Forget Taxes, Focus on Medicare to Cut Deficits: View

It may be called a “supercommittee,” but nobody expects any heroics. The deal reached over the summer to raise the debt ceiling created a bipartisan committee to identify ways to reduce budget deficits by $1.5 trillion over the next 10 years. Few people expect anything to come of it, assuming that it will deadlock over taxes.

But there may be a way for the committee members to avoid that fate: They should skip the paralyzing arguments over taxes and focus on paring back Medicare spending.

Senator Pat Toomey, a Republican from Pennsylvania who is on the committee, says they can generate bipartisan reform that reduces both tax rates and deductions. But if that plan results in a net tax increase, it is unlikely to get enough Republican support to pass Congress. If it doesn’t, it won’t be scored as yielding any deficit reduction.

Democrats, meanwhile, are unlikely to support cuts to entitlements unless taxes are raised. President Barack Obama recently said he would veto reductions to Medicare benefits unless matched by tax increases, with aides going on the record to say that the White House had entered “a new phase” in which there would be no “legislative compromise.”

No wonder at least one member of the supercommittee is telling colleagues that he isn’t holding out much hope for progress.

Creating Conflict

Some Democrats say a standoff will work to their political advantage. If the committee doesn’t issue recommendations that get enacted, $1.2 trillion in automatic cuts to discretionary spending -- half in defense, half in domestic programs -- take effect starting in 2013. (The automatic reductions shrink dollar for dollar for every bit of deficit reduction the committee achieves.) Thus, many Democrats hope these alternatives create a conflict between the Republicans’ pro-defense and anti-tax factions.

They may get their wish. Representative Buck McKeon, the chairman of the House Armed Services Committee, has said that, if necessary, Republicans should make concessions on taxes rather than defense. Grover Norquist, the president of Americans for Tax Reform, advocates trimming the Pentagon’s budget instead. Some conservative defense analysts concede that significant savings could be made without compromising military strength -- but they worry that the easiest way to find savings, politically, will be to reduce training and procurement rather than, say, reform military benefits.

The Democrats who savor this conflict may be underestimating how painful they would find the automatic cuts in domestic spending. The Center on Budget and Policy Priorities, a liberal research organization in Washington, estimates that domestic programs under the knife -- from education to infrastructure spending -- would lose 9 percent of their funding in the first year of cuts alone.

Entitlements Key

But neither defense spending nor domestic discretionary spending is primarily, or even significantly, responsible for our alarming debt projections. Entitlements are the major reason spending is predicted to rise sharply -- and that’s something the committee can and should address.

Senators Tom Coburn, an Oklahoma Republican, and Joe Lieberman, an independent from Connecticut, have suggested some reforms to Medicare that would generate about $600 billion in savings within the next 10 years. They would gradually raise the eligibility age for Medicare to 67 by 2025 while increasing premiums and co-pays in a progressive manner, with higher-income seniors paying more for their coverage. They would also limit the ability of “Medigap” plans to drive Medicare spending higher by covering the federal program’s deductibles. (No private insurer would tolerate such parasitic activity.)

A Sensible Plan

The plan isn’t perfect. Its means-testing provisions should be modified: Premiums should be tied to lifetime earnings, not income, so that seniors aren’t discouraged from working. But it’s a more sensible way to reduce the deficit than across-the- board cuts in defense and domestic discretionary programs. And it doesn’t really cross any of the Democrats’ ideological red lines. It doesn’t voucherize the program or otherwise transform it, as Representative Paul Ryan’s plan would. And if the health- care law that Democrats enacted -- which scaled back Medicare Advantage and cut payments to providers -- didn’t amount to fewer benefits in liberals’ eyes, they ought to be able to accept these reductions, too.

The plan leaves the campaign chessboard largely untouched. If both parties agree to these reforms, neither will take a political hit for enacting it, while both will accomplish some of their policy objectives: sparing defense for the Republicans, and sparing domestic programs for the Democrats.

Surely some liberals would prefer to see wealthy senior citizens get a little bit less help from the federal government than see education and infrastructure spending cut. But if the Democrats on the committee nonetheless balk, the Republicans should make the proposal anyway. It beats tearing each other up over taxes and defense -- when the real budget choice we face is between entitlements and everything else.

(Ramesh Ponnuru is a Bloomberg View columnist and a senior editor at National Review. The opinions expressed are his own.)

To contact the author of this column: Ramesh Ponnuru at rponnuru@bloomberg.net.

To contact the editor responsible for this column: Timothy Lavin at tlavin1@bloomberg.net.

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