The Agenda

Are Taxes and Entitlements Perfectly Symmetrical?

Suzy Khimm, reporting from a Peterson Foundation summit, suggests that while Democrats appear eager to talk about entitlement reform, Republicans are reluctant to discuss tax increases. My sense is that the apparent lack of symmetry isn’t quite what it seems.

Democrats say they took these criticisms to heart during the supercommittee negotiations, initially proposing $400 billion in savings from Medicare — half through benefit cuts and half through provider cuts. Democrats point to such proposals as evidence of their party’s willingness to compromise and incorporate a diversity of views, blaming Republican intransigence for the deficit-reduction talks’ ultimate failure. “We have a lot of people in our party who will not be drummed out if they depart from the conventional wisdom,” Clinton explained.

For all that the Democrats tried to show they were willing to talk entitlements, you didn’t hear any Republicans at Peterson’s fiscal summit saying that they should be willing to compromise more by considering tax increases.

From the conservative perspective, the entitlement measures advanced by congressional Democrats are not best understood as meaningful structural reforms. That is, the benefit cuts and provider cuts described aren’t measures that would effectively realign incentives within Medicare and Medicaid. Rather, these are measures that could be reversed relatively easily and indeed that might undermine the quality of care in an otherwise unreformed system. One rejoinder is that PPACA includes a number of pilot programs aimed at shifting Medicare from fee-for-service to an alternative approach. It’s not clear, however, that this shift can or should happen in centralized fashion. The potential advantage of Medicare premium support is that it will facilitate a trial-and-error discovery process in which new entrants devise or refine new business models.

But now let’s zero in on the question of symmetry:

When Republican discuss a fresh approach to taxes, they cast it as “tax reform” that excluded any tax hikes. “What also doesn’t count as ‘cuts and reforms’ are tax increases,” said Speaker John Boehner, declaring that the GOP would refuse the lift the debt-ceiling — once again — until equivalent “cuts and reforms” were passed. (Read Boehner’s full speech.)

When Democrats discuss entitlement reform, particularly health entitlement reform, my sense is that they discuss entitlement reform in which a defined benefit is retained. That is, Democrats are not promising that Medicare will offer them less in the way of health security. They are arguing that a reformed Medicare system, as tweaked and adjusted by IPAB, will be at least as good as the current system, only considerably cheaper. And the Medicare retirement age can be raised to 67 because PPACA will be there to meet the health security needs of those between the ages of 65 and 67. Democrats who talk of entitlement are not generally saying that the safety net should promise less in terms of outputs. 

CNN’s Erin Burnett prodded Boehner further to see whether Republicans were, in fact, completely unwilling to compromise on the issue. After all, closing tax loopholes and carve-outs — something that the House speaker did promise to do — would presumably result in some people paying more, right?

Boehner stuck to the script, insisting that “lowering rates and broadening the base” was the only acceptable answer. Burnett pressed the question again: “Broadening the base” meant closing loopholes, which meant taxes for some would go up, right? Boehner equivocated. “Yeah, some may pay more and some may pay less,” he said quickly.

Again, one assumes that Democrats willing to entertain the idea of entitlement reform wouldn’t say, “Yeah, of course our entitlement reforms will leave old people sick and vulnerable.” They will presumably say, “We’ve come up with an amazing way to address the cost of health entitlements without creating a significant burden for anyone we have any reason to worry about.” The notion of “entitlement reform” is far more plastic and capacious than the notion of committing to X in revenue increases, because health entitlements are fundamentally about delivering a service.

An exception to this pattern is Social Security. Some Democrats have advocated Social Security cuts, including (implicitly) Bill Clinton. And quite a few have advocated chained CPI, which would tend to reduce Social Security payments. Here we have a much stronger test case: how many congressional Democrats favor chained CPI and are willing to defend it as a real benefit cut? The number may well be higher than the number of congressional Republicans willing to countenance revenue increases. There is, however, some ambiguity here:

So, under duress, Republicans signaled a tiny bit of wiggle room on taxes. Sen. Pat Toomey suggested as much during the last gasp of the supercommittee negotiations, with a proposal that would save $250 billion through limiting tax deductions and write-offs.

This actually seems like a fairly significant shift, as we’ve discussed in this space, though it is easy to see why those inclined to see Republicans as structurally less reasonable than Democrats to discount it.

I’ve always thought that accepting revenue increases is perfectly acceptable provided it’s part of a settlement that involves significant structural reform that actually realigns incentives. But I could never understand why a political faction that takes this view would want to preemptively concede on the issue.


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