Progressives and the Cliff

November 21st, 2012 at 10:13 pm

[Just did a spot on this with Chris Matthews and Joan Walsh–both of whom I thought made a lot of sense on the issue..]

I’m glad that fiscal cliff negotiations have produced some mellifluous sounds from hardliners, as in Rep Boehner and Sen McConnell recognizing the need for new revenues in the deal.  But really, everything’s been pleasant at 40,000 feet.  To bring this plane in for a safe landing, negotiators are going to need to descend through the clouds where details await.

Assuming the administration continues to hang tough—and they’ve been unwavering–conservatives are going to have to get comfortable with some tax rate increases.  That’s obviously a huge lift for them, but it’s starting to look like the end of days asymmetric tax policy—rates can only go down, never up—may be upon us.  If that’s right, well…tough for Grover, great for America.

But what about liberals?  What might they have to swallow for this to go down?  And part of the answer, it seems to me, is whether and the extent to which the entitlements—Medicare, Social Security, and Medicaid—are on the table.

For some on my side of the aisle, that’s a Rubicon that cannot be crossed.  To them, I say: I hear you and share your passion for protecting the vital function of social insurance in our economy, but that Rubicon has already been crossed.  That is, the President already has cuts to Medicare and Medicaid in his 2013 budget.  They have not been enacted, but they’ve been sitting there for all to see for a while now.  There’s almost $300 billion (over 10 years) in Medicare savings and about $70 billion for Medicaid. The Medicare cuts fall largely on providers along with some increased cost sharing on the part of higher income beneficiaries.  I’m not say that cuts of this magnitude are transformative, but there you are.

[And of course there’s the famous $716 billion in Medicare cuts that are to be used to help pay for more coverage and services under health care reform.]

What about Social Security?  Me, I’d just as soon keep it off the table in these cliff negotiations.  It’s not where the long-term budget pressure is coming from—that would be health care spending—and it’s hard to tweak its progressive benefit structure without hurting economically vulnerable retirees.  There are a set of known fixes—I mention three I think would help here—but it would be better to have that debate when we’re not teetering at the cliff.

That said, if the chained CPI ends up on the table, I’d recommend that progressives consider it, especially under the condition that it must be applied to tax brackets as well as program benefits.  To be clear, however, it is a benefit cut and economically vulnerable seniors would need to be compensated for the shift.

In fact, this principle of protecting the vulnerable elderly should undergird any cliff negotiations involving entitlements.  One problem we always—and I mean ALWAYS—have in this space is that you have rich, healthy people with cushy jobs and awesome pensions and health coverage negotiating programs on behalf of people who have none of that stuff.  So the talks should be informed by the information in the table below, facts like poverty among the elderly would be 44% absent Social Security, instead of its actual rate of 9%.  Before they start talking about increasing co-pays and raising premiums in Medicare, remember that the typical beneficiary’s income is around $22,000.

Finally, progressives should insist on temporary jobs measures in the deal.  And not just progressives, but anyone who would like to see us build on the momentum we’ve got in the current economy.   By dint of being temporary, these will have almost no impact on the medium term budget deficit, and they’re needed to both squeeze slack out of our still-below-potential economy and offset any fiscal drag from the budget deal.

So, when it comes to the end game, I would hope fellow progressives would agree with me that a) the upper income rates must sunset, b) there should be some temporary jobs measures for 2013, and c) entitlement cuts can be part of the deal, but middle and low-income beneficiaries must be protected.  And definitely no ‘c’ without ‘a’ of course.

Source: CBPP


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5 comments in reply to "Progressives and the Cliff"

  1. foosion says:

    Cutting Social Security, Medicare or Medicaid benefits is bad politics and bad policy. There is overwhelming opposition from the public – over 2/3 consistently opposes any cuts.

    It’s bad policy because it takes from the most vulnerable to give to the least vulnerable. Some respond by suggesting means testing, but for that to work the thresholds would have to be set very low and means testing will make the programs look more like welfare and therefore make them politically vulnerable (making benefits a bit progressive, such as taxing some Social Security, is not the same).

    If there was a good argument that such cuts would boost growth or otherwise make things better for the majority of Americans, then maybe something would be worth considering, but there is no such argument. It’s just straight rob from the poor to give to the rich.

    Tax increases are ephemeral (remember what Bush did to the Clinton surpluses?). Cuts to benefits programs are forever.

    Begich’s proposal (raise the cap of social security taxes) is the only reform we should consider.

  2. Nhon Tran says:

    Thank you.
    It would be great if fiscal cliff negotiations could lead to strong commitment to broader tax reform in future. That reform could look at phasing out the mortgage deduction which costs the federal budget $80 billion a year and which favours upper-income people in upper-income states. Reform could also look at phasing out the deduction for state income tax and property tax paid, which imposes a heavy cost on the budget and which also favours upper-income people in upper-income states. The tax revenue raised from phasing out these deductions could be used for public housing (which was a proposal by George Romney – father of Mitt Romney – when Nixon’s HUD Secretary)or for spending on education and training to boost the skills of the American workers. Regards.

  3. pjr says:

    If conservatives INSIST on cutting Social Security benefits, and don’t want to harm the most vulnerable, then why doesn’t someone propose lowering the benefit calculation for average indexed monthly earnings over $4624? I understand that, currently, earnings over this level are multiplied by 15 percent to calculate benefits, but the percentage could be slashed to cut benefits only for people who averaged more than this monthly amount. These are the people, btw, who have experienced the largest gains in post-retirement life expectancy and, thus, draw benefits for more years. I’m not recommending this action, but surely it would be a much more “progressive” way to cut benefits than raising the retirement age or using chained CPI, no?

  4. Ken Houghton says:

    Chained CPI? Really?

    Chained CPI is even less representative of the “market basket” for AARP-eligible shoppers than CPI is–that is, it even more understates costs and distributions.

    Reducing the value of an already-reduced dollar for the most vulnerable population is not a good way to maintain–let alone grow-an economy.

    The only revision anyone should support to SocSec is getting the level of income taxed back up to the 90the percentile it is supposed to be at, instead of the 85th percentile of the current level.

  5. Ed M says:

    President Eisenhower representing Republican Party;
    “Should any political party attempt to abolish Social Security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes you can do these things, but their number is negligible and they are stupid.
    Every gun that is made, every warship that is launched, every rocket fired, signifies, in the final sense, a theft from those hunger and are not fed, those who are cold and clothed.”
    The GOP has come a long way. Sad.