Entitlement reform, once the supposed basis for a grand compromise, is now off the table. Social Security is running a deficit and facing more than $20 trillion in unfunded liabilities, but the president makes no changes to the program. Medicaid would be cut by roughly $72 billion over ten years, barely more than $7 billion per year in a program that today costs $276 billion annually. The president would trim Medicare by $248 billion over ten years. Depending on which accounting measure you use, that program is facing unfunded liabilities of $30–90 trillion, meaning that under the best-case scenario, the president is proposing a reduction of less than 1 percent. And none of the president’s proposed Medicare savings amounts to structural change in the program, which is what is needed. Instead, the president falls back on the usual grab-bag of cuts in provider reimbursements. Those cuts are likely to drive providers out of the program, making it harder for seniors to see a doctor, while doing nothing to change the program’s path towards insolvency.
The American welfare state is alive and well.
On the other hand, the president throws his weight fully behind tax hikes. His plan would increase taxes by $1.5 trillion over the next ten years. That’s on top of $450 billion in tax hikes that the president proposed last week to pay for the stimulus package. In total, the president is seeking nearly $2 trillion in higher taxes, compared to $580 billion in spending cuts. That amounts to nearly $4 in taxes for every $1 in cuts.
And, let’s look at those taxes. The president continues to focus his rhetoric on millionaires and billionaires, but his proposal includes the expiration of the Bush tax cuts for people earning as little as $200,000 per year. That tax hike would also fall heavily on small businesses and almost certainly would slow job creation.
The president’s other big tax initiative is, of course, the new “Buffet rule,” a new alternative-minimum tax designed to ensure that “millionaires and billionaires” pay the same effective tax rate as middle-income workers. While that populist pitch may well prove politically popular, numerous studies have shown that it is highly misleading. Few millionaires and billionaires actually pay taxes at such low effective tax rates. Those that do are receiving the majority of their income from capital gains, income that has already been taxed multiple times before it is subject to the capital-gains tax.
Besides, we should never forget that investment is both risky and necessary for job creation. It is exactly the sort of thing we should be encouraging.
But in the end, economic growth and job creation is secondary to the president. So is deficit reduction. This proposal is about the president’s idea of “fairness,” as he has said over and over. The president sees the wealthy as achieving their success not through hard work and initiative but by exploiting the less well-off or through pure luck. They are the winners of life’s lottery, in his view. It is his job, therefore, to remedy this injustice. That means taking money from some and giving it to others.
It’s about “spreading the wealth around.”