Thompson Alone Tackles Entitlements

The headline in the Christian Science Monitor is the sort any candidate would dream of.

As baby boomers enter the starting gate into retirement, the cost of America's entitlement programs – foremost, Social Security, Medicare, and Medicaid – is projected to balloon to levels that are unsustainable.

Already, those three programs make up 40 percent of the federal budget. If reforms are not enacted, Social Security will eventually go bust; in 40 years, on the current path, the two medical programs alone could equal the size of today's entire federal budget according to the US Government Accountability Office...

"The one thing that all the experts agree on … is that we're in an unsustainable position economically with regard to these programs," he recently told the anti-tax Club for Growth. "You'd think that would be the biggest thing we could talk about, other than national security. So we've got to talk about it."

Thompson intends to unveil a plan for entitlement reform in the coming weeks, according to his spokesman, but he has already been floating ideas, such as slowing the rate of Social Security benefit increases – a move that would, in effect, cut benefits. On Medicare, he suggests increasing fees for upper-income beneficiaries. To imply such moves puts Thompson in danger of touching the so-called "third rail" of politics – and he acknowledged that risk in a speech last month he gave to The Club For Growth.

But he gets credit, at least, from deficit hawks, who have been touring the country trying to educate the public on the structural problems in Social Security and Medicare. "There is an opportunity for leadership on this issue, because people are not expecting politicians to tell them the truth on this," says Bob Bixby, executive director of the anti-deficit Concord Coalition. "And while you would certainly catch fire from your opponents by putting forth specifics, I think the public would respect that person as a leader for taking a position."

Much as I admire Senator Thompson for his stand on the issue, I would disagree with him on the usefulness of a commission. I believe that a bipartisan fix for runaway entitlement spending is essential, since neither party will take the political blame for a fix that is bound to leave some voters angry. While it's possible that Democrats would vote for President Thompson's plan, it's far more likely that the product of a bipartisan commission would get their endorsement. Thus a commission can serve a valuable role in increasing support for the fix.

Still, Senator Thompson deserves credit for stepping up on this issue. It will endear him to fiscal conservatives.

Are Democrats Leading with the Chin on Social Security?

In 2000 and 2004, George Bush bucked Republican orthodoxy by touching 'the third rail,' and discussing his plan for private accounts within Social Security. The logic was that the US investor class had grown large enough that more voters would approve of the idea than disapprove. It's unclear whether that was true, but clearly the Democratic attacks on Social Security had lost some of their 'zing.'

Now James Pethokoukis of US News suggests that the willingness of some Democrats to embrace tax increases to increase Social Security revenues may be making a foolish move:

As far as dealing with Social Security goes, raising taxes—by lifting the cap on taxable wages—seems a popular way of returning solvency to the system. (Such a move, by the way, would be the largest tax increase in American history.) Here's Barack Obama: "I think that lifting the cap is probably going to be the best option." Forget about cutting projected increases to benefits. (As Americans get richer, benefits get fatter since they are linked to wages rather than inflation...)

My take: I've recently started a running series in this blog looking at how the weakening economy might create a situation for Republicans in 2008 that's reminiscent of the 1992 election. But there is another economic factor at play here, too. Can Republicans use the tax issue as an effective political weapon against Democrats? Up until now, I've doubted it. (My friend Larry Kudlow of CNBC, though, thinks taxes will be a big loser for Democrats just as they were for Walter Mondale back in 1984.)

While Republicans keep talking about Democrats rolling back the Bush tax cuts, most Democrats have only committed to repealing provisions affecting wealthier Americans. Plus, the last big tax increase Americans remember was Bill Clinton's in the 1990s, yet voters also probably associate the '90s with an economic boom.

But the Social Security tax hike would affect people making just under $100,000 and make the social insurance program an even worse deal for younger workers. This might be a huge opening for Republicans. I think Hillary Clinton also realizes this since she has been noticeably vague on how she would deal with Social Security. Here is how she answered moderator Tim Russert's question on raising the income cap: "Well, I take everything off the table until we move toward fiscal responsibility and before we have a bipartisan process. I don't think I should be negotiating about what I would do as president. You know, I want to see what other people come to the table with..." Ah, that explains things.

Since Hillary is likely to be the nominee, the political damage to Democrats of advocating tax increases would likely be limited. After all, if she's not advocating the tax increase, then she can't be criticized for it. But the situation is different with Congressional candidates -- should any of them identify themselves with such an approach.

Hat Tip: Instapundit

Paulson Pushes Entitlement Reform

Read it at the Standard.

CBO: Budget Balances in 2012 (If You Ignore Some Realities)

Read it at the Standard.