The $82 Trillion Problem Washington Has Stopped Talking About

By Yuval Rosenberg and Michael Rainey The $82 Trillion Problem Washington Has Stopped Talking About Now that “the anti-deficit hysteria of the Great Recession has given way to a backlash of complacency,” lawmakers and the public are ignoring “an $82 trillion avalanche of Social Security and Medicare deficits” coming over the next few decades, warns Brian Riedl of the conservative Manhattan Institute. Riedl’s full 2,600-word cover story for the National Review [is worth reading]( but here’s an overview of his argument: How did we get here? “Conservatives used to prioritize long-term fiscal solvency,” Riedl writes. Then Donald Trump won 88 percent of Republican voters — and the presidency — while pledging that ‘there will be no cuts to Social Security, Medicare & Medicaid.’ Six months later, a Pew poll revealed that only 15 percent of Republicans support trimming Medicare, and only 10 percent support Social Security reform. (Democratic support is 5 and 3 percent, respectively.) In other words, the entitlement-reform generals have no army. Today, concerns about Social Security and Medicare are dismissed as the dying voice of the out-of-touch Washington establishment. For conservative leaders, the surest path to credibility with the grassroots lies in focusing on working-class “real America” concerns such as globalism and income inequality. And nothing could be more tone-deaf than depriving struggling families of their earned Social Security and Medicare benefits because of some green-eyeshade budget-deficit paranoia. Why does it matter? “This complacency could be catastrophic,” Reidl argues. "Social Security and Medicare reform has fallen off the radar precisely when it is the most urgent." He lays out some nunvers to explain why: Over the next 30 years, according to data from the Congressional Budget Office, Medicare will run a $40 trillion cash deficit, Social Security will run a $19 trillion cash deficit, and the interest on the resulting program debt will be $23 trillion. (To inflation-adjust these figures, trim by one-third.) … Even readers inclined to be skeptical of 30-year projections should take this one seriously. Future inflation rates are indeed anyone’s guess, but the existence of 74 million Baby Boomers retiring into Social Security and Medicare is an actuarial reality. These projections even optimistically assume a slowdown in per capita health costs. They are the rosy scenario. What should we do about it? Riedl lays out some cuts and changes that would address the projected long-term shortfalls. The details of his suggested reforms, like raising the eligibility age for Social Security and means-testing Medicare benefits, are bound to be controversial. But those details hardly matter in an environment where both politicians and the public prefer not to have the conversation about Social Security and Medicare at all. “Neither party wants to sign up for a suicide mission, especially if the other party is not on board,” Riedl writes. “The deficit will continue expanding, key programs will continue to be squeezed, and taxes will rise until politicians and voters finally confront the elephant in the room.” Is Congress’ New Budget Committee Doomed? The $400 billion spending deal President Trump signed last month included language creating a special congressional committee devoted to reforming the budget and appropriations process. But renowned fiscal policy expert Stan Collender is deeply skeptical about whether the committee can accomplish much by way of serious reforms. Writing at Forbes Monday, Collender [warns]( As with all of the other nonsensical federal budget commissions, committees and super committees that over the years have crashed and burned (Full disclosure: I was a member of one of them), this latest effort is magically expected to solve our deficit and debt woes and to absolve Congress of its fiscal sins. This new committee of highly partisan politicians is somehow expected to rise above the current intractable partisan politics that are the major reason the federal budget debate is in such a shambles. This new select committee on the budget isn't just utter nonsense, it's an insult to our intelligence. We're being told not to look at the big deficit hikes that were just enacted but to pay attention instead to yet another attempt to prevent it from happening again. The basic problem, Collender says, is that the current system works perfectly well for the current political leadership. And in the end, it’s not the process that’s the problem — it’s that both lawmakers and voters love what government provides, but hate to pay for it. Research Notes of the Day ‘Three Unprecedented Economic Experiments from Washington’: Chris Kreuger of the Cowen Washington Research Group breaks down economic policy under Trump. The past three months have seen three unprecedented economic experiments from Washington at a time of near full employment: (1) $1.5T in tax cuts; (2) ~$500B in fiscal stimulus (sequester relief & disaster recovery from February); and (3) solar panel, washing machine, steel & aluminum tariffs - with likely much more to come. Call it supply-side, Keynesian mercantilism. Or just Trumponomics. And no one should be surprised - Trump continues to do exactly what he said he was going to do. What Trump Is Risking by Imposing Tariffs: Ed Yardeni of Yardeni Research says the president’s protectionism is cause for concern. Too bad that Trump is starting to stir up a hornets’ nest over trade. That man just doesn’t know when to stop. He seems to have a compulsive tendency to snatch defeat from the jaws of victory. He could have done a couple of victory laps on getting Congress to enact a major tax reform plan that slashes tax rates for corporations and lots of individual taxpayers. The economy is booming and was likely to continue to do so through the mid-term elections, which might have allowed the Republicans to hang onto their majorities in the House and the Senate. Yet he is risking all that by pandering to protectionists. There really aren’t that many of them to pander to, so perhaps he is pandering to his own protectionist instincts. Goldman Sachs Sees a Dose of Higher Health Care Inflation: Economists Spencer Hill and Avisha Thakkar see cyclical pressures driving health care inflation higher. The upshot of our analysis is that diminished slack, falling hospital margins, and the waning drag from policy effects can more than explain the recent rise in healthcare inflation. Indeed these factors suggest a further gradual increase over the next two years. Our model based on cyclical and policy effects suggests that healthcare inflation could reach 2.7% by year-end (vs. 2.0% currently) and approach 3.0% in 2019, adding another 0.1-0.2pp to overall core inflation and suggesting upside risk to our forecasts. Tax Cuts May Not Be Enough for the GOP in 2018 Republicans are worried that a tax cut that puts more money in voters’ pockets may not be enough to overcome President Trump’s low approval ratings come November. The party is nervously watching the March 13 special election in a deep-red corner of Pennsylvania, where Democratic challenger Conor Lamb is running neck-and-neck with Republican Rick Saccone in a district Trump won by 20 points. Outside groups spent millions trying to boost Saccone by linking him to the GOP tax cuts, but their message gained little traction among the area’s working-class voters. A basic problem, according to [National Journal]( Josh Kraushaar, is that “conservative-minded voters in this district value government entitlements as much as tax cuts.” Culture-war themes replaced the tax-cut message in the campaign, but they have proven less persuasive recently, Kraushaar writes, leaving Republicans low on ammunition as they head into the national election this fall. Why Tax Cuts for Health Care Companies Won’t Benefit Patients The tax cuts passed in December will drop billions of dollars on the bottom lines of U.S. businesses, and most of that money is expected to [end up in the pockets of investors]( through dividends and buybacks. A smaller percentage will likely be used for productive investments, and some will end up in workers’ pockets through one-time bonuses and wage hikes. Some companies may even use the cuts to lower prices to attract new customers — a win for consumers. But health care analyst and former GOP congressional staffer Rodney Whitlock told [Axios]( that health care companies are less likely to use their tax savings to benefit their customers than other types of firms, due in large part to the non-competitive nature of their business: "Companies lower prices on shoes, phones, cars (comparatively or versus inflation) to get your business. Health care pricing doesn't work that way. So the natural pressure to use the tax code to lower pricing...isn't there in health care." Erik Gordon, a University of Michigan business professor, agreed, saying that the tax cuts are "unlikely to lead to significant, long-lasting savings for patients." News - [Five Charts That Show How Companies Are Spending Their Tax Savings]( – Bloomberg - [Study: Trump Tariffs to Cost 146,000 Jobs]( – Axios - [Trump’s Proposed Tariffs Risk Hurting Infrastructure Plan]( – Wall Street Journal - [Trump Approves Arkansas Medicaid Work Requirements]( – The Hill - [Trump’s Hidden War on Medicaid]( – Vox - [State Dept. Was Granted $120 Million to Fight Russian Meddling. It Has Spent $0.]( – New York Times - [GOP Lawmaker Hopes to Take Big Bipartisan Step on Opioids, but Money Could Stand in the Way]( – Washington Post - [Obamacare Hits Highs in Popularity and Profits]( – Forbes - [States Weigh Response to Proposed Short-Term Health Plan Rule]( – Roll Call - [Google Rolls Out a New Tool to Help Health Providers Solve the Medical Record Mess]( – CNBC - [How Trump’s Hudson Tunnel Snit Threatens the National Economy]( – Bloomberg - [China to Boost Defense Spending 8.1 Percent in 2018]( – Associated Press - [This Year's Oscar Swag Bags Could Come With a $50,000 Tax Bill]( – Money Views - [Trump Doesn’t Realize That Tariffs Are Taxes]( – Kudlow, Laffer and Moore, RealClear Markets - [Why We Need a Smart Balanced Budget Rule]( – Ryan Bourne, RealClear Policy - [Junk Insurance Plan Proves Trump Doesn't Care About Your Health]( – Andy Slavitt, USA Today - [New Internet Tax Should Be DOA in Congress]( – Andrew Moylan, RealClear Politics - [Trump’s Infrastructure Plan Puts Workers at the Bottom. They Should Be at the Top]( – Joseph Kane, Brookings - [Investors, More Than Consumers, Will Pay the Price of Tariffs]( – Conor Sen, Bloomberg View - [Using the False Claims Act to Close the Tax Gap]( – Devin Gould, Tax Policy Center - [Why Republicans Don't Care About Fixing Washington]( – Jonathan Bernstein, Bloomberg View - [The Cost of Our War on Public Life]( – E. J. Dionne, Washington Post Copyright © 2018 The Fiscal Times, All rights reserved. You are receiving this newsletter because you subscribed at our website, thefiscaltimes.com. Our mailing address is: The Fiscal Times 712 Fifth AvenueNew York, NY 10019 [Add us to your address book](//thefiscaltimes.us1.list-manage.com/vcard?u=40d2c5373681f5cd830b6d823&id=714147a9cf) If someone has forwarded this email to you, consider signing up for The Fiscal Times emails on our [website](. Want to change how you receive these emails? You can [update your preferences]( or [unsubscribe from this list](