Are the Republicans Up to It?

If the Republicans gain ground in the next election, are they up to the task of reforming entitlements in the face of massive baby-boomer retirements?

The Wall Street Journal and Grover Norquist, leaders in supply-side tax-cutting for many years, have castigated any kind of bipartisan commission to address our structural deficits as being a wolf in sheep’s clothing, i.e., a thinly disguised attempt to enact tax increases under the cover of deficit reduction. In the original legislative proposal, similar to previous efforts to close military bases at the end of the Cold War, Congress would be permitted only an up-or-down vote on the entire package without amendment. It would probably include a mix of tax increases, spending cuts and, pray Lord, reforms of entitlements such as Social Security, Medicare and Medicaid.

Critics of the commission gambit effectively burned the Republicans’ ships behind them, forcing them to pursue only spending and tax cuts as well as entitlement reform, as the means of restoring America’s fiscal integrity. Half a dozen GOP senators, who originally supported the idea, abandoned the legislative attempt to empower such a commission.

The tension underlying our present predicament is illustrated by the alternative visions of optimistic and pessimistic supply-siders in the debate on the right side of the political spectrum.

A huge optimist, Congressman Paul Ryan (R-WI) has proposed a complete package of financial reforms and tax cuts which even the Congressional Budget Office (CBO) has scored as being deficit-neutral.

His is an impressive proposal which was praised by the no-nonsense economics journalist, Robert Samuelson, as a valuable contribution to the debate. It is a package I could vote for. However, given its substantial reduction in benefits and a reliance on vouchers to deliver benefits, it is noteworthy that very few Republican officials have publicly endorsed his proposals, at least during this election year.

Ryan considers himself a second-generation supply-sider who believes that spending reduction has to be part of any serious attempt to deal with the nation’s present plight. This is an encouraging trend. Peggy Noonan recently observed that you don’t hear many Republicans saying that deficits don’t matter anymore.

The pessimistic school of supply-siders is represented by Bruce Bartlett, former staffer for Jack Kemp and a highly regarded economist, whose recent book was reviewed, fairly but critically, for TAS by Philip Klein. Bartlett has zero confidence that the GOP will do anything significant to reduce spending, especially middle-class subsidies, i.e., entitlements. Reviewing the record of George W. Bush and the House Republicans, when they were in charge, he sees ample evidence to the contrary.

Moreover, as Ross Douthat has noted, much of the Republican critique of Obamacare has been of the reduction of benefits for seniors. Notwithstanding the flawed nature of the entire health care legislation, this is hardly a sign that the GOP is willing to pursue such cuts if they get into power. The prospect of senior citizens continuing to tax young workers and families into the ground is very likely, a pessimist might say, no matter what party is in power.

For Bartlett the question isn’t whether or not taxes will be raised. Rather, the fundamental issue is which taxes will be raised. He prefers that future taxes be placed on consumption rather than on income or production, which is orthodox supply-side thinking. He fears that, unless solid alternatives are offered, Congress will be inclined to raise marginal tax rates, capital gains and other incentive-killing taxes. His preferred approach is to adopt a European-style value-added tax. He argues that EU countries actually treat corporations better than does the American system. We already have one of the highest rates for corporate income taxes in the developed world.

So this is the fault line on debt, entitlement, taxes and spending. Assessing the efficacy of both the optimistic and pessimistic schools of thought requires assessing the character of the American people. Will they accept spending and entitlement reductions as much as tax cuts? Will they shoulder more of the burden for their own retirements and health care in return for retaining a greater share of their earnings and control over their own lives?

When was the last time a middle-class entitlement has ever been rolled back?

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