Durbin Runs Away from Entitlement Reform

by Patrick Brennan

Yesterday on ABC’s This Week, Republican senator Lindsey Graham faced off against Democrat Dick Durbin over the possible routes away from the fiscal cliff, and the structure of a grand bargain. Durbin, a “Gang of Six” member, is known as a Democrat willing to take on entitlements and tax reform, but yesterday, he surprisingly resisted all the specific suggestions put forth by Graham and host George Stephanopoulos, and completely contorted the state of revenue negotiations.

Durbin did admit that “those who say don’t touch [Medicare] are ignoring the obvious,” and said “we can make meaningful reforms in Medicare and Medicaid.” But then when asked about specifics by Stephanopoulos, such as the possibility of raising the retirement age for Medicare, which would seriously help the program’s finances, Durbin stonewalled:

Here’s my concern about that, George. What happens to the early retiree who needs health insurance before that person’s eligible for Medicare? I had it happen in my family, and I’ll bet a lot of your viewers did, as well. We’ve got to make sure that there is seamless coverage of affordable health insurance for every American.

Durbin appears unaware that he cast a vote in 2010 for a bill, now law, that, as I recall, was supposed to do something like provide “seamless coverage of affordable health insurance for every American.” Leaving aside the fact that, if retirement-age reform could go a long way to saving Medicare, “early retirees” are not exactly America’s most important group to protect, Obamacare’s exchanges exist for little reason other than to ensure that Americans who don’t have access to health insruance from the government or their employer can get it. Those seniors who’ve retired, and are not yet eligible for Medicare, could use the exchanges — some, by virtue of their income, would be eligible for subsidies, some wouldn’t — either way, this would cost much less than providing them with Medicare, while still ensuring coverage.

#more#Avik Roy explored something like this in an article for the most recent issue of National Review, suggesting, as a broader policy, exactly what you’d be doing for early retirees by raising the Medicare retirement age:

Step Two [of ‘Redeeming Obamacare’] would be to move Medicare patients into Obamacare’s exchanges. For example, Congress could agree to raise Medicare’s eligibility age by three months every year for the foreseeable future. In effect, over time, this would gradually introduce premium-support-style reforms into the retiree population, without requiring Congress to get bogged down in complicated reform legislation.

Even without accepting Roy’s full prescription, it’s a rather disingenuous objection to raising the Medicare retirement age that it would put retired 50- or 60-somethings in a gap without any coverage, given that that’s precisely the sort of problem the president’s plan is meant to address, and it could be done while “strengthening Medicare,” another goal, I believe, the Affordable Care Act. Even if one conceives of Medicare and Social Security as national retirement plans rather than safety nets for less well-off elderly, as Democrats do but conservatives do not, they’re still clearly not intended to cover Durbin’s beloved “early retirees.” In fact, Obamacare’s exchanges are designed for just that, inasmuch as they tighten the age-rating bands of insurance plans on the exchanges to a three-to-one ratio, meaning that insurers are limited in the premiums much they charge their oldest subscribers to just three times what they charge their youngest ones (and this number is actually quite generous for the older subscribers; most states previously had 5:1 or more).

When it came to Social Security, Durbin didn’t even eschew particular reform ideas; he just declared it needs no reform at all. Graham’s suggestion was that if Democrats agree to entitlement reform that addresses the federal deficit, he would agree to tax increases; Durbin ably narrowed the definition of the former by claiming “Social Security does not add one penny to our debt.” He declared that he’s willing to “bring entitlement reform into the conversation; but Social Security [should be] set aside.”

He’s actually right on the first bit, as a historical matter: The accounting fictions that undergird Social Security have actually reduced the size of one measure of our federal debt, the smaller “debt held by the public” relative to the larger ($16 trillion) “gross debt.” The difference between the two is the outstanding obligations the Treasury has to the Social Security Trust Fund, which will be depleted around 2030 (assuming the payroll-tax cut expires January 1). Thus, Durbin’s right that the fact that Social Security now runs a deficit doesn’t add any more to the federal gross debt, because it’s depleting the fictional “trust fund,” but that will continue to increase the share of federal debt held by the public, and come 2030, unless he wants to reduce Social Security payments dramatically, the program will start sucking up general revenues and adding to the actual federal deficit. Durbin claimed it’s a “separately funded program”; it can only afford to be now by redeeming U.S. Treasury bonds, and soon enough, won’t be.

Even people like Peter Orszag, who consider Social Security “not the core of our long-term fiscal problem,” acknowledge that it’s seriously in need of reform and a real fiscal burden in its own right. For Durbin to pretend otherwise is to subscribe to meaningless accounting fictions . . . which also happen to show the program running a deficit of its own, forever.

Lastly, Durbin also attempted to evade Graham’s reasonable suggestions on taxes: 

I think the top rate needs to go up, and that’s where I may disagree with my friend, Lindsey Graham. Remember, during the course of the presidential debate, how many times the president turns to Mitt Romney and said, well, do the arithmetic. How in the world are you going to reduce deductions and generate enough revenue for meaningful deficit reduction? He could never answer the question, because there is no reasonable answer to it. Let the rates go up to 39 percent.

Durbin’s right that the arithmetic of paying for Mitt Romney’s rate reductions with eliminating deductions was nigh-impossible; his problem, though, is that that is nothing like trying to match the revenue gains from the president’s tax-the-rich plan, which capping deductions can easily match or exceed. Romney’s 20 percent rate cut would have left a $3 or 4 trillion revenue gap over the next ten years; keeping the Bush tax-rate cuts for those making over $250,000 is worth . . . $440 billion over the next ten years (President Obama’s entire plan for taxing high-income earners would raise about $850 billion, by restoring PEP and Pease, letting a capital-gain tax cut expire, taxing dividends as ordinary income, etc.)

What would “capping deductions,” as Graham proposed, raise? The most aggressive proposal, capping all itemized deductions at $17,000, would raise, according to the Tax Policy Center whom Durbin was implicitly citing about Romney’s plan, would raise $1.75 trillion. A less aggressive cap, at $50,000, would raise $749 billion, still almost as much as the president’s plan to tax the rich. Durbin doggedly insists that the top rate must go up, completely ignoring the fact that you can raise as much revenue, and more, the way Senator Graham had just proposed. Since capping deductions would actually raise the revenue from mostly the same taxpayers, this isn’t even class warfare, it’s just stubborn partisan support of the president’s flawed proposals.

Needless to say, while Durbin has shown real willingness in the Senate chamber to work with Republicans over sensibly raising revenue and reforming entitlements, he didn’t demonstrate the same commitment and reasonableness at the This Week roundtable. One hopes that this is merely political grandstanding, and not a sign that the president’s disinterest in entitlement reforms is hindering the capabilities of his fellow Democrats to do so.