Medicare reform

What Sort of Entitlement Reform Would Republicans Trade for Higher Tax Rates?

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The Washington Post reports that "a growing chorus" of Republicans have urged GOP leaders in the House to accept higher tax rates on high earners — provided that they are paired with some form of entitlment reform.

The idea, the piece explains, is to use the leverage created by the fiscal cliff and the expiration of the Bush-era income tax cuts, to negotiate for changes that would hold down spending in our ever-more-expensive entitlement system:

Many GOP centrists and some conservatives are calling on House Speaker John A. Boehner (R-Ohio) to concede on rates now, while he still has some leverage to demand something in return. Republicans are eager to win changes to fast-growing safety-net programs, such as raising the eligibility age for Medicare and applying a less-generous measure of inflation to Social Security benefits.

After Dec. 31, tax rates for most Americans, including the wealthy, are set to automatically rise, and this could cost Republicans a key bargaining chip in winning changes to entitlements.

So what sort of trade would this chorus of Republicans consider? It's somewhat difficult to tell from the GOP officials quoted in the piece:

"I and some others are advocating giving the president what he wants," said Rep. Steven C. LaTourette (R-Ohio). But he stressed that this must be part of a package that slows federal borrowing and reduces the debt by $4 trillion to $5 trillion.

"Quite frankly, some people in this 2 percent who call me, they're more worried about the fiscal cliff than about the rates going up a couple points. That has bigger risk for them," said LaTourette, a close Boehner ally who is retiring in January.

Rep. Thomas J. Rooney (R-Fla.) added: "If there are truly real entitlement reforms that are going to preserve Social Security and Medicare for generations to come, it's going to be very difficult for me to oppose" higher rates for the rich.

"Truly real entitlement reforms" are better than probably imaginary entitlement reforms, I guess. But what would count as "truly real?" The report suggests that raising Medicare's retirement age might be a possibility, but doesn't mention any other big changes to Medicare, the single biggest long-term driver of the debt. Raising the retirement age is a good idea, but it wouldn't save that much money. The Congressional Budget Office says it would save about $125 billion over the next decade. That's something, but in the context of $1 trillion deficits and $16 trillion and debt, it's hardly a debt-reduction game changer. Medicare itself is on track to spend roughly $1 trillion a year by the next decade. Yes, there would be bigger savings down the road, but even then the impact of raising Medicare eligibility age is fairly limited because the highest cost beneficiaries are the oldest. Raising the retirement sounds drastic and therefore serious to some because it affects a lot of people over the long term. But fiscally, removing the youngest and healthiest age cohort from the system is small potatoes, and probably shouldn't qualify as a "truly real entitlement reform."