Fiscal deal makes social programs more vulnerable
WASHINGTON — The lack of spending cuts in legislation that averted the fiscal cliff will place enormous pressure on entitlement programs such as Social Security, Medicare, Medicaid, and even the president’s new heath insurance plan when negotiations begin in coming weeks to reduce the deficit, analysts said Wednesday.
The legislation passed this week delayed by two months the implementation of automatic across-the-board cuts in discretionary spending. Now President Obama and Republicans are hoping to use that breathing room to come up with specific cuts, which could affect an array of social programs that are vital to many lower and middle-income Americans.
With Congress having finished work on income tax rates this week — raising taxes for families earning more than $450,000 and keeping George W. Bush-era rates for those earning less — Democrats will probably have less leverage against GOP leaders who insist the only way to improve the government’s financial health is to find savings in entitlement and other safety net programs.
“Decades from now, Jan. 1, 2013, will be remembered as sealing the fate of Medicare — as well as Medicaid, food stamps, and perhaps even Social Security,” James Kwak, a professor at the University of Connecticut School of Law and a specialist on government spending, wrote in an analysis published Wednesday.
At stake are an array of taxpayer-funded programs that were designed decades ago to provide basic income and health care coverage for senior citizens, the poorest Americans, and the disabled, all of which have grown as the number of beneficiaries has increased and costs have soared.
Most House Republicans opposed the recent deal because it did not adequately address government spending on such programs.
According to an analysis by the Institute for Policy Innovation, a nonpartisan group that advocates more limited government, the total amount of revenue brought in by the federal government in 2011 — $2.6 trillion — was barely enough to cover the cost of entitlements and to pay the interest on the nation’s $16 trillion debt.
“The Defense Department, Justice Department, Education, everything else is on a credit card,” said Merrill Matthews, a resident scholar at the Dallas-based institute.
As a result, Democrats will now probably find it harder to protect such entitlement programs from cuts in new budget negotiations.
“We’re done with tax increases,” said Eric Zimmerman, a Medicare law and policy analyst and partner at the Washington, D.C. law firm of McDermott Will & Emery. “Obviously Medicare and Medicaid will factor into the deficit reduction. That will be disconcerting for the health care community because those programs are very much on the table.”
Talks are set to start almost immediately over whether to allow the government to borrow more money; the debt limit will need to be raised by next month to avoid a government default. Congress also must come up with specific cuts if they want to avoid $1.2 trillion in mandatory across-the-board spending cuts over ten years that were delayed two months by the last-minute deal.
Those cuts, known as sequestration, did not include entitlements, but are widely seen by both parties as extremely damaging to the economy. They were put in place in 2011 as an incentive for Congress to come up with a more comprehensive plan to reduce the deficit.
A fierce fight — what Zimmerman called a “battle royale” — is shaping up as interest groups stake out their positions.
“The fiscal patch creates extraordinary pressure to make cuts to Medicare, Medicaid, the Affordable Care Act, and Social Security,” said Ethan Rome, executive director of Health Care for America Now, a grassroots organization that helped pass the Affordable Care Act, also known as Obamacare. “These protections are vital to the health and economic security of America’s middle class and those working their way into it. Supporters of these programs need to make clear right now that they will not agree to beneficiary cuts in the future. “
The group also insisted that any future deals must identify additional sources of government revenue. It specifically cited the need to reform the tax code to do away with corporate loopholes, a maze of deductions, and other gimmicks that deprive the government of much-needed revenue.
“This deal was only a first step toward tax fairness,” Rome said in a statement Wednesday. “We need comprehensive tax reform that makes the wealthiest Americans and corporations pay their fair share and raises revenue for investments in health care, education, and jobs.”
One of the most powerful lobbies for Social Security and Medicare, AARP, which represents older Americans, also weighed in.
“Instead of cutting benefits, Washington should be looking for responsible solutions that address the long-term challenges facing Social Security and Medicare — like reducing health care costs throughout the system, not just shifting costs onto seniors,” said Nancy LeaMond, AARP’s executive vice president.
The group is concerned about the imposition of a new system of calculating Social Security increases based on lower rates of inflation, which would have the effect of reducing the rate of growth in future benefits.
The nonpartisan Congressional Budget Office estimates that such a change could reduce federal spending by at least $220 billion over 10 years.
Matthews said Social Security will be better protected in the near term than other entitlements because the fiscal cliff deal didn’t renew a cut in payroll taxes, raising them from 4.2 percent to 6.2 percent, a step that will bring more revenue to the Social Security Trust Fund.
Some members of Congress, meanwhile, have proposed raising the eligibility for Medicare from age 65 to 67, which could reduce expenses by up to $125 billion over a decade, according to the budget office.
One unfolding line of argument to push back against such benefit cuts will be they will not achieve the needed savings.
“Congress can’t achieve the deficit reduction that it needs by changing the age of Medicare eligibility” or adjusting the way Social Security benefits are paid,” Zimmerman said.
He said reducing reimbursements to doctors and hospitals would achieve more. “So they’re going to have to look at cutting provider payments as a big part of this,” he said
But key backers in Congress said they will not give in easily to pressure to cut benefits.
“We have the most inequality of any major country on earth,” Senator Bernie Sanders, a Vermont Independent and member of the Budget Committee, said in an interview. “If we are going to protect programs that working families desperately need and create the millions of jobs our economy needs we need more revenue.”
He noted that government revenue is now 15.4 percent of gross domestic product, “the lowest in 60 years,” adding that the wealthiest Americans should be paying even more taxes, along with corporations.
But Republican leaders made clear to Obama on Wednesday that they will be fervently pressing their case.
“Now that he has the tax rates he wants, his calls for ‘balance’ mean he must join us in our efforts to achieve meaningful spending and government reform,” Senate minority leader Mitch McConnell of Kentucky said in a statement.