Greg Mankiw makes a point that is obvious to most of us, but perhaps less so the wider public:
When President Obama talks about taxing the rich, he means the top 2 percent of Americans. John A. Boehner, the House speaker, talks about an even thinner slice. But the current and future fiscal imbalances are too large to exempt 98 percent or more of the public from being part of the solution.
Ultimately, unless we scale back entitlement programs far more than anyone in Washington is now seriously considering, we will have no choice but to increase taxes on a vast majority of Americans. This could involve higher tax rates or an elimination of popular deductions. Or it could mean an entirely new tax, such as a value-added tax or a carbon tax.
With this in mind, the “permanent tax cuts” the president agreed to last night pose a challenge to center-left wonks. The Obama White House hopes to raise another $1 trillion in revenue over the next decade, yet it seems to have conceded the idea that households earning less than $450,000 should be shielded from tax increases. The logical implication of this stance is that if the Obama administration succeeds in meeting its medium-term fiscal objectives, effective marginal tax rates on high-earners will climb to levels high enough to have a deleterious impact on economic activity. (See Arpit Gupta’s NR article on “Tax Rates and Economic Growth.”)
But Mankiw’s discussion of the GOP stance on fiscal consolidation is somewhat more interesting, as it speaks to a challenge for the center-right:
If Republicans had their way, they would focus the entire solution on the spending side. They say that reform of the entitlement programs can reduce their cost. The so-called premium-support plan for Medicare, from Paul D. Ryan, the 2012 Republican vice-presidential candidate, would let older Americans use their health care dollars to buy insurance from competing private plans. (Interestingly, it’s similar to the system envisioned for the non-elderly by President Obama’s Affordable Care Act.) The hope is that competition and choice would keep health care costs down without sacrificing quality.
The premium-support model may well be better than the current Medicare system, but its supporters oversell what it would be likely to accomplish. The primary driver of increasing health care costs over time is new technology, which extends and improves the quality of life, but often at high cost. Unless the pace or nature of medical innovation changes, this trend is likely to continue, regardless of structural reforms we enact for Medicare. [Emphasis added]
Yuval Levin is the leading intellectual proponent of the thesis that Republicans should back greater use of competition and choice in U.S. health entitlements on the grounds that it might facilitate spending restraint:
If market forces did drive costs down, as conservative health care experts expect, the reform would save the government an enormous amount of money (perhaps no less than the Ryan or Rivlin-Domenici plans), leaving both our budget and our health care system in vastly better shape. If market forces did not drive costs down, then we would have to find another way to address our entitlement costs. We would be back where we started, which is where Democrats want to end up anyway. Whether the reform succeeded or failed, seniors would have a guaranteed benefit and essentially no added financial risk. [Emphasis added]
The chief rejoinder to Yuval’s thesis is that a form of competition in which private providers compete against public providers might lead to adverse selection that would actually exacerbate cost growth, a claim that is difficult to evaluate and that seems to weigh in favor of winding down the Medicare public option. But bracketing this question for the moment, Mankiw is suggesting that Yuval’s confident market solution is much too confident. Even if Mankiw is correct, Yuval’s political judgment still seems sound. As long as there Medicare reform protects the principle of a defined benefit, seniors will have little to fear.
The problem, however, is that voters, including most Republican voters, remain resistant to Medicare reform. Matt Yglesias recently cited Republican opposition raising the Medicare eligibility age (68 percent of Republicans are opposed as opposed to 71 percent of Democrats according to a post-election Washington Post/ABC survey) as a proxy for cognitive dissonance among Republicans on Medicare.
This represents an enormous challenge for Republicans for the following reasons:
(1) national security hawkishness is the least salient it has been since the 9/11 terror attacks;
(2) it is less clear that Americans are polarized around controversial social issues in a manner that obviously benefits social conservatives;
(3) and we’ve arguably reached the limits of the post-1992 strategy of building conservative domestic policy around tax cuts and single-minded resistance to tax increases.
And so the Republican brand is now primarily identified with spending restraint. Given that structural entitlement reform is the only way to deliver spending restraint, and structural entitlement reform is unpopular, I think it’s safe to say that this is a problem.
To be sure, broad-based tax increases are also unpopular. That is, the only tax increases that can actually make a serious dent in our long-run fiscal imbalances are unpopular. Democrats have embraced narrow-based tax increases less as a strategy for fiscal consolidation and more as an ideological-cultural appeal to fairness. A center-left agenda built around tax fairness is substantively less about financing large-scale public investment, the scope for which is arguably being crowded out by the rising cost of health entitlements, and more about mitigating post-tax-and-transfer inequality. But a tax fairness agenda that is rhetorically connected to public investment (highways, schools, etc.) is politically appealing to the Democratic base and a not inconsiderable number of swing voters.
So how can Republicans counter this message? One strategy is to point out that the tax fairness agenda is not really about public investment, but rather that it reflects an ideological focus on inequality and relative mobility rather than absolute upward mobility and economy-wide growth. This strikes me as correct as an assessment of the tax fairness agenda but almost certain to fail as a political matter. It ultimately amounts to “he said, she said” and it will only “persuade” people who are already inclined to distrust the center-left.
Another strategy is to make an affirmative case for entitlement reform on the grounds that big government is bad because big government is bad, and we’ll grumble and dissimulate when we start explicitly talking about the kind of entitlement reform we have in mind. (Reducing the growth in Social Security benefits for middle-income and upper-middle-income workers, making Medicare beneficiaries pay more for the Medicare public option in regions where cheaper options are available, and other good but currently unpopular ideas.) This is roughly what congressional conservatives are trying to do now. The problem is that there is no real demand for entitlement reform.
The other option, which Ross Douthat and I often discuss, which Yuval Levin and Cesar Conda and Robert Stein and Ramesh Ponnuru have been writing about for years, and which Erick Erickson has recently articulated with great clarity, is that the GOP should become the party of the parenting class. Back in 2006, Yuval wrote a Weekly Standard article titled “Putting Parents First” that laid out the basic case for a GOP that speaks to the anxieties of voters who seek to “build families and build wealth,” goals that are very much in tension given the opportunity costs middle-class parenting entails:
For three key reasons, this aspirational anxiety should be the focus of a conservative domestic policy agenda, and the lens through which conservatives understand their challenge in the coming years.
First, in terms of simple politics, it is what a key and growing group of voters want addressed. If the Democrats have misdiagnosed the anxieties of the parenting class, Republicans have not recognized them at all. Compassionate conservatism, for all its virtues, does not even try to address itself to parents. A conservative agenda that did so would not only cement a relationship with these voters, it would also appeal to many with similar worries who do not share the strong cultural predilections that have drawn middle- and lower-middle-class parents to vote for Republicans. In an insightful essay in these pages last year (“The Party of Sam’s Club,” Nov. 14, 2005), Ross Douthat and Reihan Salam cast their call for a refocused conservative agenda in exactly these political terms, asking, “Isn’t it time the Republicans did something for their voters?”
Second, conservatives should think about the anxiety of these parents because the tension such anxiety reflects is precisely the tension at the heart of the conservative movement. Addressing it would therefore also help to address a problem for conservatism. Among the most edifying consequences of the often uneasy partnership between social and fiscal conservatives has been the way in which the two sides have educated each other. A surprising number of conservatives who are not religious and not especially concerned about social issues have become persuaded in the past two decades to oppose abortion, for instance, because their interaction with social conservatives has caused them to consider the question more seriously. A surprising number of social conservatives have expressed strong concerns about government spending in recent years, because their interaction with fiscal conservatives has taught them why they should worry about it. But each group still tends not to see the way in which the other not only makes some valid points, but is also defending something vital to them both. Better understanding the pressure of health care costs as a barrier to the growth of larger families would help social conservatives understand why they should seek health care solutions. Better understanding how anxiety about caring for one’s children and one’s elderly parents keeps people from taking the risks that allow a dynamic economy to flourish would help fiscal conservatives see the value of public policy that offers support to child-bearing and family caregiving.
Third, conservatives should concentrate on the anxieties of the parenting class because if they are not addressed in ways that take heed of both the significance of traditional values and the importance of free-market, small-government principles, they will eventually be addressed in ways that undercut both. In a democracy, the greatest threat to freedom is not that the government will take it away but that the people will give it away, in return for a promise of security. The parenting class’s demands for security are not unreasonable, and the challenge for a conservative governing movement is to use public policy to help families obtain some of that security in ways that sustain freedom and strengthen traditional values.
Because key voters want it, because the conservative movement needs it, and because the cause of limited government requires it, conservatives need to see the parenting class as the crucial constituency of the future, critical to the well-being of both the American family and the American economy. [Emphasis added]
Specifically, Yuval called for a Republican domestic policy agenda that addresses issues like health insecurity and long-term care insurance:
Conservatives should also look beyond the horizon and see that long-term care for the aged is about to become the next major concern of the parenting class. The demographics of the baby boomers, and medical advances that will enable them to enjoy longer lives but also suffer longer periods of decline and debility, will soon present an unprecedented challenge for middle- and lower-middle-class families. This it not a crisis–longer lives are, after all, most welcome–as much as it is a challenge to these families’ aspiration to do right by their parents. Conservatives need to find ways to encourage long-term care insurance and to reward family caregiving for the elderly.
As a narrative, this emphasis on the parenting class is at least as appealing as the tax fairness agenda. And it implicitly makes the case for entitlement reform by emphasizing the need to rebalance how we meet the needs of older Americans (family caregiving is an important part of the story, and resources need to shift to long-term care, not just intensive end-of-life medical interventions) and how we invest in the next generation of Americans to build a better workforce (recognizing the human capital investment parents make in children, crafting a more robust and politically attractive, middle-class-friendly education reform agenda). That is, it is a strategy that changes the mix of trade-offs involved: it’s not entitlement reform in exchange for low taxes on high-earners; rather, it is entitlement reform in exchange for a family-friendly tax code, a high-performing and cost-effective educational system, and greater emphasis on helping working families care for aging parents.
This is the way forward. The question is how quickly Republicans in Congress will decide to stop getting punched in the face and start getting behind a coherent conservative agenda that resonates with the conservative base and with swing voters.