Keep Your Eye on the Ball

Robert Samuelson has some fair points in this column about why he thinks that Social Security should be considered "welfare," but he falls into an all-too-common trap: conflating Social Security benefits with Medicare benefits.  Here's the crux of Samuelson's piece:

With favorable demographics, contradictions were bearable. Early Social Security beneficiaries received huge windfalls. A one-earner couple with average wages retiring at 65 in 1960 received lifetime benefits equal to nearly 14 times their payroll taxes, even if those taxes had been saved and invested (which they weren’t), calculate Eugene Steuerle and Stephanie Rennane of the Urban Institute...

Although new recipients have paid payroll taxes higher and longer than their predecessors, their benefits still exceed taxes paid even assuming (again, fictitiously) that they had been invested. A two-earner couple with average wages retiring in 2010 would receive lifetime Social Security and Medicare benefits worth $906,000 compared with taxes of $704,000, estimate Steuerle and Rennane.

Except Steuerle and Rennane's analysis shows that this average couple would receive fewer dollars back in Social Security than it paid in Social Security taxes---$555,000 in benefits for $588,000 in taxes.  Is getting less than what you paid for in taxes now welfare?  There is a slight aspect of income redistribution for Social Security: low-income workers receive somewhat more in benefits than they paid in taxes, and upper-income earners receive somewhat less.  However, this redistribution does not change the fact that the average Social Security beneficiary pays more into the system that he or she receives out of it.

What really drives this disparity between retirement taxes and benefits is Medicare.  Reforming the trajectory of Medicare may be an important topic---however, it is not necessarily connected to Social Security.  Contrary to the main argument of his column, the statistics cited by Samuelson suggest the sustainability of Social Security as a retirement program.  Indeed, the surplus of an individual's Social Security taxes (relative to benefits received) helps defray the cost of Medicare spending.

Romneycare: A Shield from Mediscare?

Democrats seem to have latched onto an electoral strategy for the 2012 campaign. With an economic slump the worst in many a decade, ballooning deficits, the Obamacare debacle, a foreign policy that has not exactly met campaign promises, and a restless populace, Obama and his allies have hit on a three-syllable campaign slogan: Medicare.

The Congressional special election in NY-26, a rout for Republicans in a GOP-heavy district, has only fueled Democratic speculation that they can ride Mediscare tactics to victory in 2012. (Yes, a faux-Tea Partier in the race may have influenced the results, but Republican Jane Corwin was leading in polling before Democrat Kathy Hochul went full Mediscare.)

In a striking turn of events, Mitt Romney may find Romneycare more of an electoral advantage than a headache: this legislation could insulate him from Mediscare tactics. Many other Republican candidates (such as Michele Bachmann) voted in favor of Paul Ryan's budget or have endorsed it; Tim Pawlenty has quibbled with the budget but has said he would sign it under certain conditions. While Romney has said that he is "on the same page" as Ryan, he has not endorsed Ryan's budget and has said that he will propose his own plan for Medicare reform.

The fact that, under Romney's watch, Massachusetts implemented a set of health-care policies that gives coverage to over 98% of state residents can protect him from the charge that he wants to finance more tax cuts by leaving seniors out in the cold. By not having endorsed Ryan's plan, Romney can agree with it in the spirit of market reforms without having to defend its particulars.

This combination could blunt one of the Democrats' biggest knives. Imagine the following exchange from a presidential debate in the fall of 2012:

BO: The Ryan budget, overwhelmingly backed by Congressional Republicans, would end Medicare as we know it for all those under 55, who would be left with vouchers to purchase insurance from private companies. These vouchers would only rise in value at the rate of inflation, and health-care costs have risen faster than inflation for decades. Governor Romney and the Republicans want to end our nation's decades-long commitment to care for the elderly. They would hold our seniors hostage to the whims of private insurance companies.

MR: Mr. President, while I have my differences with the Ryan budget, let's face the facts. When I was governor of Massachusetts, I crafted legislation that ensured health-care coverage for over 98% of state residents. I worked across the aisle with Republicans and Democrats to forge a compromise to expand health-care to all citizens of the Commonwealth. While this compromise was not perfect and cannot be completely adapted to the federal level, it was a step in the right direction of accountability and fairness. Rather then putting health-care under central government control, it unleashed the power of the market to expand health-care access.

Under your health-care proposal, Mr. President, over $500 billion will be cut from Medicare over the next decade. Under your plan, Mr. President, a fifteen-member panel will set price controls for Medicare. Your plan forces a one-size-fits-all mandate model on all fifty states. You're already cutting Medicare. My record shows that I have not and I will not expand health-care coverage by taking away from our seniors. I believe that market-oriented reforms can eliminate waste and cut soaring costs while also improving care.

Romneycare can give Romney cover to push for market-oriented reforms. If he is a crypto-socialist, as some of his detractors allege, he can't also be an anarcho-capitalist ready to kill off grannie. Romney can attack Obamacare's cuts to Medicare while also deflecting the charge that he is a heartless Medicare-cutter himself. Moreover, Romney can distinguish between Obamacare and his own health-care reforms: on Medicare cuts, the federal mandate, centralized government control, and other features.

As only Nixon could go to China, perhaps Romney is uniquely positioned to advance market reforms of Medicare.

(Disclaimer: the debate over entitlement reforms is quickly evolving, so the dynamic noted here might not be found even a few months from now.)

(Crossposted at FrumForum)

Romney Agonistes

It's perhaps hard not to feel some sympathy for the situation Mitt Romney has found himself in. By the close of the 2008 Republican primary, he was seen as the standard-bearer of conservatism, picking up the support of the likes of Ann Coulter and Jim DeMint. Yet now, he finds himself attacked as a lefty RINO and utter traitor to the conservative cause---for Romneycare, a measure he backed in 2006. Romney's record as governor did not change from 2008 to 2011 (he stopped being governor in 2007), but the perception of the conservative commentariat has. Notoriously derided as a flip-flopper, Romney has now found that some in the right-leaning punditocracy have flip-flopped on him. And these attacks on Romney emphasize not merely how the partisan optics have changed since 2008, which they have, but often criticize his politics on a much deeper, ideological level.

The Massachusetts health-care law has become an albatross around the neck of the man who could maybe almost be the Republican front-runner. The passage of Obamacare made health-care reform a central litmus-test issue for grassroots conservatives. The fact that the Obama White House boasts of similarities between Romney's reforms and Obamacare is not going to endear Republicans to Romney.

From the perspective of free-market conservatism, the reforms Romney sponsored have not been a resounding success. The rate of health-care uninsurance in the Bay State has dropped significantly, which is good (over 98% of the Commonwealth has health insurance). Wait times have potentially increased a little, though trends for longer delays for receiving care were in place before Romneycare passed. But costs are exploding. Romney's Democratic successor, Deval Patrick, is now looking to create a regulatory infrastructure to control insurance rates (and thereby doctor pay) as a way of coping with these skyrocketing bills. With unchecked Democratic power in Massachusetts, further state control of health-care delivery may be only just around the corner. Unless further reforms are made, Romney's health-care reform may prove to be quite the shot in the arm for private health-care in Massachusetts: a lethal injection.

So Romney's big speech on Thursday may prove to be a necessary but also somewhat desperate gamble. Faced with the (perhaps unfair) public perception that he is an opportunist who will shift in whatever direction may benefit him the most, Romney seems to have decided that he cannot utterly repudiate the Massachusetts health-care law. The fact that he has spent so many years defending these reforms would give a repudiation now an especially high political price.

Either a total defense of Romneycare or a total repudiation of it could damage his image in the eyes of grassroots conservatives and potential swing voters. Successfully resolving the health-care issue could help scrape away some of the veneer of artificiality so many voters have doubts about while also burnishing his conservative bona fides. Here are some thoughts about what Romney might want to achieve politically in this address:

Make clear the distance from Obamacare: Romney may attack Obamacare as inefficient, destructive, problematic, and so forth, but he should particularly emphasize those features of it (such as the 50-state mandate) that differ from the Massachusetts reforms. Attacking Obamacare is bound to win applause from righties. But Romney's attacks will ring hollow if he has not posed enough plausible distance between his policies in Massachusetts and those of Obama.

Build on the strengths of Romneycare: There are some positive, free-market features of the Massachusetts health-care law, which the Heritage Foundation praised. Romney could tout those.

Show technical expertise: The ability to maneuver through complex bureaucracies will be key for any potential Republican administration. Romney has a wealth of experience in running large organizations and a considerable proficiency with the details of policy. His speech on Thursday can showcase those skills. This speech doesn't have to be---and probably shouldn't be---a total wonkfest, but a suggestion of Romney's wonky tendencies would play to his strengths as a credible, center-right technocrat.

Move the debate forward: This is perhaps the most important political objective for the speech. If Romneycare dominates his Republican primary narrative (including both his campaign and what is said about his campaign), Romney loses. Game over. In this speech, Romney needs to change the topic to present a forward-looking approach to federal health-care reform (which he looks likely to do). Romney knows that even the all-out repeal of Obamacare will not be enough for our nation's health-care system, which does need reform. Moreover, every serious Republican candidate is probably going to talk about repealing Obamacare. By focusing on a specific set of policies for a way forward, Romney can distinguish his candidacy from the rest of the pack. For his political survival, Romney must make this campaign about the future.

Moreover, the right does need creative ways of trying to reform the health-care system to make it more affordable and efficient. Such a tangled web of government/non-profit/for-profit institutions has been set up that any reform will have to be as careful as possible to avoid any drastic and unpleasant unintended consequences. By focusing on the future of health-care reform (both for the private market and for Medicare, Medicaid, and other government programs), Romney can keep the past from sucking all the air out of present debates.

This could be a pivotal speech for Romney. If Romney can prove his viability on the health-care issue, he could start to solidify a core of support. If he cannot resolve the public perception of his health-care policies, he may find himself limping along and find the path to the nomination that much harder. Moments of testing can make or break a candidacy, and this may be one such moment.

A Social Security Crisis?

In bewailing the "entitlements crisis," many have made much of the fact that the percentage of GDP expended on Social Security, Medicare, and Medicaid is growing at a fairly ferocious pace. In 2007, those three programs totaled 8.4% of the GDP. By 2050, the CBO estimates they could be 18.6% of GDP. By 2080, they could be nearing 25% of GDP. The current federal budget as a whole is 25% of GDP, and that recently spiked (it was under or around 20% for most of the past 15 years). So, if current trends do not change (a colossal if), federal spending on just three programs would be as big as a proportion of the economy as the whole federal budget is now. Those numbers would probably not be sustainable.

However, grouping those three programs together hides a significant fact: the driving force behind the inflation of those "entitlement" programs is the increase in medical spending. Social Security spending is far more sustainable than the current Medicare and Medicaid regimes.

Currently, Social Security spending is about 4.8% of the GDP. This spending is estimated to rise to about 6.1% of the GDP by 2035 and will linger around 6% for the next fifty years after that. This is about a 27% increase in Social Security spending as a percentage of GDP. That's not a small number, but it is a manageable one, especially when one considers that that period will witness the retirement of the Baby Boomers. If it gets its economic house in order, the US could conceivably afford to spend 6% of its GDP on Social Security for a very long time.

Moreover, due to reforms during the Reagan era, Social Security is more sustainable now than it used to be. According to the Congressional Research Service, the worker earning an average income who retired at 65 in 1980 drew out more in benefits than he had put in through taxes and accumulated interest in less than three years. An average 65-year-old retiring in 2002 would have to collect for almost 17 years for that to happen; the retirees of 2020 would have to collect for nearly 21 years to reach that point. (And, yes, I realize that those figures could also be used to argue for a kind of privatization, but let's focus on fiscal sustainability for the moment. I also realize that the federal government has borrowed against the Social Security "surplus" of past decades, and that a time will come, if it has not already come, when the federal government must pay back the billions and billions and billions it owes to the Social Security system.)

If there is an eventual crisis for Social Security (the status of SS crises depend upon assumptions about rates of economic growth, employment, and other factors, leading to various projections), the solutions to make Social Security more sustainable seem relatively clear cut. Raising the cap on incomes taxed for Social Security (the current max is around $106,000) and slightly changing the retirement age---to suggest two obvious choices---could extend Social Security's sustainability for a long time.

It may be Pollyannaish to suggest that a few minor changes could indefinitely protect Social Security, but it is realistic to say that those changes are minor compared to the ones needed for Medicare and Medicaid. That's where the real growth in spending is. Health-care spending has long exceeded the rate of inflation, and, with an aging population, that spending is only increasing at a faster rate.

For Medicare and Medicaid, the options are a lot harder. Because Social Security works on a fixed-benefit model, the costs are easier to project and, if needed, easier to curb. Federal health expenditures have long operated upon a blank check model, and there seems to be considerable waste in federal health-care spending. But finding strategies to identify that waste and cut it is a much more challenging proposition. I think effective savings can be found, but achieving them will acquire bureaucratic know-how and determination.

Some Republicans may find themselves in a hard place in terms of dealing with Medicare/Medicaid spending. Barack Obama's proposals to cut the rate of growth of Medicare spending were met with cries of "death panels." Over the past few years, many Republicans allied themselves with protecting Medicare funding. Yet now Republicans want to talk about seriously cutting the deficit, and photo-op cuts to the "discretionary" side would offer marginally cosmetic changes to the budget at best. (None of this is to suggest that I find the supposed "savings" of Obamacare particularly persuasive.)

There may be something to be said for various Social Security reforms. But Social Security does not seem to be ground zero for the government's fiscal crisis; the fiscal necessities for reform there are far less pressing than those for other parts of the federal budget.

Two points in closing:

The first is electoral. Social Security is one of the most popular government programs. According to a recent Wall Street Journal poll, 77% of Americans find cutting Social Security to be unacceptable. Kicking grandma off of Social Security while also advocating for ever-expanding tax cuts for the wealthiest Americans (who have been the real economic winners of the past decade) is the electoral equivalent of running into machine-gun fire.

The second is more principled. From a small-government perspective (or at least from my perspective), Social Security is far from the most invasive program or the force that most undermines the sustainability of our nation as a free-market economy. If conservatives do want to advance the cause of a smaller government, there are, I think, much bigger and more pressing fish to fry. Reckless financialization, the hollowing out of the middle class, government distortions of the market through cronyish favoritism, the decay of the family---all these things are much more dangerous to the future of individual liberty vis-a-vis the government than Social Security.


(Crossposted at Frum Forum)