House Majority Leader Eric Cantor has created a Power Point presentation about Bowles-Simpson, the recommendations of the two leaders of the deficit commission. And this offers a window into Tea Party preferences for the fiscal slope and deficit deals. This is actually the key swing bloc in Congress; with President Obama on board with a grand bargain, and able to sway Democrats to his side, whether or not the deal happens could depend on whether Tea Party House Republicans get behind it. And so this Power Point provides some advance notice of the preoccupations of that bloc, as represented by Cantor, who has courted the Tea Party caucus since they took over Congress, contrasting himself with the dealmaking of John Boehner.
It actually starts off promising. Cantor correctly explains that our deficit problem is essentially a health care problem. “Health care costs are the primary driver of debt,” the Power Point reads. And Cantor explains, “It doesn’t matter what we do with defense spending, Social Security or other government programs,” because without restraining government health care costs, “we will have failed to get the deficit under control.”
I agree, and I think this is a point we can go back to again and again and again. Cantor’s own words nullify any need to drastically restructure Social Security, and the futility of wasting time on programs not essential to the deficit issue, like PBS or Planned Parenthood. I don’t totally agree about defense spending, but this is a gift from Eric Cantor that undermines the fiscal scold narrative about “runaway spending.”
Cantor also says that “economic growth matters a lot,” that the deficit shrinks in an environment of full employment, relative to a more moderate growth path. That’s absolutely true as well. “We must take into consideration what any plan does with regard to economic growth,” Cantor says. So far he’s on target.
But here’s what the National Journal correctly pegs as the key issue raised by Cantor’s Power Point:
Essentially, Cantor likes some parts of the plan that include proposals related to lower tax rates, federal retirement and reforming Social Security. But he has major beef with large portions, including the assumption that Bush-era tax cuts won’t be extended for couples making more than $250,000 annually.
So here’s what’s critical about that. Cantor wants a lower-the-rates, broaden-the-base strategy on taxes, the same strategy that Chuck Schumer has tried to stall. But he is well aware of the baseline issue.
See, Bowles-Simpson, in a bid to capture more money toward deficit reduction, assumed in their baseline that the Bush tax cuts above $250,000 would expire. That gave them another $850 billion to work with. But Republicans oppose this, instead preferring to extend all the current tax rates and make that the baseline policy. This is a significant difference, representing the starting line from which tax reform takes off. And what Cantor is saying here is that he’s not fooled. He won’t support Bowles-Simpson-like tax reform unless the full Bush-era tax cuts get extended, calling the baseline shift a “hidden tax increase” of $983 billion. He cites an Ernst and Young report showing the loss of 710,000 jobs as a result.
In addition, Cantor doesn’t like that Bowles-Simpson contains no major health care reforms for Medicare and Medicaid, and that it maintains Obamacare, the so-called “new health care entitlement.” This is a fundamental fact that goes overlooked. Bowles-Simpson is supposed to be this serious effort to tackle the debt problem. But it ignores the MAJOR DRIVER OF DEBT, health care spending. It essentially sets a growth path for health care programs at the rate of GDP plus 0.5%, similar to the Ryan premium support plan and Obama’s Independent Payment Advisory Board. But even unlike the Ryan and Obama plans, Bowles-Simpson offers no path to get to that rate of health care cost growth. It sort of waves at IPAB, but mainly it just says “get it done.” This makes Bowles-Simpson a ridiculous, magic-fairy-dust kind of deficit plan.
Cantor is right that the long-term debt problem is a health care cost problem. He even offers the two primary ways to restrain it: restricting (I would call it “bargaining”) how much you pay to health care providers, or “empower and incentivize individuals” to make decisions that control costs, i.e. turn people into “good health care shoppers.” There’s only one proven technique that has worked in every other country in the world to control health care costs, and that’s the former: bargaining as a single payer on payments to providers.
And so Cantor basically wants to throw out all of Bowles-Simpson except for the lower overall tax rates, Social Security changes and federal pension reforms. It really is mostly about tax cuts for rich people, and Cantor admits it.
Getting this back to the tax issue, this will bedevil efforts at a deal. Cantor is onto the baseline games, and he and his compatriots in the Tea Party don’t want to see any tax increase whatsoever on anyone. When the Bush tax rates expire at the end of the year, maybe this conversation changes. But Cantor calling out Bowles-Simpson on the baseline games suggests that he will view a tax increase very narrowly. Even a tax cut bill that doesn’t restore all the Bush-era tax rates will be called a tax increase by Cantor. And that makes a deal virtually impossible.