What’s needed is fundamental entitlement reform, and most especially a reform of Medicare and Medicaid that moves away from government micromanagement and toward a market-based system with cost-conscious consumers. Most Republicans understand this, which is why the House passed a budget plan that included far-reaching reforms of the Medicare and Medicaid programs. This is a plan that would actually resolve the nation’s fiscal problems — without raising taxes. Which is also why Democrats are apoplectic about it.
In the debt-limit talks, Republicans need to be very wary of confusing meaningless Medicare and Medicaid “cuts” with actual reforms that will make a difference. If the president and his allies have ruled out all variants of genuine reform — and the recent Medicare proposal from Sens. Joe Lieberman (I.) and Tom Coburn (R.) certainly counts as a first step toward genuine reform — then Republicans should make it clear that they have no incentive at all to make concessions.
If that means that a “large” deficit-cutting deal can’t be struck on the debt limit, so be it. A $2 trillion or $3 trillion package, heavy on tax hikes and the usual assortment of Medicare and Medicaid regulatory tinkering, should be the Republicans’ worst nightmare. It will hand the president a huge political victory, leave the entitlement monolith just as it is, further entrench central government management of the health sector, and burden taxpayers even more.
It would be far better to find a way to cut whatever spending can be cut sensibly with some Democratic support, raise the debt limit modestly, and leave the big questions on entitlement reforms and taxes to the collective judgment of the voting public in 2012.
— James C. Capretta is a fellow at the Ethics and Public Policy Center. He was an associate director at the Office of Management and Budget from 2001 to 2004.