Barack Obama really does have a plan for the next four years. When he thought he was speaking off the record to the Des Moines Register the other day, he said he wanted to negotiate a "grand bargain" with the congressional Republicans. It would include spending reductions and tax increases to reduce forecasted federal deficits.
About the same time that the president was giving his interview, more than 80 CEOs of some of the nation’s largest companies were making a similar announcement. To get the country’s fiscal house in order, they said, we need both spending reductions and tax increases.
The idea of a grand bargain is very much on the minds of Washington, D.C., insiders these days. I frequently see it mentioned in news reports and on public policy blogs. So be forewarned. The inside-the-Beltway crowd is gearing up for a very large scale budget deal.
Here’s the problem for Republicans: this could easily be a trap. By that I mean we are likely to see tax increases immediately and permanently, while the spending cuts may never occur.
Why is that? Because the only way to get substantial spending reductions is to cut outlays for entitlement programs, including Social Security, Medicare and Medicaid. And although the Democrats have said they are willing to do that, there are two conditions: (1) the spending cuts must come in future years and (2) they must not — repeat, not — involve fundamental reform.
Fundamental reform is what President Bush tried to do with Social Security. He wanted to replace the Ponzi scheme finance of the current system, under which each generation expects future generations to pay for its benefits, with a private, funded system, under which each generation would save and invest and pay their own way.
Fundamental reform of Medicare and the elderly portion (which is most of the total) of Medicaid needs to proceed in much the same way. Young people need to start saving right now to pay for their health care and their nursing home needs during the years of their retirement. We also need to create more private sector options so that seniors have access to the same kind of health insurance the rest of the nation has access to (a la Paul Ryan).