• Is a bipartisan deal to cut spending on the rich possible?

    Charles Blahous, a Research Fellow with the Hoover Institution, and a public trustee for Social Security and Medicare, argues that cutting spending for the rich is the best route to a bipartisan budget deal. He notes that the likelihood of reaching such a deal before the 2012 election is slim.

    The essential problem is that the two major parties are now seeking to distinguish themselves on politically sensitive tax and entitlement policies at precisely the time that bipartisan cooperation on such issues is becoming most necessary. And yet there is a clear path available for the two parties to cooperate to improve the fiscal outlook while still preserving the cores of their respective political messages: namely, by cutting the growth of federal spending on “the rich.”

    Democrats are largely stressing distributional issues. They charge Republicans with pursuing “tax cuts for the rich” and with plotting to cut vital spending on the poor. Democrats, at the same time, deny Republican charges that they (Democrats) are indifferent to the exploding growth of federal spending.

    Republicans are generally focusing on the size of government. They charge Democrats with supporting runaway spending. They in turn deny Democratic charges that they are insensitive to the vulnerabilities of the poor.

    This narrative leaves a sliver of space for the parties to agree to benefit cuts for high income persons in the areas of Social Security, Medicare and agricultural subsidies (the ‘rich’ must of course, be defined). If they cut such a deal, both parties could rightly claim they had held true to their core constituencies and stated goals (Republicans to reduce size of government; Democrats targeting resources to those most in need). Implementing a policy of cutting direct spending to the rich could be done most consequentially by slowing benefit growth to the rich in Social Security, increasing their Medicare Part B premium, and perhaps applying a new means test of some sort for them on Part A. Farm subsidies for the rich could also be ended. A deal along these lines might also help Democrats to avoid large cuts to the Medicaid program, which seems to be a priority for them.

    These steps won’t do all of the work needed to address our long term fiscal imbalance, but they would represent a start, whose adoption might increase the chances that the 2012 election was fought out over the harder next steps to come on Medicare, Medicaid, Social Security, Defense and taxes.

    h/t Reihan Salam

    • The problem with cutting these benefits for the rich is defining “rich.” If we use a reasonable definition, there aren’t enough of them to make a meaningful difference in spending on Social Security and Medicare. If we define a low enough level to save real money, then we’re hitting many who no one would normally define as rich.

      My understanding is that the vast bulk of farm subsidies go to corporate interests and the truly wealthy. Things like import limits on sugar should be added to the list of things to fix.

      The notion that “Republicans [want] to reduce size of government” is an odd one. Republicans clearly want to cut programs that help the poor and middle class, but what recent Republican administration has reduced the size of government?

      • Could start with Dem suggestion of raise OASDI payroll tax to 90th percentile and say top 10% wage earners are ‘rich.’ It is arbitrary. Have to start somewhere. The farm subsidies are low hanging fruit, but won’t be that consequential. If interested in a balanced budget got to eventually talk about raising taxes and cutting spending over planned levels in Medicare, Soc Security, and Defense.

    • Getting rid of Bush tax cuts, raising OASDI taxes and cutting defense spending should be enough.

      Have you seen this widely disseminated graph?

    • @foosion
      yes and yes, but it is not that easy….politics and all that. Also, it won’t be enough 15-50 years from now, we have to slow health care cost inflation to have a long term balanced budget.

    • @Don, I’d put slowing healthcare cost inflation as a much higher priority than balancing the budget. We could presumably balance the budget by shifting all healthcare expenses from the government to individuals, but that would not be an appealing outcome (unless you’re Paul Ryan or a fellow traveler).

      Here’s another graph, showing that just eliminating the Bush tax cuts would be enough to stabilize the debt/GDP ratio. http://www.balloon-juice.com/wp-content/uploads/2011/05/5-10-11bud-f2.jpg

      Why we are discussing balancing the budget at a time of massive unemployment , slow growth and extremely low interest rates and inflation is a mystery to me. We have more immediate problems and focusing on the budget is counter-productive at the moment. I have a distinct recollection that fiscal policy should be counter-cyclical.