Both parties defend Medicare, none the taxpayer

Tax protest by Rena Schild / Shutterstock.com

Protesters rally against government tax and spending policies at the U.S. Capitol on September 12, 2009 in Washington.

Article Highlights

  • Romney's selection of Paul Ryan as running mate set the stage for a Medicare debate that both parties said they welcomed.

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  • It's hard to tell which party is winning the Medicare debate. But, it's all too clear who’s losing - taxpayers.

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  • Both parties are defending the sanctity of Medicare benefits. Unfortunately, nobody is defending taxpayers.

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Mitt Romney's selection of Congressman Paul Ryan as his running mate on August 11 appeared to set the stage for a Medicare debate that both parties said they welcomed. Ryan's leadership on this issue raised hopes that the Republican ticket would forcefully advocate reforms to slow the relentless Medicare growth that drives much of our long-run budget imbalance. On the other side of the aisle, Democrats doubled down on their call to lock taxpayers into an open-ended commitment to the current program.

With the election less than two weeks away, it's hard to tell which party is winning the Medicare debate. But, it's all too clear who's losing — taxpayers.

Republicans have veered off course. Rather than challenging Democrats' call to maintain the current benefit trajectory, they have tried to out-bid them by advocating higher Medicare spending. As a recent newspaper headline summarized the situation, "Both campaigns seize role of Medicare defender."

The backdrop for the current controversy is the part of President Obama's health care law that calls for $716 billion of net Medicare spending cuts over the next decade, primarily through reduced payments to health care providers and smaller subsidies to Medicare Advantage plans. The provider cuts are ill-designed, merely ratcheting reimbursements down within a flawed system, so it would make perfect sense for Republicans to try to redesign them.

From the beginning, though, some Republicans took a different tack. They denounced the very idea of these Medicare cuts, undermining efforts to restrain entitlement spending. When reporters asked the National Republican Congressional Committee last March whether it planned to campaign for the Ryan budget's long-run Medicare cuts, a spokesman said that the committee was instead focused on campaigning against the health care law's Medicare cuts. It is quite a dilemma — it's hard to simultaneously support and oppose Medicare cuts!

Republicans are understandably concerned that the health care law uses the Medicare spending cuts to pay for increased spending on Medicaid and health insurance subsidies. But, that's no reason to undo the spending cuts — that's a reason to undo the spending increases while keeping the cuts. The budget plan that Paul Ryan steered through the House of Representatives earlier this year took just that approach. But, Ryan has now reversed course, promising that "Mitt Romney and I are going to stop that raid on Medicare. We're going to restore this program." Given the political challenges of cutting Medicare spending, it's inconceivable that Republicans would throw away $716 billion of cuts that have already been signed into law. But, that's now the campaign's platform.

A Romney campaign ad proclaims, "You paid into Medicare for years. Every paycheck. Now, when you need it, Obama has cut $716 billion from Medicare ... The Romney-Ryan plan protects Medicare benefits for today's seniors and strengthens the plan for the next generation."

The ad's vague reference to measures to "strengthen" Medicare for the next generation is presumably intended to leave the door open for future benefit cuts. But, the ad closes the door by treating Medicare benefits as an earned right, paid for by retirees' past payroll tax payments, that can't be touched. In reality, as a recent Urban Institute study documents, single workers and two-earner couples with average wages turning 65 in 2010 will receive Medicare benefits three times larger than their Medicare taxes plus interest, and average one-earner couples will reap six-to-one payoffs.

If Republican opposition to the Medicare cuts is troubling, does Democratic support for the cuts offer a silver lining? Will Democrats be the new champions of entitlement restraint? Not likely. Remember that the health care law uses the Medicare cuts to finance increased spending on other health programs. Besides, Democrats haven't accepted the need to actually reduce Medicare benefits - instead, they imagine that cutting payments to providers and insurance companies offers a way to reduce spending without reducing benefits. They're likely to rethink their support for the spending cuts the moment beneficiaries start experiencing restricted access to providers and reduced Medicare Advantage benefits.

Of course, Republicans are responding to the political reality that measures to restrain Medicare spending are unpopular. But, acceptance of that reality comes at a high price. The budget math is unforgiving — any solution to the long-term fiscal imbalance that does not include substantial Medicare cuts must rely primarily on tax increases.

Americans continue to debate the proper role of government. Democrats have historically assumed the role of telling voters that government programs can provide important protections for those in need. Republicans have historically undertaken the essential, if less appealing, task of warning that misdirected and excessively large programs can slow economic growth and restrict individual opportunity and responsibility. When Republicans are absent from their post, the debate becomes dangerously unbalanced.

Both parties are defending the sanctity of Medicare benefits. Unfortunately, nobody is defending taxpayers.
 
Alan D. Viard is a resident scholar at the American Enterprise Institute.  He is the co-author of the just published Progressive Consumption Taxation: The X-Tax Revisited.

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About the Author

 

Alan D.
Viard
  • Alan D. Viard is a resident scholar at the American Enterprise Institute (AEI), where he studies federal tax and budget policy.

    Prior to joining AEI, Viard was a senior economist at the Federal Reserve Bank of Dallas and an assistant professor of economics at Ohio State University. He has also been a visiting scholar at the US Department of the Treasury's Office of Tax Analysis, a senior economist at the White House's Council of Economic Advisers, and a staff economist at the Joint Committee on Taxation of the US Congress. While at AEI, Viard has also taught public finance at Georgetown University’s Public Policy Institute. Earlier in his career, Viard spent time in Japan as a visiting scholar at Osaka University’s Institute of Social and Economic Research.

    A prolific writer, Viard is a frequent contributor to AEI’s “On the Margin” column in Tax Notes and was nominated for Tax Notes’s 2009 Tax Person of the Year. He has also testified before Congress, and his work has been featured in a wide range of publications, including Room for Debate in The New York Times, TheAtlantic.com, Bloomberg, NPR’s Planet Money, and The Hill. Viard is the coauthor of “Progressive Consumption Taxation: The X Tax Revisited” (2012) and “The Real Tax Burden: Beyond Dollars and Cents” (2011), and the editor of “Tax Policy Lessons from the 2000s” (2009).

    Viard received his Ph.D. in economics from Harvard University and a B.A. in economics from Yale University. He also completed the first year of the J.D. program at the University of Chicago Law School, where he qualified for law review and was awarded the Joseph Henry Beale prize for legal research and writing.
  • Phone: 202-419-5202
    Email: aviard@aei.org
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    Email: regan.kuchan@aei.org

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