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Analysis: Christie's Bold 'Hail Mary' on Entitlements

Proposing adjustments to major entitlement programs is commonly referred to the 'third rail' of American politics. The political upside of pushing reforms in this arena is low, while the risk is quite high. But don't tell that to New Jersey Governor Chris Christie, who appears to be maneuvering toward a presidential run by grabbing hold of that 'third rail' with both hands. In a New Hampshire speech delivered yesterday, Christie 
proposed significant changes to Social Security, Medicare and Medicaid -- three gargantuan federal entitlement programs saddled with tens of trillions in unpaid for promises known as "unfunded liabilities":

Christie...has an ambitious plan to change Medicare and Medicaid. He would also restructure Social Security, changing it from an entitlement to what would effectively be an insurance policy. To that end, he told his audience, "We should remember that Social Security should be retirement insurance." Besides gradually raising the retirement age to 69, and the early retirement age to 64, Christie proposes that the wealthiest Americans forego a Social Security check. We should have, he said, a "modest means test that only affects those with non-Social Security income of over $80,000 per year, and phases out Social Security payments entirely for those that have $200,000 a year of other income." His plan wouldn't kick in for some time - 2022 is his phase-in date. Christie promised his proposal "would not affect seniors currently in these programs or seniors approaching retirement." Seniors who hold onto their jobs would see lower taxes - Christie's plan would mean that the government would stop collecting payroll taxes from seniors working beyond the age of 62. Christie would also alter the means testing that is currently in place, with wealthier Medicare recipients paying more of their premium costs on a sliding scale. Those at the top, making $196,000 or more, would pay 90 percent of their premiums out of pocket. Medicare retirement ages would also go up very slowly - by 2064, the eligibility age would be 69. Medicaid, is, as Christie notes, "the fastest-growing federal entitlement." Christie wants to simplify the program so that states would receive fixed amounts per enrollee, which, he said, citing the Congressional Budget Office, would reduce the deficit by $500 billion over the next decade.

Here's Christie wrapping up his address in Manchester, noting that there's no political advantage to telling hard truths, but that they must be told and addressed nonetheless:

"Today, we know this: our entitlement system is out of control. Its growth is not sustainable. And inaction threatens the economic health of every generation that will follow us. And let me ask you this, why would I say it if it wasn’t true, I mean there is no political upside to this, right? So why would I come here and say all these things if they weren’t true? I’d love to come here and just give you happy time. Make you feel good, say I’m gonna give you a whole lot more money from someplace. The only reason I’m here to say this, is because it’s an unavoidable truth...I will not pander, I will not flip-flop, and I'm not afraid to take the truth as I see it, whether you like it or not. I want to help lead a national conversation that rewards truth over pandering."

Yes, he's telling the truth.  But there actually is a political incentive for him to do so. As things currently stand, Christie is very poorly positioned to win the Republican nomination for president. His support has slumped into the mid-single digits, and his favorability rating among national GOP voters is consistently at or near the bottom of the field.  With New Jersey's economy mending more slowly than other states, his approval numbers limping along at home, potential opponents 
poaching major donors, 'Bridgegate' headaches still lingering (Christie's apparent vindication notwithstanding), and the specter of multiple state credit downgrades casting a pall over his 'Jersey Comeback' narrative, Christie has little choice but to make a significant play -- if only to reinsert himself into the conversation.  Appearing on Fox Business Network last night, the Wall Street Journal's Daniel Henninger called the governor's entitlements plan a political "Hail Mary." Team Christie would no doubt dispute that characterization, pointing out that the governor hasn't even declared his candidacy at this point, and (rightly) contending that GOP debates would offer important forums in which Christie has the potential to shine and make up ground. (Remember, there's a reason why Republican candidates across the country wanted a piece of him on both the campaign trail and fundraising circuit).  Nevertheless, the governor needs to vault himself back into the discussion and establish a compelling raison d'etre for his national campaign.  He won the affections of many conservatives early in his first term in Trenton by unapologetically confronting entrenched government interests.  Christie the brash Teller Of Hard Truths became his calling card, his forte.

This new fight he's decided to pick gives him a chance to recapture some of that same 'righteous candor' magic.  Focusing on entitlements also furnishes Christie with an obvious opening to highlight one of his biggest accomplishments as governor: 
Public pension reform, which made important, if still insufficient, changes to an unsustainable system.  He's been pushing to build on those reforms, criss-crossing the state dispensing a "no pain, no gain" tough medicine message.  So while it's true that he's boldly tackling a critical issue fraught with political risk, he's also playing to his strengths, and planting his flag on a patch of ground will elicit attention and respect from much of the GOP electorate.  Setting politics aside, what to make of the policy he's advancing?  I give you this exchange from Hugh Hewitt's show last night:

CC: So let’s ask ourselves an honest question. Do we really believe that the wealthiest Americans need to take from younger, hard-working Americans to receive what for most of them is a modest monthly Social Security check? And I say no, and I propose a modest means test that only affects those with non-Social Security income of over $80,000 dollars a year, and phases out Social Security payments entirely for those that have $200,000 dollars a year in retirement income.

HH: So Governor Christie, you’re saying no Social Security for people who have $200,000 dollars in other income coming in annually?

CC: Yes, sir.

HH: Well now, that is actually quite radical, isn’t it?

CC: Oh, I don’t think it’s radical. I think it’s common sense, Hugh. I mean, $200,000 dollars in retirement income, you know and I know how much money you have to have put aside to be able to throw off $200,000 dollars annually in income in retirement. And it just doesn’t seem to me, Social Security was meant to be a safety net to prevent the elderly from living in poverty. And the idea that someone who is making $200,000 dollars a year or more in retirement needs to get a monthly Social Security check, just don’t think makes sense. These programs were set up to try to prevent poverty. Someone making $200,000 dollars or more is not in danger of being in poverty.

HH: Now they’ll have about $4 million dollars in assets if they’re decently managing their money So that’s what it is. But it is, is it not, a straight out wealth tax? It’s a tax on people who accumulated wealth during their life, or inherited it, they might not have earned it, they might have inherited it, but it’s a straight out wealth tax, right?

CC: No, it’s not a wealth tax, Hugh. What it is, is a recognition of the fact that this program needs to provide first and foremost for those people who need retirement security the most. And the fact is that often times in our country’s history, folks who have done extraordinarily well and others who have done moderately well have been willing to step forward and to help folks who need it, whether it’s through private charities, whether it’s through good works that government’s been engaged in. The fact is that Social Security now spends $900 billion dollars a year, and is taking in significantly less in taxes than it’s paying out in benefits every year. You know, this can’t continue. And we can’t have 71% of our federal budget being spent on these types of programs. And I think, for instance, you know, I’m good friends with Mark Zuckerberg. Do we really think that Mark needs to be collecting Social Security? Does he need to collect that check?

Phasing out all Social Security benefits for seniors with annual incomes above $200,000 is going to be, shall we say, a difficult sell.  Acknowledging that Christie's plan wouldn't impact current seniors, or those very near retirement, an awful lot of people who've been paying Social Security taxes for many years aren't going to be pleased at the prospect of seeing zero benefits from a program they've been required to support for decades.  The Social Security promise (which is already crumbling under the program's weight, I should add) is premised on paying in throughout one's career, then reaping the benefits they've "earned" in retirement.  Eliminating benefits for wealthier Americans effectively turns the program into a mammoth wealth transfer.  Many conservatives are open to creative, systemic reforms to these programs -- and fairly aggressive means testing should be on the table.  But zeroing out benefits for an entire class of taxpayer is no small thing, described by Hewitt as "quite radical" and a "straight out wealth tax."  So three cheers for Christie's decision to take this runaway bull by the horns; the jury is out on some of the details, and his ability to market them to voters.  Meanwhile, deep in the heart of Fantasyland, Democrats Elizabeth Warren and Joe Manchin are leading the charge to increase Social Security benefits -- which are already racking up big annual deficits.  
Click through for Ramesh Ponnuru's fiscal reality check.

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