Why Chris Christie Is Right to Take an Ax to Entitlements
Chris Christie didn't just grab the third rail of American politics this week; he basically threw himself on it in what looks like the opening gambit of a potential run at the 2016 Republican presidential nomination.
The New Jersey governor, who isn't shy about slaughtering sacred cows (taking on public pensions and public school tenure, for instance), proposed cuts to federal entitlement programs including Social Security, Medicare and Medicaid as a way to address the country's long-term fiscal challenges and ensure the solvency of these foundations of the social safety net.
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You can review his proposals in a nice summary from the folks at the Committee for a Responsible Federal Budget here.
Cue the outrage, including this piece by Michael Hiltzik at the Los Angeles Times in which he nonsensically argues that Christie wants to "torch" the programs with cuts that wouldn't actually save much money. Will his proposals undermine these programs and thus save money? Or are they ineffective? They can't be both.
An analysis by the CRFB shows Christie's proposals would save taxpayers about $1.1 trillion over 10 years and trim Social Security's 75-year funding shortfall by about 60 percent. Moreover, the cuts won't be as painful and debilitating as the demagogues say.
Christie is right to call out the problems and inefficiencies in these programs. He’s showing a bravery that's all too rare in elected officials by telling voters that tough choices lie ahead and promises have been made that cannot be kept. Plato warned of this in the Republic: that democracy would devolve into a lust for largesse from the public purse. And that's exactly what's happened.
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Let me clear the air by saying that these programs are important. My grandfather, who never finished middle school but went to pick melons in Texas, build cars in California and bend steel in Washington so could help his father and raise a family of four, relies on these programs to mend his broken body and put food on the table. My sister, in her senior year of college, needed the help of Medicare to fund a kidney transplant after suffering renal failure. I've been personally touched by the generous spirit of the American people.
Yet there is room for efficiencies to be found. A dialogue must be started. Many simply don't need the help, especially wealthy retirees. Maximizing the social utility of monies spent means payouts should be means-tested, as Christie suggests.
The rentiers must be rejected, especially in the health care industry, where costs are too high and deliver too little in terms of quality of care. A 2014 update to a study by The Commonwealth Fund ranked the U.S. system dead last in a competition with 10 other developed nations.
Again, Christie suggests action here, bringing the power of the free market to bear by encouraging consumers to shop for the best service at the lowest cost. His plan would enact modest cost-sharing ideas first proposed by President Obama's Simpson-Bowles fiscal commission in 2010.
There is fat for the ax to cut; not muscle and bone.
To those that believe Social Security and Medicare payouts are merely the return of "hard earned money" put in and that benefits thus can't fairly be cut: You're dead wrong.
Many are set to collect a dollar for every 60 cents they put in. The difference is paid by young taxpayers, many of whom are raising kids and trying to get their lives established in an era of stagnant wages and inflated asset prices. The Urban Institute shows that retirees are currently set to get out much more than they put into these programs, even after accounting for a 2 percent inflation-adjusted annual return on investment. To illustrate, an average two-income 55-year-old couple is expected to pull in more than $1 million in lifetime benefits from Social Security and Medicare after paying in $628,000 in lifetime taxes.
The imbalance comes largely from health care spending, which is simply growing at an unsustainable pace. In his speech unveiling his proposals, Christie highlighted that the Medicare and Medicaid programs "are nine times as big as they were 25 years ago and the U.S. economy is only three times as big."
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Something must be done since the Congressional Budget Office estimates that spending on entitlement programs will push the national debt from a post-World War II record of 74 percent of GDP in 2014 — or nearly $57,000 for every man, woman and child in this country — to more than 100 percent in the next 25 years. Simply ignoring the inefficiencies and funding issues in play is morally irresponsible. It's generational thievery. It's cowardly. And it's the kind of payout by vote — since seniors are such a formidable electoral force — that Plato predicted.
What about the easy out of jacking up taxes? Remember that government tax revenue is already expected to grow to near post-war highs above 19 percent of GDP as soon as 2017, as shown in the chart above using data from the Tax Policy Center. That's not a real solution. It's a copout.
Focusing entitlements on those who need it most and making U.S. health care more efficient by harnessing the power of the free market will be a hard sell for Christie or anyone else with pluck to bring it up. But it's the right thing to do.
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