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“We expect that discussion around entitlements will be a part, a central part” of efforts to curb federal spending, Mr. Obama said at a news conference. By February, he said, “we will have more to say about how we’re going to approach entitlement spending.”
I am no expert at reading the political tea leaves, but given the political costs involved, it is unlikely he said this as a mere feint.
Posted by Tyler Cowen on January 7, 2009 at 01:40 PM in Political Science | Permalink
Comments
Well, my paradigm has been that once they got past denial that the government was under real threat the Dems would hop to. What they really care about is protecting the government from all manner of threats from the "appearance of corruption" (good work) to terrorists (good job Dems) and now they finally acknowledge a fiscal threat (nice work guys).
Of course, they aren't going to really reduce costs, they are just going to offload them from the government's books, so I'm not surprised nor heartened.
Posted by: Andrew at Jan 7, 2009 1:52:24 PM
Obama as Nixon-goes-to-China? It worked for Brazil's Lula.
Posted by: at Jan 7, 2009 1:53:21 PM
I think that this “financial crisis” provides a rare opportunity to make a tax cut that will in the long run reduce the government deficit. If cut taxes are cut by eliminating the SS and Medicare tax it will enable us, political, to later cut the SS and Medicare payouts to the rich and middleclass. It would end the charade that SS taxes are paying into a retirement/insurance plan where people pay for themselves. This charade leads to people who made more money in their work life demanding that they get paid more from SS and Medicare. Eliminating the SS and Medicare taxes would welfare those program enabling us to target them at the truly need cutting the benefit to the rich and middle class.
Posted by: floccina at Jan 7, 2009 2:10:59 PM
Since Clinton did NAFTA and ended "welfare as we know it", perhaps Obama will end "unaffordable entitlements as we know them"...
Posted by: Mr. Econotarian at Jan 7, 2009 2:11:51 PM
Nice, Obama is just the man to steamroll over our out of control entitlement state. I'm just putting this out there now, to preemptively support his efforts: anybody who opposes him is a racist.
Posted by: steve at Jan 7, 2009 2:16:57 PM
Come guys, its simple, we'll just print more money!
Posted by: Hadacol at Jan 7, 2009 2:26:40 PM
Big subject, "entitlements". Entitlements to tax breaks? Entitlements to agricultural subsidies? Entitlements to spend a lot extra for no better health care?
The Obama administration's agenda under this heading could get real interesting.
Posted by: D iversity at Jan 7, 2009 2:44:21 PM
One interesting aspect of this is whether social security privatization (in some guise) will rear its head as a proposal, or whether Obama will stick to less inflammatory proposals like raising the retirement age.
Also, Obama will want to enlist the support and counsel of the American people early in his term to set a precedent. It will be interesting to see whether he does so here, with a politically volatile issue where the benefits of keeping Americans in the loop are presumably higher.
Posted by: mk at Jan 7, 2009 2:55:25 PM
This seems more like the overconfidence of the elite than anything else. Bush too hoped to reform Social Security, and Obama, I think it is safe to say, is much more full of himself and much less experienced than Bush.
Posted by: y81 at Jan 7, 2009 2:57:56 PM
The states will do the dirty work with Medicare. Kicking rich people (with rich defined down) out of SS can save a lot of money too. But how does he justify spending any new money if he cuts the most sacred of entitlements? It's a tacit admission of government failure...but Republicans won't point that out and instead of pushing harder to the right, they'll attack him from the left and lose more supporters.
Posted by: 8 at Jan 7, 2009 3:05:39 PM
Well in my retirement planning I assume the PV of my S.S. receipts = $0 and the PV of my Medicare benefits = $0.
Posted by: Jay at Jan 7, 2009 3:31:35 PM
My prediction:
This is a developing cover for forcing private retirement money into "safe" government debt. One of the issues that is going to come up in the next two to three years is financing all the new spending/borrowing. Raising taxes is hard politically, and likely couldn't be done at a high enough level to make more than a small dent in the coming debt flood. One way to get around this is to create a private account for every American that invests in government long term debt. You fund this through payroll deductions above and beyond what is already taken for SS/Medicare, and you restrict 401Ks and IRAs by limiting the amounts that can be put in, or by completely elimating the tax deductions for those savings vehicles.
Posted by: Yancey Ward at Jan 7, 2009 4:30:02 PM
Way to go Obama! Fresh from tossing gays under the bus, he now fires a shot across the bow of the Iowa grandmas whose caucus votes put him on the road to the White House. Besides making the Israelis nervous, what other key Dem constituency can he irk even before he takes office?
He needs these people, folks, to create the popular support he'll require to shove stuff through Congress and cow GOP from using the filibuster. Dems are naturally fractious, and once disunited rarely manage to get it together again.
I may reluctantly give this thread to y81 with his "overconfidence of the elite" call.
Posted by: StreetWalker at Jan 7, 2009 4:33:52 PM
wow. I didn't know so many liberals read Marginal Revolution.
Posted by: thehova at Jan 7, 2009 4:38:31 PM
Nah, Obama will get away with it because the folks will say to themselves "well, since he really feels our pain it must be the right thing to do." For Bush, the narrative was "this rich jerk is gonna pad his cronies."
It's really simple. Phase it out for younger people who don't need it, don't want it, and already believe it's not going to be there.
Posted by: Andrew at Jan 7, 2009 5:34:35 PM
Yancey writes:
One way to get around this is to create a private account for every American that invests in government long term debt.
Wow, that is a scary thought. My hunch says he is not shortsighted enough to enact a plan that sounds so myopic. But, I guess we are already doing something vaguely like this, with paper being shuffled around differently. But reducing SS benefits by fiat is less painful than defaulting on debt. I don't think Obama is this dumb or poorly advised.
Posted by: mk at Jan 7, 2009 5:53:18 PM
Social Security's problems don't seem that hard to fix. That doesn't mean it will be easy to pass a plan, only that designing one to fix the long-term problems isn't rocket science. The much bigger and much more difficult issue to deal with, both in terms of policy and politics, seems to be health care.
His campaign web site is still up. On it, he talks about establishing a charge on earnings over $250,000 to help finance Social Security and a workplace pension program for people whose jobs don't have one. Why some people here are so excited when he's proposed to do things like this is a mystery. Perhaps you know something I don't, but it seems foolish to think he's going to have some drastic change of heart.
Posted by: Brian J at Jan 7, 2009 6:02:26 PM
I'm a big nerd - I find even a whiff of real entitlement reform... thrilling, for lack of a better word. I'm going to wait and see what exactly Obama has in mind before I get all enraptured, however. At least this is better than Bush's highly dishonest Social Security reform proposal, which evaded the entire question of how we were going to pay for the transition from transfer tax to individual accounts. Not to mention that individual accounts are ripe for rent-seeking from the financial services industry.
I'm going to keep my fingers crossed that this actually represents prudent governance from the center (like welfare reform), but given political realities and unintended consequences, the proof is in the pudding.
Posted by: Greg at Jan 7, 2009 6:12:17 PM
Tyler, don't be so gullible. What he means is, he wants a national health care program, which will be sold by saying it will control costs, including costs for Medicare and Medicaid. One problem "solved" by making it much worse. And of course what he means is, don't panic, keep buying our debt, we're paying attention to the problem. But he isn't, not in any real sense.
Posted by: Thomas at Jan 7, 2009 6:14:09 PM
Greg,
Read "The Price of Loyalty" if you want more info on how part of the Bush admin. wanted to fund the transition.
Posted by: Steve at Jan 7, 2009 6:58:25 PM
Could he be thinking about going to means testing for social security?
Or freeing the government to negotiate bulk purchase rates for prescription drugs covered by Medicare?
Those could save some significant money.
Posted by: sct at Jan 7, 2009 9:17:04 PM
You know, you get together with some of your friends on law review, maybe even a professor too, and everyone agrees that it's easy to solve Social Security: means testing, raise the retirement age some, etc. Maybe there's a libertarian who suggests adding private accounts, and everyone agrees that that could be part of the solution. On Medicare, all the 25-year-olds agree that we shouldn't spend so much caring for people in the last six months of their lives. Problems solved.
Then you grow up and get a real job. Or, if you are Obama, not.
Posted by: y81 at Jan 7, 2009 10:11:39 PM
Social Security itself isn't in much trouble and doesn't represent a big part of the projected deficits. That is because payroll tax is dedicated to it. Indeed, reducing Social Security should mean immediately reducing payroll tax. Otherwise, reducing Social Security to fix the budget problems is essentially a tax increase. The missing trust fund should come out of rescinding Bush's income tax cuts. That's where it disappeared to, didn't it?
Posted by: Lee A. Arnold at Jan 7, 2009 10:47:16 PM
I'm with Greg. I'm going to wait to see the details, but I'm hopeful this means Obama is willing to tackle some hard problems in a relatively honest way.
Posted by: Joe at Jan 7, 2009 11:34:37 PM
My money is on a disorderly collapse of the entitlement programs because no coherent program to reform will be adopted. There are just too many conflicting interests that will hold out.
Posted by: Mario Rizzo at Jan 8, 2009 12:01:13 AM
