Saturday, August 11, 2012

Bold move.


Four months ago, a colleague high up in the Romney camp suggested in a conversation that Mitt Romney would run on a bold economic agenda to “inspire the middle to vote their disappointment.” “2010,” he noted, “was an anger-fueled wave turnout election. Unlikely that [this fall] R's will be as angry or D's as dispirited. The center is the way to win but he has to occupy that center with a bold agenda—a Bowles/Simpson level of boldness.”

Through the summer, no such boldness was apparent, and it has been unclear what kind of campaign Romney would actually run. Even as the Obama campaign launched a blitz of negative ads in swing states, the Romney campaign remained relatively quiet, clinging to benign themes, along with their own stable of negative ads. Now, as the conventions approach and the real start looms, Romney has finally shown his cards.

With the selection of Paul Ryan, Mitt Romney has made a definitive statement. Gone are the accusations that Romney would be afraid of a bold choice, afraid of being over-shadowed. Gone as well are the suggestions that his would be a tactical choice, driven by a narrow objective of winning 50%-plus-one electoral votes. Paul Ryan is a political star in his own right, and has proven his willingness to take on the toughest issues. By picking him, Romney is suggesting that the fall campaign will go beyond negative attacks and focus on real and substantive choices.

The instant response to the pick from the Democrat side has been to attack Ryan’s Medicare plan. That plan essentially proposes to keep the existing system intact for those over 55 and then migrate to a private insurance/voucher plan, ultimately ending Medicare as we know it. Opposition to that plan, interestingly, has focused on the costs that would be absorbed by future retirees under the voucher plan, rather than on the inequity of a plan that places no burden on current recipients and older workers in its effort to control the share of overall healthcare costs funded by government revenues.

Medicare is the fundamental challenge facing the U.S. budget, as it has steadily increased as a share of GDP. As federal income tax receipts declined in the wake of the 2008 fiscal collapse, healthcare costs increased dramatically as a share of the taxes individuals pay, growing from just over one-third of federal personal income tax payments before 2008 to well over one-half in recent years.

One might not like Ryan's solutions, but he has been willing to grapple with issues and offer detailed proposals where others have no not. His proposals have winners and losers, as any solution will. His Medicare plan shifts costs onto future beneficiaries, while effectively holding current retirees and older workers harmless, as it places the burden of paying for both current retirees and future retirees on those Americans now under 55.

Making younger workers pay a heavy price to support the retirement years of boomers has become a public policy theme of late. Across the country, state and local governments are reforming their pension plans in ways that reflect the Ryan formula. Retirees pay little or nothing, older workers pay some, but the real bailout comes from new employees. These solutions do little to tackle current costs, but instead promise changes down the road. They tend to alienate elderly voters less, while younger voters seem not to be paying attention. In a country where voter turnout is roughly correlated with age, this is a formula that combines fiscal and political viability.

The data on Medicare costs and benefits reinforces the fact that the problem is not simply one of overall cost. Research published by Eugene Steuerle and Stephanie Rennane of the Urban Institute suggests that while Social Security has been the more frequent target of reform efforts, that system is relatively sound. Most cohorts of households Steuerle and Rennane studied pay into the system as much or more than they ultimately receive in benefits. In contrast, Medicare taxes across all income groups pay only a fraction of the benefits people receive. The rest falls on the working population who essentially support retiree health costs, reinforcing generational inequity as costs rise.

The broader problem that America faces is a cultural problem. Cornell professor Suzanne Mettler has published useful data on this issue in her work on what she refers to as the “Submerged State.” Her data, presented here, suggests that a large number of Americans who benefit from public programs deny that they are indeed recipients of governmental largess. For example, 40% of Medicare recipients state that they have not used a government program, only slightly less than 44% for social security recipients who actually pay much of their own costs.

Mettler’s data suggests that the deep distrust of government that has long been a hallmark of the American psyche now rests at the center of our political and budget debates. It offers insight into how a man at a Sarah Palin rally in 2008 famously cried out “Don’t let the government get its hands on my Medicare.” Apparently Americans are able to reconcile their dislike or distrust of government by convincing themselves that those programs from which they themselves benefit are “not government.” Based on Mettler's data, it is apparent that the disconnect between what we receive and what we are willing to pay for runs deep.

And this is deep-seated problem. In the era of the Tea Party, the question of what government people want to have and what they are willing to pay for is a central one. Last year, the $1.4 trillion cost of Medicare, Social Security and defense expenditures alone—those that would appear to be sacred even to Tea Party acolytes—exceeded federal personal income tax payments by over $300 billion. This suggests that even if all other areas of government—the entire discretionary budget as well as Medicaid and other entitlements—were cut, the taxes we pay as individuals would not support those three areas of expenditure.

In coming months Paul Ryan will be decried for his Medicare plan and the burdens it will place on future retirees. Yet his plan is not alone in the intergenerational inequity on which it is constructed. None of the tax or budget proposals embraced by the Obama administration bridge the gap between what people appear to want and what they are willing to pay for either. The conventional wisdom remains that people will support tax increases on the other guy. But taxing the other guy—even all those rich people whose effective tax rates are far below those of middleclass workers—would not be sufficient to bridge the difference between what we appear to want, and what we appear to be willing to pay.

At some point, we will have to come to grips with the imbalance between what we appear to want and what we appear to be willing to pay. The interesting question now that Romney has selected Paul Ryan as his running mate is whether Romney is really proposing to engage in that debate, or whether the selection is merely a political calculus. Paul Ryan's entire political brand is premised on being the person who is prepared to engage those issues. Yet, there is no evidence to date that Ryan's Tea Party supporters have seriously considered what his proposed changes would mean for “their Medicare.” 

Mitt Romney and his campaign believe that the pivotal voters in the independent center—who have not yet made up their minds—will reward him for his choice of Ryan as his running mate, and the signal it sends that Romney is prepared to make hard choices to address the nation's economic and fiscal challenges. What remains to be seen is whether voters will recoil once they understand the details of Ryan's plan, or whether they are prepared to support candidates that offer solutions to problems that the electorate claims to want to see solved, however painful those solutions might be.