If you are following the debt ceiling talks (and really, who isn’t?) you might get the impression that things are at a complete stalemate. Republican leaders continue to insist that entitlement cuts are necessary for a deal to be made and Democratic leaders are equally insistent that they will not agree to significant Social Security or Medicare cuts. Similarly, Democratic leaders believe that tax revenue increases must be part of any deal but Republicans argue they will not agree to any tax increases. Despite these seemingly contradictory stances, word from DC is that these talks are proceeding nicely and a final deal is slowly taking shape. How is this possible?
It does indeed seem likely that Medicare and Social Security will be spared significant cuts in the eventual debt deal. History has shown time and time again that seniors will vigorously oppose cuts to these programs. Republicans suffered at the ballot box after considering (but not passing) President’s Bush’s plan to convert social security to private accounts and Democrats suffered this past election due to the Medicare cuts that were in the Affordable Care act. Currently, Republicans have seen their poll numbers drop due to the House passing the Ryan budget plan which converted Medicare into a voucher program. If Social Security and Medicare are largely untouched, that leaves the third leg of the entitlement stool - Medicaid - to carry the brunt of cuts.
This is the political expedient thing to do because the main beneficiaries of Medicaid (specifically the poor, the disabled, children and pregnant women) are not politically powerful in the way that seniors are. Sadly, this is probably the worst of the three entitlement programs to cut from both a policy and a moral perspective. From a policy perspective, Medicaid is a lean program that is efficiently run. There are very few areas where cuts can be made that won’t negatively impact the program’s beneficiaries. Already many doctors refuse to accept patients with Medicaid because the reimbursement rates are so low. Additional cuts to Medicaid will only exacerbate the problem. From a moral perspective, Medicaid recipients are some of the most vulnerable people in our society. They are the last people we should be asking to sacrifice in order to reduce the debt. The fact that tax increases on wealthy Americans are not being considered but benefit cuts to the poorest Americans are on the table is depressing and outrageous.
This brings us to the issue of tax increases. Clues to how this impasse will be solved can be garnered from the recent vote in the Senate to eliminate tax breaks for the ethanol industry. The measure passed with the support of 33 Republicans despite the fact that technically they were voting for a tax increase. It seems likely that Republicans are ready to take the position that changes in subsidies and other tax expenditures do not count as part of their pledge to oppose all tax increases. I don’t think that a large portion of the debt deal will be made up of these revenue producing measures. Many of the most costly tax expenditures, such as the mortgage interest deduction and the deduction on healthcare expenses, are very popular. But the negotiators will find enough revenue from other tax expenditures for Democrats to say that they forced Republicans to accept some tax increases. The more significant issue of the Bush Tax cuts will probably not be addressed until after the 2012 Presidential election.
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Keith Doughty is a non-profit finance professional who in his spare time dabbles in music, politics, and interesting food. He lives and works in Philadelphia, PA.