What will House Democrats "Do"?

Laurence J. Kotlikoff  Professor of Economics, Boston University

This expert essay was published in The Conversation. Although I'm certainly not an economist, I agree with most of the analysis by Laurence Kotlikoff. 

Yet, I disagree with his assessment about Social Security. Surely, it would help if Republican paid back the money robbed from the trust fund to fund other "pork" programs. 

But, for the most part, this is good expert advise to the New Democratic Majority in the US House of Representatives:
Now that Democrats control the House, the question on many minds is what they will do with it.

Incoming Majority Leader Nancy Pelosi says Democrats will focus on corruption, money in politics, drug prices, gun control and protecting young immigrants. 

Although these are important, in my view, they are second-order issues.

The biggest challenges facing the U.S. are much deeper and seriously jeopardize Americans’ future prosperity. Namely, soaring national debt, Social Security’s solvency and the lack of affordable health care.

As an economist, I’ve spent a lot of time researching and writing about these issues. And as a presidential candidate in 2016, I tried to put them on the national agenda when I staged an independent write-in campaign.

Were I leading the House Democrats right now, I would focus on passing three key bills. The Senate would likely turn them down, but their passage would show the country that Democrats are prepared to govern.
The US$200 trillion fiscal gap

It starts by acknowledging the true state of America’s fiscal condition.

No politician that I know of has ever told the truth about this, either because he or she didn’t know the truth or were hiding it. Brace yourself. Here’s where we really stand.

The official debt is $21.7 trillion – more than the value of all goods and services that will be produced in the U.S. this year. But this ignores massive unfunded obligations that have been kept off the books, such as paying for future Social Security, Medicare and Medicaid benefits.

When you calculate the present value of all anticipated future outlays less all the receipts projected by the Congressional Budget Office, you get a whopping $200 trillion fiscal gap. This is how much we – or more accurately our children – really owe.

Closing this fiscal gap will require dramatic changes, including much higher taxes and drastic spending cuts. Yes, Republicans hate the former and Democrats loathe the latter. But the longer we wait to do this, the larger the taxes our kids – or theirs – will pay and the lower the benefits they will receive. And at some point, America’s decades long intergenerational Ponzi scheme will collapse.

There is hope, however. Several simulations and studies I’ve conducted suggest three basic reforms that could largely eliminate the $200 trillion fiscal gap – while reducing risinglevels of inequality in the process.
Real tax reform

Let’s start with taxes.
The current fiscal system is riddled with inefficiencies, and what’s worse it lets the superrich pay literally zero taxes. This means there are ways to increase revenue without creating major burdens on the poor or middle class.

I would ask the now Democrat-controlled House Ways and Means Committee to draw up legislation to get rid of the current corporate income, personal income and FICA taxes. I would replace them with a value added tax, a highly progressive personal consumption tax, a progressive payroll tax and a high carbon tax.

These changes would dramatically improve incentives to work and save, make the rich pay their fair share and help save the climate – all while increasing revenues by 5 percent of GDP.
Modern Social Security

Of our nation’s $200 trillion fiscal gap, $34 trillion is Social Security’s unfunded liability – that is, how much we owe tomorrow’s retirees beyond how much revenue the system is expected to take in. This is why by the early 2030s, Social Security will be out of money, requiring a bailout or a draconian and permanent benefit cut that’s close to one-quarter. (MaineWriter, it could help if Republicans paid back the trust fund with money borrowed and never replaced.)

Democratic hero Franklin Delano Roosevelt helped establish Social Security in 1935. As such, it’s the party’s baby. They want to protect and preserve it at all costs.

It’s not just the system’s finances that are a problem but also its structure. The system has hundreds of thousands of incomprehensible rules. It’s a bureaucrat’s fantasy and a user’s nightmare.

The solution, however, isn’t to save it but to retire it – and replace it with something better. Social Security was based on the idea that today’s workers can support today’s retirees. While your benefits are tied to how much you earned, longer lifespans mean the payouts last much longer than a half-century ago.

A simple system that is more directly linked to what each person sets aside for retirement, with proceeds invested in the same global index fund, free of fees, would be simple, transparent and fully funded. The government would match contributions by the poor and contribute in full on behalf of the disabled and unemployed.
Affordable insurance for everyone

Another top priority should be health care, the biggest concern among midterm voters.

Close to 30 million Americans are uninsured – up 3 million since President Donald Trump took office.

Given today’s health care costs, even an unexpected gall bladder operation can bankrupt an uninsured middle-class household. No American should be forced to live with such financial risk. Everyone, not just the president and his family, needs basic coverage. Since a big chunk, roughly $60 trillion, of our $200 trillion debt comes from Medicare and Medicaid, the challenge as I see it is how to make universal basic health care affordable for the government.

Bernie Sanders and other liberal politicians argue the path to universal health care is “Medicare for all.” I advocate something slightly different: “Medicare Part C for all.”

Also known as the Advantage Plan, Medicare Part C pays HMOs to provide basic health care coverage, including outpatient and inpatient care, prescription drugs and other services, for the poor. It currently covers one-third of Medicare participants. Let’s just expand it to everyone. Yes, Medicare Part C limits you to one provider. But you can change providers annually.

Under the plan, every American would receive an annual voucher based on his or her pre-existing conditions. The voucher would be larger for those with higher expected health care costs. The voucher would be used to purchase, in full, the system’s single basic health insurance plan from one’s chosen health insurer. No insurer could refuse coverage to any participant regardless of their pre-existing conditions or place of residence.

It would be affordable because, although it allows for multiple private providers, it would be single-payer – which would dramatically reduce costs.

‘Heed the call’

There are a lot of issues that I also think should be high on Democrats’ priority list, such as meaningful banking reform and ensuring all American children get an equal education. But tackling America’s crushing debt load and reducing the fiscal gap – issues that Republicans have previously indicated they care about – would pay the biggest dividends and show Democrats can identify and solve real problems.

Will the Democrats take advantage of their “blue wave” and pursue such an agenda? I hope so. There are lots of new blue members of Congress that ran on fixing the country, not playing political games. As they ponder their first steps in 116th Congress, they would do well to heed Bob Dylan’s lyrics: Come senators, congressmen Please heed the call Don't stand in the doorway Don't block up the hall For he that gets hurt Will be he who has stalled.