I agree with Charles Krauthammer that it will take a grand bargain involving spending trims and tax increases to get our budget in sustainable shape. But he lets Paul Ryan off too easy for the trillions in debt in his budget plan when he says, “Of course Ryan is not going to propose tax increases. You don’t need Republicans for that.” By that standard, a columnist like me wouldn’t critique President Obama for failing to propose reforms to Social Security and Medicare, “because you don’t need Democrats for that.” Maybe I’m missing the partisan gene, but it seems clear that both Ryan and Obama should be criticized for pretending to offer real answers when their plans aren’t remotely equal to our challenges.
But my real question for Krauthammer concerns the level of gross domestic product at which we should strike the grand bargain. Krauthammer says 20 percent of GDP. But Ronald Reagan ran the federal government at 22 percent of GDP when our population was much younger and we weren’t about to double the number of seniors on Social Security and Medicare. Even after ambitious reforms to our entitlement programs (and I should note that in my books and columns I have supported changes to Social Security that go beyond what Ryan proposed in his earlier “Roadmap”), I don’t see any way we can double the number of elderly, and maintain something like what Americans have long supported in the (smaller) nonelderly portion of federal spending, without spending (and thus taxes) rising above Reagan-era levels as a share of GDP.
Why does Krauthammer think we can have a federal government 10 percent smaller than the one Reagan ran with double the number of senior citizens? If I’m right that Krauthammer’s number is neither wise nor politically practical, a big question follows. Once we stop fighting about whether taxes should rise, and accept that in an aging America taxes will inevitably rise, the question is how to reform the way we tax ourselves in ways that are least harmful for economic growth. In my view this mostly means cutting payroll and corporate taxes, and raising taxes on dirty energy and consumption. It can also include the tax expenditure reform that Ryan, Obama and conservatives economists like Martin Feldstein all talk about (though the pols shrink from the unpopular specifics). If we do this right, federal spending and taxes could be 24 or 26 perent of GDP, and the economy would still be humming. But you can’t get to this essential conversation until conservatives acknowledge that the 20 percent number is a pipe dream. (This is also my problem with the Simpson-Bowles commission, which makes the same mistake in thinking the deal should be cut at 21 percent of GDP.)
How would you reply, Charles? I’m basically saying that tying one’s size-of-government argument to “historical norms” of taxation at 18 to 19 percent of GDP is irrelevant in the face of the inexorable math of our aging population. (If we were like mighty Singapore, with health care at 4 percent of GDP and equal or better outcomes, I’d say 20 percent of GDP was no problem. But I wouldn’t bet on us corraling our Medical Industrial Complex fast enough to make this plausible.)
Who knows? If we can cut a deal in The Post, maybe we can noodge the debate forward just a little . . .