Democrats Painting Themselves Into a Corner on Entitlements in Fiscal Cliff

It took no time for Democrats to walk back the growing momentum on an eligibility age increase for Medicare: last week House Minority Leader Nancy Pelosi and prominent Democrats in the Senate slammed the door on that idea.  So today several Senate Democrats floated a key Medicare concession to try to get to yes on the fiscal cliff: higher premium payments for wealthy seniors, or means testing.  Problem is, like an increase in eligibility age, it won’t get them very far in terms of savings.  It doesn’t add up to enough to appease GOP deficit hawks, and it really pisses off liberals who see means testing as a slippery slope to a welfare-like Medicare.

So the Dems are saying no to increasing the eligibility age on Medicare; no to touching Social Security; and no to cutting Medicaid. A number of Senate Democrats are saying they can hold their nose and support means testing if it means the GOP will raise taxes on the top 2 percent of wage earners and if it’s part of a significant deficit reduction plan. There’s overwhelming opposition among Democrats to going any further, which means they’re painting themselves — and President Obama — into a corner on entitlements.

The President broke with Democratic orthodoxy when he agreed tentatively to raising the Medicare age in last summer’s doomed debt-ceiling talks with House Speaker John Boehner. The President proposed additional Medicare means testing in his deficit reduction plan, and the idea also showed up in last year’s deficit-reduction list between Vice President Joe Biden and House Majority Leader Eric Cantor.

Obama has offered up $600 billion in cuts to health-based entitlement programs and non-mandatory programs, including a proposal that saves $350 billion by overhauling bulk purchases of prescription drugs as well as Medicare means testing.  But the President is demanding $1.4 trillion in new taxes, including raising marginal tax rates on families who earn more than $250,000. Boehner has floated $800 billion in new taxes from closing unspecified loopholes and deductions as well as $1 trillion in cuts, including out of entitlement programs.  So you can see the path to a deal by splitting the baby: $800 billion in entitlement cuts, and $1.1 trillion in new taxes.

Both the President and House Republicans released proposals in 2012 that would require more seniors to pay a means-tested premium. House Republicans would have reduced the income level from $85,000 to $80,000 for individuals and $170,000 to $160,000 for couples. The President would have charged more to the wealthiest 25 percent of seniors. Obama’s plan would have saved $20 billion over 10 years, but other plans have been estimated to save more than $200 billion.

Senate Finance Committee Chairman Max Baucus (D-MT) said he’s more open to means testing than moving the entitlement age from 65 to 67:  “It’s more fair.”  Senate Majority Whip Dick Durbin (D-IL) and Budget Committee Chairman Kent Conrad (D-ND) are advocates of the proposal, and other Democrats are open to it as well.

The GOP says means testing is only a first step, arguing that Medicare, Medicaid, Social Security and the Children’s Health Insurance Program (CHIP) consume over 40% of an annual Federal budget of $3.6 trillion. They insist more structural reforms are necessary.  Democrats are nervous that Obama will be excessively conciliatory on entitlement cuts in his negotiations with Boehner and will expect their votes to support any agreement he can reach.

Leaving themselves such a skinny path out of this wilderness will make the home stretch on the fiscal cliff a tough slog for Democrats.