Feeding the Beast


Hey! I kinda sorta agree with Charles Krauthammer today. How about that? Here he is talking about Obama’s big accomplishments so far (the stimulus, healthcare reform, and financial reform) and what they mean for long-term deficit control:

As everyone from Obama on down admits, the real money is in entitlements, most specifically Medicare and Medicaid. But Obamacare freezes these out as a source of debt reduction. Obamacare’s $500 billion in Medicare cuts and $600 billion in tax increases are siphoned away for a new entitlement — and no longer available for deficit reduction.

The result? There just isn’t enough to cut elsewhere to prevent national insolvency. That will require massive tax increases — most likely a European-style value-added tax. Just as President Ronald Reagan cut taxes to starve the federal government and prevent massive growth in spending, Obama’s wild spending — and quarantining health-care costs from providing possible relief — will necessitate huge tax increases.

The net effect of 18 months of Obamaism will be to undo much of Reaganism. Both presidencies were highly ideological, grandly ambitious and often underappreciated by their own side. In his early years, Reagan was bitterly attacked from his right. (Typical Washington Post headline: “For Reagan and the New Right, the Honeymoon Is Over” — and that was six months into his presidency!) Obama is attacked from his left for insufficient zeal on gay rights, immigration reform, closing Guantanamo — the list is long. The critics don’t understand the big picture. Obama’s transformational agenda is a play in two acts.

As it happens, the healthcare reform bill makes only small changes to both funding and spending on Medicare. Its long-term needs haven’t actually changed all that much. But it is true that Obamacare plucked some of the lowest hanging fruit, which means that further cuts will be tougher and tougher. My take is that major cuts in Medicare were never likely, but it’s true that the passage of healthcare reform makes them less likely still.

As for a VAT — well, maybe. There are other alternatives, like a serious carbon tax, which would kill two birds with one stone (raise money, cut carbon emissions). But Krauthammer is right that, one way or another, the die is even more firmly cast now than it was a few years ago. Americans really don’t want big cuts in entitlement programs, and eventually that’s going to mean tax increases of some kind. My guess is that it will happen under a Republican president after the 2016 election.

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