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January 23, 2004A Disappointing SOTU for Domestic PolicyNow that the furious first wave of spinning and counter-spinning is dying down, it's time to take a closer look at what President Bush's State of the Union Address means for domestic policy this year. Specifically, did the highly partisan speech create any opportunities for bipartisan legislation on budget issues, entitlement reform, and health care? Taxes, Spending and Deficits. President Bush's words on economic and fiscal policy were surprisingly defiant, as if Democratic barbs on deficits, jobs and tax cuts for the rich had really struck a nerve. Maybe the Administration’s manifestation of “compassionate conservatism” -- tax cuts coupled with spending increases to make everybody happy -- isn’t working as well as his advisors had hoped? The President’ message was forceful and simple: jobs will go up, deficits will go down, tax cuts are good -- they helped the economy through recession. Those assertions may or not be true. But what was striking was how little explanation the President provided. Why has job growth been so disappointing? If tax cuts were mostly designed to fight recession, why is it so important they be made permanent 5 or 10 years from now? The biggest unexplained assertion was how the deficit will be cut in half. Since the beginning of his Administration, the President has pitched a 4 percent growth rate for domestic, non-entitlement spending. Needless to say, spending is growing much faster than that. The 4 percent figure has been interpreted in Congress like this: "Spending for priority items like defense and homeland security, and for politically important items like agriculture or prescription drug benefits can grow as fast as needed -- all other spending programs should grow by 4 percent." When conservatives howled at the 4 percent figure (and the Moon and Mars mission), the Administration tried to get tough on spending. Turns out non-entitlement, non-defense, non-homeland security spending would grow only 1 percent in 2005 under the President's new budget. But that completely misses the point -- budget austerity only works when there is an attitude of shared sacrifice in Congress. Congress is unlikely to go along with spending cuts in a few areas when everything else is growing like crazy, and taxes are being cut like mad. Worse, Congress is now using “earmarks” and pork-barrel appropriations as the basic tool of governance. There is no embarrassment or shame about this. It's very simple: Senators and Representatives must vote for higher spending or they will get no share in the vast amount of domestic appropriations earmarked to each state or district. Principles and ideas are second banana to crass Congressional logrolling. In his speech, President Bush missed a huge opportunity to run against an irresponsible Congress. Other than a vague (and therefore meaningless) admonition that Congress should be careful with taxpayers’ funds, President Bush essentially associated his Administration with Congressional spending habits. Fiscal hawks should also be dismayed by the President's unwillingness to acknowledge the proliferation of budgetary gimmicks designed to mask the true size of the future deficits. For example, the President acted indignant that his signature tax cuts are scheduled to expire. He didn't mention that his allies in Congress inserted the "sunset" provisions on purpose, to disguise the tax cuts' real cost. Congress and the President also held down the apparent cost by allowing many of the promised middle-class tax cuts to be negated by the Alternative Minimum Tax (AMT). Expect the President's Budget (due on February 2) to perpetuate these sorts of gimmicks. What can moderates and fiscal conservatives do? There may be room for bipartisan work on budget process reform. We might also agree to take some first steps towards a broader tax reform (both to simplify the tax code and nudge revenues higher after 2010). If the President and the Congressional leadership refuse to lead on cutting the budget, then moderates on both sides of the aisle will have to step up and demand progress. One way to dramatize the future budget problems would be to talk about the "interest entitlement," which could grow to be larger than Social Security, Medicare, or Medicaid over the next 25 years if action is not taken to reduce the deficits and reform entitlement programs. When Congress starts to realize the interest costs of its current borrowing binge, perhaps we can begin to narrow the yawning gap between spending and revenues. Entitlement Reform. As a candidate in 2000, President Bush’s advocacy for entitlement reform was bold and refreshing. With great political courage and without apology, he pitched Social Security reform based on pre-funding and personal retirement accounts, and Medicare reform based on the Federal Employees Health Benefits (FEHB) program. Now things are different. A Medicare prescription drug benefit passed last year, but without much actual reform. To be fair, the new Medicare law will probably help build private sector alternatives to Medicare’s traditional fee-for-service program, an important precursor step toward future reforms based on competition. Moreover, a drug benefit is an essential part of any health insurance plan, especially for senior citizens living with long-term or chronic illnesses. But let’s face it, the Medicare bill wasn’t really about reform -- it wasn’t an exercise in austerity to protect future taxpayers. It was a new handout, to show compassion. It wasn’t about providing seamless health benefits, it was a vote-buying effort. On Social Security, the President continues to delay. Of course, leadership on Social Security reform is politically treacherous -- it will be attacked, often unfairly, by Democrats (and some Republicans) who don’t have an alternative plan of their own. Critics complain about "privatization" without mentioning that the "do-nothing" approach would inevitably lead to higher taxes in the future. Is the President wimping out on Social Security reform? The Administration has not pushed actual legislation, or even a specific plan. The transition costs of reform have not been included in any of the President's budgets -- that sends an unmistakable signal that the President is not serious about reform, at least not until a (possible) second term. Centrist Senators and Representatives interested in controlling future entitlement costs will have to carry on without much help this year from the President and Congressional leaders in 2004, it seems. Health Costs and Coverage. On the plus side, President Bush dedicated 10 sentences of his speech to health costs and coverage. And we expect the President's Budget to include about $100 billion over the next ten years to reduce the number of uninsured Americans. However, the Administration offered no significant new policy ideas to break the gridlock in Congress. There was money in the budget last year, but it wasn't spent because a bipartisan, non-controversial bill wasn't teed up early enough. (Proposals to cover the uninsured always seem to get lost when the Congressional session nears its close.) The Administration's main policy prescriptions have remained mostly unchanged for the last three years: - A refundable tax credit that cannot be used for health coverage at work These "same old" policies are not likely to be passed in Congress this year either. First, the Administration continues to offer a refundable tax credit (a very good idea), but only for individual coverage (a big problem). Liberals will claim that the tax credits aren't enough, or would "throw a 10 foot rope to people in a 30 foot hole." That's idiotic. Some people only need 10 feet of rope -- would we fail to rescue them first? If we can only afford 10 feet of rope, would we rescue no one because we can't help everyone? The real problem with the Bush tax credit plan is this: Limiting the tax credit to individual coverage scares virtually all Democrats (and many Republicans) because it would reduce the availability of employer-based health coverage. Second, AHPs are a decent idea that has been twisted for partisan advantage. It's right to give small businesses new ways to band together to purchase cheaper health insurance. And it's right to take a hard look at expensive "benefit mandates" imposed by many states. But it's wrong to disrupt the current insurance that small businesses are already struggling to afford. AHPs are mostly a zero-sum game -- a better deal for some small businesses at the expense of others. Most insurance brokers and companies are bitterly opposed to AHPs. State insurance commissioners are afraid unregulated AHPs will be a magnet for fraud. The Bush Administration is using AHPs as a wedge issue against Democrats, complaining that Democrats opposed to AHPs are against small business. It's an unfair claim. Policymakers are starting to realize that the longer the Administration uses AHPs as a "message" issue, the longer we fail to actually help small businesses. Finally, the Bush approach to malpractice reform also seems designed more for political purposes than actual enactment. Caps on "pain and suffering" awards are a good idea (which Democrats are foolish to resist). But we need more than caps to pass a bill. The Administration has never provided a vision for a truly reformed health quality and compensation system, which would protect patients while it held down malpractice claims. The good news is that centrists could lead compromises in all these areas. First, we can push health tax credits that don't hurt employer coverage. (For example, we've suggested transitional coverage for the unemployed and tax credits that could be used at work.) Centrists can also lead Congress toward new health purchasing systems for small employers (watch this space for new proposals in February). And there has got to be a way to break the gridlock on medical malpractice -- some combination of caps on damage awards and new expert "health courts" that could quickly compensate victims of poor care or medical accidents without burdening health providers and suppliers with the fear of enormous lawsuits. Links: |
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Centrist Policy Network, Inc. |
