Still, GOP leaders in the House are confident they can leverage their narrow victory into meaningful political gains. It won’t be easy, but they have one – and maybe more than one – path to success.
Returning to thorny issues, they are likely to push for reforms to two major entitlement programs: Medicare and Social Security. Medicare spending is expected to top $1 trillion for the first time next year and grow at a faster rate than gross domestic product for the foreseeable future. Federal spending on rights as a whole — including Social Security, Medicaid and Affordable Care Act subsidies — is projected to rise from $3 trillion next year to $12.5 trillion in 30 year.
The GOP wants to mitigate these costs by, among other things, raising the Medicare eligibility age to match the Social Security retirement age, which is 67 for people born after 1960. Additionally, Republicans would cut Social Security benefits for those whose income was on the high end during their lifetime and increase premiums for Medicare beneficiaries with higher incomes.
The financial stakes are high. Rapidly rising interest rates mean that now is the time to act, before the burden of servicing debt to fund these programs becomes a major impediment to deficit reduction. Yet with only a narrow majority in a single chamber, House Republicans really only have one card to play, and it’s a card that Americans perhaps remember, perhaps less fondly, from the early days of Barack Obama’s administration.
House Majority Leader Kevin McCarthy may refuse to introduce so-called must-have legislation — such as raising the debt ceiling or continued federal funding — until senior officials from both parties in the House and Senate sit down with Biden and negotiate a rights agreement that their respective chambers can pass and that Biden will sign.
The advantage of such an approach is that it produces a single take-it-or-leave-it proposition that centrist members of both parties can support. Trying to produce this type of agreement through regular legislative channels would be impossible in the current political environment. Merely forming a bipartisan commission without any sense of urgency would result in a compromise proposal forgotten as soon as it was published.
The downside of this approach is that it is betting the health and future of the economy on the ability of a handful of politicians to work behind closed doors to find a single, overarching compromise on one of the most controversial pieces of American politics that they can sell to their members before they breach the debt ceiling and cause the country to default on its debts.
Then there is the danger that they will only come to an agreement similar to previous proposals over the years that has seemed good to almost everyone but has gone nowhere. More than anything else, it was this problem that made the 2011 debt ceiling impasse such a tragic affair. The compromise that sounded good and represented the best possible outcome of a good-faith process was also one that strongly circled Republican and Democratic priorities while producing an immediate drop in the budget deficit that would have been greater than anyone would have believed. possible.
The problem was that the proposed sudden austerity measures posed a major threat to an economy still struggling to recover from the financial crisis. That led lawmakers to a series of measures, beginning with sequestration, that delayed the biggest deficit cuts, but only if Congress set another, bigger deadline in the future. The result has been a repeated rehashing of the same confrontation with little to show in terms of tax reform.
What is different now is that the fundamentals have changed. Even economists who applauded the additional fiscal stimulus in the early months of the Biden administration came to accept that it was too much. Plus, rising interest rates mean that spending cuts today mean more savings over time.
If there was ever a time for Republicans and Democrats to tackle long-term fiscal issues, it’s now. The country’s immediate and long-term interests are aligned insofar as Americans experience the kind of financial difficulties – high interest rates and high inflation – that can become persistent without addressing the long-term budget deficit.
As such, the very kind of intransigence by House Republicans that was foolish and reckless in 2011 would be constructive today. This is the only card they have to play and probably the only chance for meaningful fiscal reform in the near future. One can only hope that the American public has not been so burned by ill-conceived attempts to impose austerity measures a decade ago that they are rejecting them today.
More from Bloomberg Opinion:
• Policies Republicans and Democrats Can Agree On: Karl Smith
• The Reality of the Welfare State We’re Not Debating: Allison Schrager
• Medicare drug negotiations can get more ambitious: editorial
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Karl W. Smith is a Bloomberg Opinion columnist. Previously, he was vice president for federal policy at the Tax Foundation and assistant professor of economics at the University of North Carolina.
More stories like this are available at bloomberg.com/opinion