In a few weeks, President Trump will address a joint session of Congress. He is expected to offer up his thoughts on taxes and spending, and while the markets have rallied since his election on the expectation of major tax reform, the question on everyone’s mind is, will he also take the opportunity to acknowledge the possibility of serious entitlement reform?
Despite campaign rhetoric indicating his opposition to such efforts, recent signs indicate a growing recognition on his part that such spending reforms would be not only good, but also necessary. If he can find a way to use his legendary deal-making skills to bring polarized political elites together to fashion a long-term reform of our major entitlement programs, he could go down as one of the greats.
Trump promised on the campaign trail to balance the federal budget, and spoke glowingly of a version of the Penny Plan - a simple plan to balance the budget in five years by reducing spending by just one penny out of every federal dollar spent. In Trump’s version, discretionary spending on defense, and entitlement spending, would be left alone; the cuts would come from domestic discretionary programs.
Meanwhile, he simultaneously promised not to touch Social Security and Medicare. Given that the three major entitlement programs - Social Security, Medicare, and Medicaid - now account for more than 60 percent of federal spending, balancing the budget without reforming entitlement spending is a difficult, if not impossible, task.
Of course, in promising not to touch the entitlement programs, he thought he was making the smart play politically - seniors vote, and history shows they tend to be hard of hearing on the subject. When someone in their vicinity says “entitlement reform,” they apparently tend to hear “benefit cut,” and they act accordingly. By promising not to touch either program, candidate Trump was playing defense against the standard Democrat charge that Republicans want to “take away” Social Security and Medicare. And it worked - exit polls showed Trump carried the senior vote by a seven-point margin, 52-45 percent.
The problem is, not touching Social Security and Medicare doesn’t actually save either program; it merely guarantees their impending bankruptcy. The 2016 Annual Report of the Social Security and Medicare Boards of Trustees projects that the Social Security trust funds will be depleted in 2034, and the Medicare trust funds will be depleted in 2028; the nonpartisan Congressional Budget Office projects insolvency for the two programs even sooner, in 2029 and 2025, respectively. So not touching either program means benefits will be cut, because there will be no money left in the trust funds in just a few short years.
The need to reform the triumvirate of entitlement programs should come as no surprise to President Trump, whose experience and background in the business world have surely provided ample proof that the best way to save - and even improve - a faltering program or venture is often to make tough decisions and necessary reforms. Businessman Trump will be an excellent instructor to President Trump here.
But what are the odds benefits will be cut for current beneficiaries? Virtually zero. Their political clout is simply too great. Which means a major tax hike will be imposed on the rest of the country, to keep Social Security and Medicare from cutting benefits. That major tax hike - in reality, an income transfer from younger, poorer taxpayers to older, wealthier taxpayers - wouldn’t just be morally troubling, it would be economically harmful, slowing the engine of growth further.
The President’s choice for Director of the Office of Management and Budget, Congressman Mick Mulvaney of South Carolina, recognizes this. His record since coming to the House in the tea party wave election of 2010 shows that he understands the dangers of unchecked federal spending, and is determined to do what he can to get it under control. He was one of the authors of the “Cut, Cap and Balance” approach to reining in federal spending, and - even though his state is home to a major Boeing plant - he opposed reauthorizing the Export-Import Bank. Similarly, even though his state is home to key military installations, and has a veteran-heavy population, he has voted to restrain defense spending, and even authored in 2013 a successful amendment to cut the Pentagon’s budget.
In other words, if you were looking to reform entitlement spending, Mulvaney is the man you’d want heading up OMB for President Trump.
But, still, there’s a hitch - how to square the circle between candidate Trump’s campaign rhetoric, and President Trump’s entitlement reality?
Congressman Mark Meadows, Chairman of the House Freedom Caucus, suggests an out, based on his recent conversations with the President. Reported The Hill: “Meadows said entitlement reform that could cut benefits for younger workers is possible with Trump in office.”
“The reform that I’ve looked at is really doing exactly what he says: keeping the benefits for those seniors and those who are about to retire in place and intact, and then modifying entitlements over time and making those reforms as it hits the generations to come,” Meadows said.
Conservatives have been waiting for more than a decade for unified GOP control of the executive and legislative branches. They know Democrats will never bite the bullet and attack entitlement reform on their own, even to save the two greatest legislative legacies of FDR and LBJ; no, it is up to the Republicans to act as the adults in the room.
The stage is set for President Trump to lead the effort toward a fundamental restructuring of federal tax and spending policy. He’s well known for his negotiating skills. His history shows a supreme confidence in his ability to get his negotiating partner to understand why doing what Trump wants him to do is in his interest to do.
It took another great dealmaker, Ronald Reagan, to find a way to work with Tip O’Neill more than 30 years ago to save Social Security for another generation; if Trump truly wants to reach for the brass ring of history, taking aim at serious entitlement reform is his best chance of reaching it.