Republicans Are Being Told to Quit Talking About Entitlement Reform. Should They Listen?

 

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Almost every Saturday I do a 30-minute segment on my pal Larry Kudlow’s national radio show. Often the other two guests are John McIntyre of RealClearPolitics and Steve Moore of the Heritage Foundation. During last weekend’s show, Kudlow asked whether Republicans were taking a risk by talking about entitlement reform. McIntyre thought it was “politically dangerous,” and they would do better to focus on economic growth. And Moore had this to say:

I think the Republican message that we’re going to cut entitlements is a loser. I just think it’s a loser. If the Democratic message is, “We’re going to make your benefits,” and the Republican message is, “We’re going to make them worse,” I’m sorry, I don’t think that’s a winning message. … If we get this economy growing at three and a half, four percent a lot of these problems, especially with Social Security go away. … I think this message that we’re the root canal party, I’m worried about that. …

Thoughts:

1) I don’t get this: So we’re going to grow our way out of the debt and entitlement problem … via faster economic growth …  enabled by tax cuts that would lose trillions of dollars?

Why would voters believe that message, especially after (a) Republicans have spent the Obama presidency issuing apocalyptic warnings about the exploding national debt, and (b) the last time Republicans passed a big tax cut plan the economy ended up not booming? Whatever the correlation/causality, voters might remember that last one, nudged along by Democrats.

2) Look, the average 10-year revenue loss from the GOP tax plans reviewed by the Tax Foundation is $6 trillion, under a static scoring analysis, and $3.5 trillion, assuming economic growth feedbacks. Again, would voters outside a GOP primary find these plans at all credible — especially when accompanied by a non-plan or hand wave to reform entitlements? I mean, would the smart messaging plan be to advocate entirely eliminating non-defense discretionary spending? Which is this stuff:

Examples of other well-known programs paid for by discretionary spending include the early childhood education program Head Start (included in Housing & Community), Title I grants to disadvantaged schools and Pell grants for low-income college students (Education), food assistance for Women, Infants and Children (WIC), training and placement for unemployed people provided by Workforce Investment Boards (in Social Security, Unemployment and Labor), and scientific research through the National Institutes of Health (NIH) and National Science Foundation (NSF), among many others.

3) And some fiscal truth, via my colleagues Alan Viard and Mike Strain:

… entitlement reductions will be part of the fiscal solution, and the most growth-friendly approach to fiscal consolidation would go heavy on spending cuts and light on tax increases. But public and political attitudes make it clear that it will be possible to secure significant entitlement reductions only if they are accompanied by tax increases. Democrats’ opposition to entitlement cuts and Republicans’ ambivalence about them make a budget strategy that relies entirely on entitlement cuts politically unviable.

Therefore, revenue will have to rise to restore fiscal balance. Indeed, the only significant entitlement benefit reduction in recent years, the benefit cuts in the 1983 Social Security legislation, was part of a bipartisan agreement that also included tax increases, as further discussed below.22 Democrats strongly support increasing revenue as a share of GDP. And Republicans are starting to accept this as well. Ryan’s budget proposal calls for revenue to rise to 19.1 percent of GDP by fiscal 2023, significantly above the 1960-2013 average of 17.9 percent.

4) This is proving prescient:

A few quick facts on entitlement spending: (a) the CBO projects federal spending on Medicare and Social Security over the next 25 years will rise by roughly 3 percentage points of GDP,  to 11% from 8%; (b) an aging US population will be the prime driver of that projected higher spending; (c) a middle-class, one-earner couple retiring in 2030 will receive $1.3 million in lifetime Medicare and Social Security benefits, having paid in just under $500,000.

To me, these numbers argue pretty strong in favor of reforming entitlements to spend less than projected and weighting that future spending more toward lower-income Americans. Now I have been worried that Republicans are backing way from reforming Medicare and Social Security in favor of cutting Medicaid and various income support programs. The former would be classified as “earned benefits” or as the WSJ’s Homan Jenkins as put it,  “… middle-class rewards for a life of hard work and tax-paying, against Mr. Obama’s vast expansion of the means-tested welfare state for working-age Americans.”

5) We need faster economic growth, but setting such a high target and making it so dependent on tax policy lead to some really unbalanced proposals. We need a tax code that is economically efficient and scalable. And we need entitlement reform, maybe like this.

Published in Economics, Politics
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There are 9 comments.

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  1. John Penfold Member
    John Penfold
    @IWalton

    Of course.   It should be privatized with no changes made to anyone at or near retirement age and people within 10 or 15 years of retirement given a choice with credit for what has already been paid by them.  This would be similar to the way federal employee pensions were privatized.  The loss of revenue from privatizing that stream of payments requires a tax reform as we’ll have payments due for many decades.  An important reason to privatize is that SS creates the illusion that the nation has savings when it does not.  The primary reason our deficits threaten is that we have weak savings so must borrow from abroad.  Privatizing SS would repair that fault and make the deficit un threatening while providing portable accounts part of which would be mandatory and lendable funds, lower taxes which along with other required reforms will spur growth while providing the savings to fund it.   This notion can be sold to young people and is irrelevant to old people if the tax reform promises to solve their budget short fall.  Workers will prefer to own their own savings to the extent they understand.  The only opposition will come from professional liberal politicians who like to use the funds and threaten old people for political benefit.

    • #1
  2. Manny Coolidge
    Manny
    @Manny

    I almost always listen to Larry Kudlow’s program if I get the chance.

    I’m with Steve Moore.  It’s a loser to focus on this and time better spent would be on growth.

    I’ve never seen it be a winning issue in my entire life, and so why would it be now?  Controversial issues should bubble up from the public and not be introduced by candidates.  The public should insist on a change, not a change thrust on them.  At least from a campaign point of view.  Haven’t we ever learned anything from Bill Clinton?

    • #2
  3. Frank Soto Member
    Frank Soto
    @FrankSoto

    May I ask why the static scoring is highlighted as opposed to the dynamic scoring?

    Static scoring states that a 100% income tax rate on the entire economy will lead to no effect on the economy, and 100% of GDP being brought into the government.  Why do we take static scoring seriously?

    It’s highlighted because the deficits were bigger with static scoring, wasn’t it?

    • #3
  4. Frozen Chosen Inactive
    Frozen Chosen
    @FrozenChosen

    Has anyone ever proposed having these two options for SS:

    1. stay on the current plan and raise the minimum age to 69
    2. offer a privatized plan with a retirement age of 65

    No changes for anyone over 55.

    Seems like this would incent people to take option 2 which would be a good thing, right?

    • #4
  5. The Reticulator Member
    The Reticulator
    @TheReticulator

    I wouldn’t focus on either entitlement spending or growth.  We need to focus on abusive government, and fixing that will eventually involve reforms in entitlement spending, but the more immediate need is to cut corporate welfare.  Without doing that, dealing with entitlement reform is a loser.

    I’m not interested in growth when the main thing we’re doing is growing the economy to feed an ever more rapacious and abusive government.  I can see why GOPe is interested in growth, though.

    • #5
  6. Tony Sells Inactive
    Tony Sells
    @TonySells

    It’s absolutely a loser issue, which is why we’re screwed.

    I’m sorry, but we are not going to grow at an average of 3.5-4%. We have a debt as large as our economy and will get worse over time. We are 1995 Japan and we have no chances of huge growth unless we cut spending. We need to take our medicine. It’s not a winning strategy, but it’s what needs to be done.

    • #6
  7. Tedley Member
    Tedley
    @Tedley

    What do the different rows in the chart mean? Could you add a link to the original webpage?

    • #7
  8. Cat III Member
    Cat III
    @CatIII

    The Reticulator:I wouldn’t focus on either entitlement spending or growth. We need to focus on abusive government, and fixing that will eventually involve reforms in entitlement spending, but the more immediate need is to cut corporate welfare. Without doing that, dealing with entitlement reform is a loser.

    Selling entitlement cutting/elimination will be impossible if handouts for corporations aren’t treated in kind. Corporations provide politicians their funding and citizens provide their votes, so don’t expect either to give up their welfare. Instead we’ll get more tax cuts and ever-growing debt.

    • #8
  9. Old Bathos Member
    Old Bathos
    @OldBathos

    The debate is usually reducible to a rather timid, tepid, reluctant acknowledgement by a GOP candidate that we are forced to consider changes (like cuts) as a matter of fiscal and demographic reality versus a Democrat who says that there is no reason that dipping into the secret wealth of Exxon and the Koch Brothers can’t keep is going forever.

    The best way to frame is to talk about millennials being screwed and whether we continue the old politics of lies to an actual debate about our future.  Is it crueler to consider capping benefits and adding means-tested requirements or to leave future generations with a bankrupt system?

    The key, I think, is not to appear defensive which is the natural posture of most Republicans.  “Stop lying to our young workers and young families!” is a lot strongere than “I don’t really hate the elderly. Honest”

    • #9
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