Social Security is off the table? This is a formula for turning the whole discussion over to Republicans, which means that either a) nothing gets done and it descends into even more bitterness, or b) Social Security faces a real draconian cut in benefits or a change in the very nature of the proram. Then again, there's c) Obama offers a few cosmetic changes that preserver the nature of the program while winning concessions on things that will actually change the deficit, particularly in the area of health care. I'm betting on c.
- timteeter
December 22, 2010 at 9:46am
I say we slash and burn Social Security to bare bones. Just enough government welfare money to keep people fed. Then we ship all old, sick and weak people south to Florida, Arizona, Georgia, and south Texas where it's never cold and they can safely sleep on the streets. I'm tired of having my hard earned income being taxed away to keep these welfare kings and queens clothed, fed, sheltered and giving them health care to boot! Parasites! Leeches! It's time that Randinomics be put into action at all levels of American government. The only folks deserving of Government largesse and tax-cut handouts are investment income earning "job creating" rich people.
- singlspeed
December 22, 2010 at 11:52am
- I believe the Deficit Commission gave the President the stronger hand. The revenue solution is more immediate, it offers reductions in tax rates which will be difficult for the GOP to oppose but requires the code be simplified by stripping credits, exemptions and shelters that favor wealth. This will expose the discrepancy between the percentage of taxes paid by middle income earners versus the wealthy. It ends the distribution debate because it will reveal how the wealthy avoid taxes and why most revenue is regressive and penalizes income earned by work. Yes the GOP will attack spending but that will not require draconian cuts because the pipes for the revenue stream will be unclogged. But the military will need to delegate some of their responsibilities and pass the cost to those they protect while revising their missions for the 21st Century. The concept of health care and old age benefits must account for longer life spans and the ethical choices imposed by the increasing cost of end-of-life care. Neither the left or the right can shop and buy in the 21st Century like they did in last Century. Time is on the President's side: He already has a rough outline with bi-partisan support, the House can procrastinate but next year (during his re-election) he will ask why they failed as he reminds them of their Constitutional responsibility for income-spending.
- michaelg
December 22, 2010 at 12:06pm
The past is the best, albeit imperfect, predictor of the future. Past performance strongly suggests that BHO will in the spirit of bipartisanship give away much on Social Security (NOT in jepardy before the disasterous tax deal, but now in jepardy) and other social programs. The Repubs will take that as their starting position for Obama to give away much more on Medicare, Medicaid (especially) and Social Security-- and much else costing much more than the pittances gained on BHO's tax deal. Those posting here eager to give away more on SS are not those working in jobs or conditions that reduce life expectancy. If there is justice in Heaven denied on earth, there is a special spot reserved in Hell for those who produce such results.
- drofnats1
December 22, 2010 at 12:36pm
One possible sliver of hope: at times, some conservatives/Republicans seem to regard "tax expenditures" -- i.e., targeted tax breaks -- as "spending," and phaseouts therefore as "spending cuts" rather than "tax hikes." Republicans on the deficit commission who voted yes seem to have taken this point of view. That does open the possibility of closing out targeted deductions while lowering overall rates. Back in the campaign, Obama suggested that long term he would like to take this approach with corporate taxes - slash the nominally high corporate income tax rate while closing out myriad loopholes that ensure that few businesses pay anything close to the nominal rate.
- adsprung
December 22, 2010 at 3:11pm
- drofnats1 concludes, "Those posting here eager to give away more on SS are not those working in jobs or conditions that reduce life expectancy. If there is justice in Heaven denied on earth, there is a special spot reserved in Hell for those who produce such results.". And the top three killers are smoking, obesity and alcohol (25%+ of the total deaths) but I'm sure your system of justice has a way of dealing with preventable causes of death.
- michaelg
December 22, 2010 at 3:27pm
What drofnats said. By the way - American lifespan is not increasing. It has actually fallen recently. I expect over the next few years we'll be seeing the average lifespan fall further. People just are not paying attention to pollution and other environmental damage let alone job-related illness and stress. Plus, species die-off isn't *just* affecting plants and animals you know. So this argument is baloney. And, I agree - people who want to take money out of SS, reduce benefits or increase the age at which people can retire are not working hard enough. So IMO, you should please reconsider your opinion. This isn't what I actually wrote by the way, it's the polite version.
- Sophia
December 22, 2010 at 3:52pm
drofnats, I call bullshit. When exactly, in the past, did Obama give away most of social security????? Is this how people like you were predicting that obama was going to never end dadt?
- miceelf
December 22, 2010 at 4:05pm
Sophia, I earn a very comfortable living and am able to put away a decent amount of money in retirement savings. When my wife is done her residency and making real money, i will in all likelihood be in an even better position. This is not due to any inherent superiority, as I am aware. I am lucky. I am also the beneficiary of the Canadian (not American) public education system, which includes very affordable university education. Had I been born in the US to the parents I have, I'd probably be working for minimum wage right now. But given all of that, and given how comfortable my retirement is likely to be without using any of my social security whatsoever, I fail to see why I should be entitled to receive the same benefits that a minimum wage earner gets. I don't need social security. I should pay into it, as a matter of insurance. I should also be means-tested out of receiving any of the benefits. When people make blanket statements about reducing social security spending, they seem to not be considering that there are variety of ways of doing so, some horribly retrogressive, and some very progressive. I am a progressive. I don't see why I should suddenly stop being progressive when it comes to a benefit that, in its current iteration, benefits the wealthy far too much, and the poor not nearly enough.
- miceelf
December 22, 2010 at 4:11pm
- Sophia informs, "By the way - American lifespan is not increasing. It has actually fallen recently. I expect over the next few years we'll be seeing the average lifespan fall further." That's a relief. I figured the 70 or so million baby-boomers aren't getting any younger. It was looking a dicey for the next 25 years but maybe we'll croak early and get out of the way.
- michaelg
December 22, 2010 at 4:26pm
Ditto micelf. This talk about "gutting social security" and throwing old folks into the street is just absurd. If social security had been indexed to life expectancy when it passed in 1935 the retirement age today would be over eighty. Why is there such panic about telling people now in their thirties that they should plan on retiring at 70, or applying sensible means testing to benefits? I'm encouraged to think that Obama may now be in a position to ignore such idiocy on his party's left and make some grown-up concessions to reality. Tax code is a great place to start, but as noted above what will make this work is recognizing the legitimacy of a bi-partisan desire to get our fiscal house in order. Tax increases that come in the form of dropping special interest deductions for lower rates works. So does eliminating the epic waste in entitlements.
- Robert Powell
December 22, 2010 at 5:24pm
Hell, there's not even a need to touch benefits at all, if one doesn't want to. The current structure of social security is regressive, both in its pay-ins and in its pay-outs. means test, which by definition wouldn't hurt people who need it. And/or eliminate or at least raise the silly cap on paying in that makes the payroll taxes by far the most regressive. The former and the latter. Or if you want to avoid the panicked talk of destitution, then the latter only.
- miceelf
December 22, 2010 at 6:56pm
I am not seeing this really. Having seen Warner on TV with Cornyn, I was really dismayed. Both said "everything must be on the table." Warner seemed to be in a rush to give away Medicare and Social Security especially for anyone under 40. To the Senator from Texas, "everything on the table" meant yes all spending except the military was on the table. No tax increases were. I hope Democrats aren't understanding this wrong when they hear that phrase. Plus, Fraud boy Budget chairman of the House, Paul Ryan will torpedo even a plan that has 90%+ GOP priorities if the rich pay a nickel more in taxes.
- MikeB.
December 22, 2010 at 8:13pm
Here's the problem guys. Take people out of the SS system and they won't want to pay in at all. IF you could say to the well-to-do and/or just plain lucky, guess what. You don't need SS but we need you to continue making contributions, they are gonna give us the finger. It's obvious that's already happening. So? Oh - there's a "besides which," and that has to do with private pension plans ie those held by various unions etc for which the state is ultimately responsible. In Illinois for example guess who's holding the bag for those due to state budget shortfalls? It has nothing to do with the "private" part. So to speak. In fact, the taxpayer is on the hook for pensions that the states can't cover, plus Cadillac health care plans enjoyed by government workers like our dear Congresspeople, which we don't share, etc. Therefore, everybody pays into SS and everybody gets at least some benefits. I believe this is how we should handle our health care system also. I don't see how else this is going to work. Alternatively of course the baby boomers will just die and that will fix the problem. This is already happening to my friends by the way so I'm not really laughing here. By the way there was a radio personality on CNN last night, a Mr. Smith - he claimed the average life expectancy for African Americans is 55 so he doesn't want to pay into SS either because he figures he won't live long enough. So - I'm sorry but we cannot have a civilized country without safety nets regardless of your identity group or income - we're in this together or it's everybody for himself and I don't think anybody really wants to return to the latter unless they are so secure they cannot imagine falling from financial grace - and by the way - there are very few people actually in that position. You might THINK you are immune - but stuff happens, you know? As for privatizing SS, well take a good look at Heathrow.
- Sophia
December 22, 2010 at 8:23pm
Funny that we never. ever hear about the bigger elephants in the room, run away Medicare expenses, a bloated military budget and 2 never-ending wars when it comes to spending reductions. Medicare, well maybe, but the other two? Nothing real is discussed. Nor do we hear about the ridiculous 'security' apparatus spending.
- tnmats
December 23, 2010 at 11:26am
Right tnmats. According to Gregg Easterbrook we spend $20 billion per year just on construction costs improving redundant foreign bases. The wars are on the way towards end games, so there should be real savings there. But the Big Enchilada is Medicare and Medicaid. We've actually created a whole new multi-billion dollar industry in medical fraud.
- Robert Powell
December 23, 2010 at 11:52am
"Tax code is a great place to start, but as noted above what will make this work is recognizing the legitimacy of a bi-partisan desire to get our fiscal house in order. Tax increases that come in the form of dropping special interest deductions for lower rates works. So does eliminating the epic waste in entitlements." I call more bullshit. If you trade deductions for lower rates, then you gain no revenue. The "tax reform" agenda is mostly about making the tax structure more regressive. It achieves nothing for the deficit unless at the end of the day someone pays more taxes. The reformers want that to be the middle class although average rates for the wealthiest have declined precipitously since 1980, the very reason we have a fiscal problem. Social security is not the problem and is not wasteful unless you are talking about the absence of meanstesting, a de facto tax increase of which I heartily approve. Medicare is the problem. Why would we try to solve the medicare problem with social security and making are excess labor problem worse at the same time by extending the retirement age? That makes zero sense in macroeconomic terms, actually rows us in the wrong direction. The problem of waste in medical care is a general problem, not specific to medicare, that can only be solved by controls on usage and prices (at least prices subject to insurance reimbursement). The right has already taken those off the table for the foreseeable future. Fraud should be rooted out, but it is the tail of the dog. This is the same old right-wing canard about eliminating deficits by "rooting out waste, fraud and abuse." That is nonsense. They surely exist, but the amounts are trivial by comparison to the deficit. A wild-goose chase in terms of "getting our fiscal house in order." Fiscal sanity will be restored by reversing the very thing that caused the problem in the first place, the Reagan-Bush-Bush tax cuts. Cause and effect are clear. Fix the cause, the effect will go away. All the huffing and puffing about spending and entitlements is pure nonsense, meant only to distract us from the direct cause of our budget problems.
- roidubouloi
December 24, 2010 at 12:50am
- Is there any model from fifty years ago that accurately projected the cost of health care for the current population that is 65+. Did anyone in 1960 anticipate the cost of coronary, pulmonary, orthopedic charges being rung up by retirees? Providing income for retirees doesn't compare to the cost of now common procedures during the years people are not working but self sufficient. And that population is cheap compared to those who require extended care and treatment at the end of life. We haven't begun to address the dilemma of modern, developed nations. Better health care during the income earning years provides a return over investment by managing or eliminating the diseases or better managing the costs from childhood through retirement. Plus, in one form or another the people in that group can share the cost as they are income producers. The consequence? Not only does the above model result in longer lifespans when the cost of health care explodes, that population is only consuming goods and services and isn't contributing to the wealth of a nation or even sharing the burden after they quit working. I'm fifty-five, my parents are in their eighties so we probably have less to worry about than the generations who will be responsible for the 70+ million baby boomers. The cost of keeping us alive for the next several decades will cost more than anyone can imagine. We may think the solutions are economic or fiscal and can be address by playing with spending and revenue as we understand it. But in a few decades we'll be confronting these issues from an ethical perspective. Well, maybe not us but those who are stuck with our expenses.
- michaelg
December 24, 2010 at 10:45am