Friday, October 22, 2010

Shared Sacrifice

Republicans want to shrink the deficit. Democrats want to expand the size of government. Both of these goals have a giant roadblock approaching - entitlements. Thanks to FDR and LBJ, entitlements make up the biggest portion of government spending. This is true for the states as well as the feds. They are considered untouchable. In fact, the Democrats are currently running ads suggesting that Republicans will eliminate these entitlements, especially Social Security. In 2006, as the stock market was crashing, then Senator Barack Obama told seniors that their Social Security benefits would have gone down with the market had President Bush's reforms gone through ( ruled this false).

The problem is that these programs are going to run out of money soon. Social Security has a trust fund which is supposed to cover its payments for the next 35 years but the trust fund consists entirely of pay-on-demand bonds to be drawn on the general fund. There is no actual money. Medicare and Medicaid don't even have that fig leaf. They are less than a decade from collapse.

A year and a half ago President Obama talked about saving Medicare by "bending the curve". By this, he meant that his proposed health care reform would reduce the projected increases in health care spending by making us a healthier nation with a more efficient health care system. The health care reform that passed will do neither of these things. Instead it will put more pressure on Medicare.

To make matters worse, the Democrats are proposing to give seniors an outright gift of $250 to make up for the lack of inflation adjustments. This reinforces the notion that seniors are owed ever-increasing retirement payments regardless of the nation's ability to pay for them.

So, what do we do about it? The first step is to admit that we have a problem. As recently as the 2000 election both Bush and Gore admitted that Social Security would run out of money but disagreed on the best solution. Since then it has become party line for the Democrats to insist that Social Security is fine and that Bush's plan to partially privatize it is simply a plot to benefit Wall Street. This is an outright lie with serious consequences for the nation's future.

The problem for the Democrats is that the Progressives have taken over and these entitlements are at the heart of their case for expanded government. If they admit that the entitlements have fundamental problems then they lose their argument for more government control.

The Republicans' problem is thornier. Most of the country has been paying Social Security taxes their entire working life and expects to be able to retire on it. Seniors count on Medicare. The poor count on Medicaid. Any drastic cuts in these programs will seem cruel and will probably come back to haunt the Republicans.

There are two ways that this can play out. We can see this now in France and England. In France, an established government announced a small change to their retirement and rioting students have shut down the country. In England a new government comprised of both conservatives and liberal announced major cuts along with some tax increases. There have been some protests but not many. Anne Applebaum has an interesting column comparing the two reactions.

In two weeks, President Obama will have a chance to correct the run-away entitlements. With a conservative tide sweeping the nation, he could join with the Republicans and propose long-term changes. This will require major concessions on both sides. The Democrats will have to admit that their crown jewels, including the just-passed health care, are in trouble and need major reform. The Republicans will need to be open to tax increases and cuts in defense spending, as long as the deficit actually declines.

If this does not happen during the next Congress then it might not in time to prevent major problems. If a Republican wins the presidency in 2012 then we will be back to the Democrats avoiding responsibility by calling the needed changes cruel and unnecessary. At the same time, the Republicans will be unwilling to consider tax increases.

I doubt that President Obama has it in him to change course. More likely, he will write the election results down to "fear" and try to continue on his present course.

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