President Obama and House Speaker John Boehner are far from an agreement on taxing and spending to avoid the overhyped fiscal cliff in 10 days. Boehner couldn’t even convince his hardliners to support his so-called Plan B, which called for modest tax increases for millionaires, so he pulled his proposal Thursday night.
From the vague reports of a possible deal at month’s end, it would hit Arkansans plenty hard enough. God save us from something worse. It would alter the inflation index for Social Security to cut the pensions of Arkansas’ 650,000 retirees and disabled by roughly 3 percent over 10 years. Medicare would take a far bigger hit, and the question seems to be whether providers like hospitals, home healthcare services and physician specialists will bear most of the sacrifice as the president insists or the patients absorb it as the Republicans insist. Farm support, which agriculture says is the lifeblood of the east Arkansas economy, almost certainly will be slashed drastically. So will economic development and infrastructure aid for airports, highways and streets.
The fiscal cliff and the “debt crisis,” which are the reasons for cliffhanging negotiations between the leaders of the two parties, are manufactured emergencies. The large deficits and big debt growth since 2008 are the products mostly of the financial crisis of that year and the lingering economic malaise, which has sapped revenues and expanded relief payments like unemployment, food stamps and Medicaid.
Those were added to the structural deficit of $600 billion a year from the Bush tax cuts and a near quadrupling of military spending in the Bush years. Restoration of pre-recession economic growth and of the Clinton-era tax rates on the highest incomes (3,000 or fewer in Arkansas), along with a reduction in military outlays as the Afghan war withers away will bring the deficit down to the level of Ronald Reagan’s first year. The deficit has already come down by almost $400 billion since its peak in the last Bush budget and this year will be well below the dreaded trillion-dollar stage.
But the political crisis is as real as the fiscal emergency is not, and the president must deal with the reality of it. There must be large spending cuts or else the House majority will take the country over the cliff and probably into another recession, and those cuts must hurt ordinary Americans and not merely the rich, defense contractors and prosperous business.
Social Security should have been off the table because it is solvent for another 25 years and with a simple adjustment in the income limit subject to old-age and disability taxes it would be solvent far into the unseen future. But Obama, apparently sensing the reality of his predicament, reportedly agreed to try to persuade his party to accept a weaker inflation formula long suggested by Republicans.
Instead of using the consumer-price index (CPI) as the basis of annual inflation adjustments in pensions, Social Security would use a “chained CPI,” which calculates a lower inflation impact on the elderly on the theory that old and disabled people will not stop buying products and services when their prices go up but merely find cheaper ones—Kroger green beans rather than Del Monte—thus justifying a smaller pension than the inflation rate calls for.
Others, like the American Association for Retired Persons, say the CPI already eats away at the pension’s purchasing power because, even with Medicare, the elderly and disabled spend more of their income on medical services and drugs than do other people. Medical inflation is higher than everything.
Democrats will rebel at Obama’s cave-in, but he probably can bring enough of them along to get the deed done. For sure, Republicans in the House will stick together to see that the aged and infirm take a good solid hit. All of Arkansas’ GOP delegation is on board.
Health-care spending across the board—not merely Medicare, Medicaid and VA—is the chief driving force for domestic deficits and the declining spending power of most Americans, but Medicare must take steps to slow its spending growth. Obama has said again that raising the eligibility to 67 or higher is not an option. That would be not only intolerable but also irrational. The Medicare savings would simply be shifted to the rest of the health-care economy, including employer and individual insurance and the government. While longevity has improved the past 50 years, the point of fatigue for most of the labor force has not lengthened.
As for how the real Medicare cuts are made, let us hope that our delegates tell their party leaders—none of them are in the leadership ranks themselves and never will be—to stand with the recipients who have paid their old-age health insurance. That’s all we can hope for.
