The Grand Bargain Fight now takes center stage

Now that President Obama has won re-election, the fight over the "fiscal cliff" and the so-called Grand Bargain will take the center of the political stage nationally.

The Grand Bargain has its own political vocabulary. Probably the most important example is "entitlement reform," which in plain American English means "cut benefits on Social Security, Medicare and Medicaid." Another near-identical buzzword is "Simpson-Bowles", which refers to the chairs of Obama's deficit-reduction commission that could get the votes among themselves to make a formal recommendation, and in the context of the Grand Bargain means "cut benefits on Social Security, Medicare and Medicaid." The Simpson-Bowles commission was also knows as the Catfood Commission, as in "let Grandma eat catfood."


Bill Black explains the only-Nixon-could-go-to-China idea of a Democratic President trying to put Social Security, Medicare and Medicaid on the road to termination: "Just as only a conservative Republican could visit 'Red' China, only a Democrat can begin the destruction of the safety net. The difference, of course, is that normalizing relations with China was a good thing while unraveling the safety net is a terrible thing." (The Great Betrayal – and the Cynicism of Calling it a Grand Bargain Naked Capitalism 10/30/2012)

What was the Grand Bargain and what has it become?

Black's comment raises the question of what Obama might hope to get as a benefit from a Democratic point of view. The concept of the Grand Bargain has evolved over the last four years, though it always included the goal of cutting benefits on Social Security, Medicare and Medicaid. Digby has been tracking the Grand Bargain at her Hullabaloo blog, e.g., The president says the Grand Bargain negotiations "won't be pleasant" 10/24/2012. She is probably the best single source for references to developing news on this spectacularly bad idea.

The original notion of the Grand Bargain was something that President-elect Obama promoted to conservative columnist David "Bobo" Brooks even before his first Inauguration. Bobo was delighted by the idea, which he described in a column called The politics of cohesion New York Times 01/21/2009:

Obama's challenge will be to translate the social repair that has occurred over the past decade into political and governing repair.

Part of that will be done with his governing style. Obama aims to realize the end-of-ideology politics that Daniel Bell and others glimpsed in the early 1960s. He sees himself as a pragmatist, an empiricist. Politics is not personal with him. He does not turn political disagreements into a status contest between one kind of person and another. He is convinced that most Americans practice their politics in the center.

Part will be accomplished with his aggressive outreach efforts. Already he has cooperated with Republicans. He has rejected the counsel of the old liberal warriors who want retribution and insularity.

But the real test will come in the realm of policy. The next few months will be occupied with the stimulus package. And anybody who is not terrified by the prospect of spending $800 billion hastily has not spent enough time studying the difference between economic textbooks and the way government actually operates.

But after that, folks in the Obama camp hope to create a Grand Bargain. That would mean building on a culture of cohesion and tackling the issues that require joint sacrifice - like reducing deficits, fixing Medicare and Social Security and reforming health care. These problems were insoluble during the era of division and distrust. In the climactic season of his presidency, the winter of 2010, Obama would seek to fundamentally restore balance to American government.

Republicans who have been howling at Obama like zombies in heat since the 2008 campaign can't admit it even if they see it, but Obama really seems to have envisioned having a "postpartisan" Presidency in which he would somehow abolish partisan divisions. The essential elements of the Grand Bargain he outlined for Bobo seemed to be that the Republicans would agree to a private-insurance-based national healthcare reform and letting the Bush tax cuts for the One Percent expire (to reduce those deficits that Bobo cares so much about but nobody else does) while the Democrats would agree to cuts in benefits on Social Security, Medicare and Medicaid ("entitlement reform" in the Grand Bargain jargon). And this would remove "ideological" disputes and leave only pragmatic, technocratic decisions to be argued over.

It's very notable also that his policy of not prosecuting even serious felonies by Bush Administration officials, not even against torture perpetrators, was an essential part of the approach Bobo described, rejecting "the counsel of the old liberal warriors who want retribution and insularity." This became known as the Look Forward Not Backward approach, which was applied as well to corporate crimes that wrecked the world financial system.

As unlikely as it seems to most people outside the Washington Beltway bubble that such a technocratic state of harmony, the ideal of neoliberal thinking, could ever be achieved, Obama was still promoting the idea in 2012 in an October interview with Joe Scarborough (Sabrina Siddiqui, Obama, In Morning Joe Interview, Predicts War Inside Republican Party If He Is Reelected Huffington Post 10/29/2012:

"There are a whole range of issues I think where we can actually bring the country together with a non-ideological agenda," Obama said in a pre-taped interview on MSNBC's "Morning Joe." ...

"I truly believe that if we can get the deficit and debt issues solved, which I believe we can get done in the lame-duck or in the immediate aftermath of the lame-duck, then that clears away a lot of the ideological underbrush," he said. "And then now we can start looking at a whole bunch of other issues that, as I said, historically have not been that ideological."

The Grand Bargain to cut benefits on Social Security, Medicare and Medicaid was never linked specifically to the "culture war" issues of abortion and white Republicans' dislike of black and brown people. But Obama also tried take the edge of those as well by pandering rhetorically to the Christian Right, conceding to women's rights opponents on elements of the abortion and birth control issues, aggressively rounding up and deporting undocumented immigrants during 2009-11, avoiding prominent advocacy for African-American civil rights, and going after medical marijuana facilities in states like California.

The debt ceiling negotiation of 2011 is a key moment in the evolution of the Grand Bargain. By then, tax reform that somehow permanently restored a major element of progressivity to the federal tax code so that the wealthy would pay a more substantial share, it had degenerated to what sounds like the opening moments of an austerity economics nightmare. Bobo himself explained in The Grand Bargain Lives! New York Times 07/21/2011:

At the last minute, two bipartisan approaches heave into view. In the Senate, the "Gang of Six" produces one Grand Bargain. Meanwhile, President Obama and John Boehner, the House speaker, have been quietly working on another. They suddenly seem close to a deal.

There's a lot you don’t know about these two Grand Bargains. But they probably have the elements that have been part of just about every recent bipartisan debt proposal: some sort of tax reform that lowers overall rates while raising revenue by closing loopholes; cuts in the level of entitlement spending without much fundamental reform; a freeze on domestic discretionary spending.

In other words, the cuts to benefits on Social Security, Medicare and Medicaid had crystallized as the key element of the deal, while the raising taxes on the wealthy part had essentially disappeared into, in Bobo doublespeak, "tax reform that lowers overall rates while raising revenue by closing loopholes," which in practice means what Obama and his campaign have been calling asking the wealthy "to pay a little more." Which means nominal concessions on taxes for the wealthiest that may result in "a little more" revenue which will be quickly changed by new loopholes or rate adjustments. The cuts in benefits to Social Security, Medicare and Medicaid will remain. Plus, we should expect that any elimination of tax breaks that primarily benefit large portions of the country, like the home mortgage deduction, will not be quickly restored.

This was the state of the deal that the Tea Party Republicans eventually rejected in 2011 because it wasn't enough austerity for their taste. But now, in characteristic Obama concede-most-everything-before-the-negotiations-start style, that sad "deal" of cutting benefits on Social Security, Medicare and Medicaid in exchange for cosmetic tax concessions from Republicans has become his starting point for the post-election Grand Bargain drive. As Bobo once again reports (The Upside of Opportunism New York Times 10/29/2012): "Obama said he would try to recreate the Obama-Boehner budget deal of two summers ago, with $2.50 of spending cuts for every $1 in tax increases." A deal which, though Bobo delicately neglects to mention it, included cuts to benefits for Social Security, Medicare and Medicaid. He was referring to Obama's interview with the Des Moines Register in which he discussed his post-re-election plans. (After editor's blog, President Obama releases transcript of Register interview Des Moines Register 10/24/2012), in which the President says:

In the short term, the good news is that there’s going to be a forcing mechanism to deal with what is the central ideological argument in Washington right now, and that is: How much government do we have and how do we pay for it?

So when you combine the Bush tax cuts expiring, the sequester in place, the commitment of both myself and my opponent -- at least Governor Romney claims that he wants to reduce the deficit -- but we're going to be in a position where I believe in the first six months we are going to solve that big piece of business.

It will probably be messy. It won't be pleasant. But I am absolutely confident that we can get what is the equivalent of the grand bargain that essentially I've been offering to the Republicans for a very long time, which is $2.50 worth of cuts for every dollar in spending, and work to reduce the costs of our health care programs.

And we can easily meet -- "easily" is the wrong word -- we can credibly meet the target that the Bowles-Simpson Commission established of $4 trillion in deficit reduction, and even more in the out-years, and we can stabilize our deficit-to-GDP ratio in a way that is really going to be a good foundation for long-term growth. Now, once we get that done, that takes a huge piece of business off the table. [my emphasis]

He even seems to be separating most of the tax agreements that were in 2009 an key part of the Grand Bargain concept and hoping to do that in a nice, postpartisan, non-ideological sort of way, adding later in the interview, "Now we're in a position where we can start on some things that really historically have not been ideological. We can start looking at a serious corporate tax reform agenda that's revenue-neutral but lowers rates and broadens the base -- something that both Republicans and Democrats have expressed an interest in." (my emphasis) When has the issue of corporate tax rates ever "not been ideological"?

And it's important to remember, this is Obama's starting point for the negotiations!

Debt ceiling - a phony excuse for the Grand Bargain in 2011, and still a phony excuse

The immediate pressure of hitting a debt ceiling is fake. The Obama Administration has the authority now without further authorization from Congress to create additional funding to keep paying the national debt. The idea that hitting the debt ceiling would force a default on the debt is bogus, a bluff that the Obama Administration has also been using to enact the Grand Bargain. Devin Smith explains (A Counter Narrative to Peterson’s New Economic Perspectives 10/30/2012)

The US Government has the Constitutional Authority to create an unlimited amount of money provided Congress appropriates the spending, and places no constraints on spending, such as a need to issue debt instruments when the Government deficit spends, or debt ceiling limits. So, all constraints on spending appropriations are purely voluntary in the sense that they are due to Congressional mandates that Congress can repeal at any time, and not to financial limits inherent in the Government’s authority.

Having said that, the constraints mentioned are now in place, and, so, it’s important to emphasize that even with them, and without legislative changes, the Executive can always create enough money to pay for whatever spending Congress has appropriated and also repay debt, so that even with a Congress willfully maneuvering for default, or brandishing the threat of it, the Executive can still ensure that the Government doesn’t run out of money even without more taxing and borrowing, because the Executive can use the option of Proof Platinum Coin Seigniorage (PPCS) as one method of getting around the debt ceiling. Originally suggested by Beowulf some time ago, there are any number of PPCS options the President can use to generate coin seigniorage profits to use for a variety of purposes. I’ve outlined some of them here. Some PPCS options stop with $1/2 Trillion coins, some go over $1 Trillion up to $5 Trillion, and still others envision very high face value coins ranging to $60 Trillion and up.

The three main targets of the Grand Bargain are the benefits being paid on Social Security, Medicare and Medicaid.

Medicaid

Medicaid is conventionally considered more politically vulnerable than Social Security or Medicare, because white Republicans are more likely to see Medicaid as a program that benefits a lot of black people and is therefore something to be done away with. Or, if we want to be more diplomatic and not suggest that white racism might play a role in American politics, we could say that Republicans voters tend to see Medicaid as a program that benefits Mitt Romney's 47% of moochers who don't pay federal income tax and who Mitt could never hope to persuade to take responsibility for their lives.

But even some of those respectable white Republicans may be surprised at how they could wind up being affected by Medicaid cuts. Bill Clinton gave a quick summary at this year's Democratic National Convention attacking Medicaid cuts the Republicans had proposed: "Of course, that will hurt poor kids, but that’s not all. Almost two-thirds of Medicaid is spent on nursing home care for seniors and on people with disabilities, including kids from middle class families, with special needs like, Downs syndrome or Autism. I don't know how those families are going to deal with it."

Paul Krugman gives a concise description of Medicaid's vital nature in Medicaid on the Ballot New York Times 10/28/2012 and refutes the claim that Medicaid has "'runaway' costs."

... while Medicaid is generally viewed as health care for the nonelderly poor, that’s only part of the story. And focusing solely on who Medicaid covers can obscure an equally important fact: Medicaid has been more successful at controlling costs than any other major part of the nation’s health care system.

So, about coverage: most Medicaid beneficiaries are indeed relatively young (because older people are covered by Medicare) and relatively poor (because eligibility for Medicaid, unlike Medicare, is determined by need). But more than nine million Americans benefit from both Medicare and Medicaid, and elderly or disabled beneficiaries account for the majority of Medicaid’s costs. And contrary to what you may have heard, the great majority of Medicaid beneficiaries are in working families.

For those who get coverage through the program, Medicaid is a much-needed form of financial aid. It is also, quite literally, a lifesaver. Mr. Romney has said that a lack of health insurance doesn't kill people in America; oh yes, it does, and states that expand Medicaid coverage show striking drops in mortality.

Families USA has a Medicaid Defense Center webpage that provides information on Medicaid and on attempts by Medicaid opponents to cut benefits.

Edwin Park and Matt Broaddus in this report for the Center on Budget and Policy Priorities (CEPR), Medicaid Per Capita Cap Would Shift Costs to States and Place Low-Income Beneficiaries At Risk 10/04/2012, discuss one scheme to cut Medicaid benefits and its negative effects.

Cutting Medicaid benefits is a really, really bad idea.

Social Security

Since Social Security is widely recognized and understood by most people in the US as an essential element of retirement security and of middle class life in general.

One of the things to watch out for in the Grand Bargain with Social Security is further raising the retirement age, which due to compromise plan during the Reagan Administration is already rising from age 65 to 67. Every increase in the retirement age is a benefits cut.

The other major option, probably more likely than an eligibility age change in this round of attacks on Social Security goes by the name of "chained CPI." It incorporates an assumption that the older one gets, the less inflation adjustment is required. This is also a very significant benefits reduction. Since women tend to live longer than men, it will hit elderly women additional hard.

Social Security Works is a good web resource on the defense of the Social Security program.

Cutting Social Security benefits is a really, really bad idea.

Medicare

The American Association of Retired People (AARP) has a news and resource page for Medicare. (AARP sells Medicare supplemental health insurance; we have to keep in mind that this could affect AARP's perspective on Medicare benefits proposals.) This article from last spring gives a summary of how proposed changes could affect people's lives: Patricia Barry, What’s in Store for Medicare? Pros and cons of current proposals to change it AARP Bulletin 06/062012.

Raising the eligibility age is a favorite idea of Medicare opponents. Barry explains, "This proposal would increase other health care spending — especially costs for employer health plans and Medicaid — and uninsured people would pay full costs for a longer time. Medicare premiums would rise due to fewer people in the program to share costs."

In addition, it would effectively force people who could otherwise retire to work longer to keep their employer-provided health insurance. It could also make people postpone getting care for major condition - and by 65, most people have some significant health condition that requires some type of continual care - until they can get Medicare. Obamacare would reduce the seriousness of the latter problem but won't eliminate it. People who don't have employer-provided health insurance could wind up paying significant premiums for policies with high deductibles. And to the extent that Medicaid benefits are cut back at the same time, that would exacerbate the problem.

For a number of years now, health care economists have been projecting an unsustainable increase in the cost of health care, which often affects Medicare. It's important to remember that even if that is the case, cutting Medicare benefits will not control overall health care costs in the US economy. Medicare cost issues are a function of the larger rise in health care costs, not vice versa.

However, even that assumption of rising health care costs, which Medicare opponents use narrowly to argue for cutting benefits or abolishing Medicare altogether, is now coming into question.Dean Baker explains in Is the Budget "Crisis" History? Truthout 10/29/2012:

However, it now looks like health care costs may not be following the path assumed by the CBO and other official forecasters. The GDP data for the third quarter released last week showed that real spending on health care fell for the second consecutive quarter and that nominal spending grew at just a 0.5 percent annual rate.

In fact, the rate of growth of health care spending has been remarkably muted for several years. Nominal spending on health care services has risen by just 4.5 percent over the last year and a half. This compares to an 11 percent increase in overall consumption spending during the same period. Spending had been projected to grow at nearly twice this rate.

While it is still too early to draw definitive conclusions, it seems that health care costs in the United States may actually be stabilizing. If this pattern continues, then we won't have a long-term deficit problem. If our health care costs were in line with those in other countries, we would be looking at projections of long-term budget surpluses.

The Center for Medicare Advocacy (CMA) is a web resource for information on the program and attempts to cut it.

Cutting Medicare benefits is a really, really bad idea.

Tags: grand bargain, medicaid, medicare, social security

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