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Eventually a Bargain on Medicare -- Grand or Otherwise

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The Republicans may not deserve it, but the President still wants one and has the leverage to get a grand bargain including Medicare spending reductions on favorable terms.

Every economy needs at least three things: 1) to be moving forward, 2) to be in harmony with the people's values, and 3) to be sustainable over the long term. These three needs are in tension and pursuing all of them at once often requires some balancing to achieve a healthy economy. This is why the two recent presidents with the best reputations for managing the economy were a Republican who greatly expanded the national debt, Ronald Reagan; and a Democrat who ended his term with a balanced budget, William Clinton. Both had to bargain with opposition control of Congress.

Democrats traditionally put most of their attention on 1) keeping the economy moving forward; while Republicans tend to emphasize 3) unsustainable levels of taxation, spending, borrowing, and debt. The battle is then for 2) the public's support. When the level of debt rises so high that typical Americans become uncomfortable, the balance shifts to the GOP as happened in the 2010 election. Democratic economists (most economists are Democrats) would say voters are wrong to be so concerned about debt, because they are misinformed by the analogy to the family check-book in their understanding of macro-economics. Democratic pollsters, on the other hand, would not deny that voters were concerned about the national debt in 2010 and remain so today.

The outcome of the 2012 election was less a case of Democrats refocusing the public's concern on the need for economic stimulus than it was a case of Republicans abdicating the middle ground -- allowing President Obama and other Democrats a chance to articulate an economic message based on the concept of "balance." Against staunch and vocal opposition to compromise coming from Republicans, Democrats have been offering a balance between economic stimulus in the short term and efforts to reduce the debt over the longer term; as well as a balance between spending cuts and tax increases to get through a series of manufactured showdowns.

Mixed Medicare Messages

There are more than enough reasons for most Democrats to dismiss the current Republican talking points on Medicare. Republicans quite recently lost a national election after putting their most prominent proponent of Medicare cuts, Paul Ryan, on the ticket as the Vice Presidential nominee. At the same time they were spending millions on advertisements attacking Obama for cutting Medicare. Despite this mixed message, or more likely at least in part due to it, Republicans lost 11 of the 12 purple states in the Presidential election along with most of the contested Senate races, and the popular vote for Congress, proving perhaps, that voters were not as outraged by Obama's "$716 billion in Medicare cuts to fund Obama-Care" nor as inspired by the Ryan budget's $716 billion in Medicare cuts as Republicans had hoped.

The Republican problem on Medicare echoes their larger problem on all budget issues although the dollar values are multiplied. Cuts in "government spending" in general are popular, but cuts in specific categories of spending are quite unpopular - even if a new consensus is emerging to cut defense spending. A recent Kaiser Family Foundation/Robert Wood Johnson Foundation/Harvard School of Public Health survey finds a robust 58% majority opposing Medicare cuts in a result that is typical of polling on the issue. So the Republican call on Obama to prove he has a balanced approach and "lead" by specifying his proposals for Medicare cuts amount to an attempt to get him to take the blame for the policies they see as crucial for America's fiscal health but are unwilling to specify themselves. Most Democrats are simply going to view this as a tactic that is unlikely to succeed.

But to the dismay of many liberals, Obama seems likely to take this bait - eventually. He signaled as much in his State of the Union address when he said, "The biggest driver of our long-term debt is the rising cost of health care for an aging population, and those of us who care deeply about programs like Medicare must embrace the need for modest reforms -- otherwise, our retirement programs will crowd out the investments we need for our children, and jeopardize the promise of a secure retirement for future generations." There were no specifics offered as he called for nothing stronger than "modest reforms" but the President was preaching to his fellow Democrats and making the case for reductions because he still wants a bargain on Medicare.

The President knows he has the upper hand in a series of budgetary deadlines arriving in March and April. The "sequester," the need to raise the debt ceiling, and the need to pass a new budget all find the Republicans wanting to make threats that would lead to disasters of their own making, from which we can almost certainly expect to see retreats followed by postponements followed by more retreats. Obama earned this advantage through acrimonious battles and an arduous but victorious campaign.

For these reasons, Obama can be forgiven for pressing his advantage and watching his opposition squirm and likely split for a period of a few months. But sometime near the start or toward the end of this summer we expect to see a new overture toward a bargain over the remaining unresolved issues that would put the Medicare reforms the President mentioned, and probably a major overhaul of the tax system, and perhaps some new spending for building needed infrastructure on the table.

William Gallston draws just the opposite conclusion from his reading of the State of the Union. Speaking specifically of Medicare, Social Security and Medicaid Gallston concluded, "Obama appears to have decided that there is no possibility of resolving the larger fiscal issues on terms that he and his party would find acceptable. So he will hand these issues off to the next president, who will no longer enjoy the luxury of delay."

But this does not sound like the Barack Obama we have come to know to decide with four years to go that there is a major challenge he will pass along to his successor, so we will place our bet on the President making one more effort to get the deal that has eluded him in at least two previous negotiations. Obama will want his legacy to be one of succeeding on all three economic challenges. And this time, we expect the Republicans to cooperate. They will know there will be no fourth opportunity to get Medicare cuts in what remains of President Obama's eight years in office.

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