Six Bipartisan Entitlement Reforms to Solve the Real Fiscal Crisis: Only Presidential Leadership Is Needed

Abstract: The United States faces a real fiscal crisis, and the impending fiscal cliff of massive tax hikes and spending cuts in January is only the first act. In early 2013, the federal government will exhaust its ability to issue debt legally. Yet as large and as major a concern as federal budget deficits are today, they are of secondary consequence compared with the fiscal quagmire of unaffordable entitlement spending in the next decade. Fortunately, the entitlement problem can be resolved by six simple reforms to improve the fiscal future for Social Security and Medicare. But to implement these reforms, President Barack Obama must lead.

A high-stakes fiscal policy debate of unique size and import has just begun. Absent congressional action to the contrary, a massive slate of tax hikes and spending cuts will take effect on January 1, and that is only the first act. The second act will occur early in 2013 when the federal government will exhaust its ability to issue debt legally. Both acts need prompt solutions.

Speaker of the House John Boehner (R–OH) made the first move. After congratulating President Barack Obama upon his reelection, Boehner promised a willingness to work with him, giving Obama the additional revenues he desired through pro-growth tax reform accompanied by reforms in entitlement programs.[1] President Obama's counter, while unsurprising, was unhelpful because he focused exclusively on fiscally meaningless and economically harmful tax hikes on upper-income taxpayers. The President repeatedly has argued for a balanced approach, but he has yet to offer a single meaningful proposal on spending reductions.

While the President prepares to start his second term, he should set about negotiating in good faith with Republicans, especially in the House where Republicans were returned to office in the majority with expectations of cutting spending without increasing taxes. The voters, we are told, expect it. This means the President cannot sit back and just harp on revenues. He needs to address spending and in particular entitlements.

Fortunately, the President has occasion and opportunity to lead by proposing some simple yet transformational reforms in two of the prime sources of the nation's fiscal problems: Social Security and Medicare. Better yet, many such reforms have already been thoroughly considered and enjoy broad bipartisan support, lacking only the moment and the leadership to become a reality. These proposals will not resolve either program's key structural flaws—they constitute a start of the reform journey, not the conclusion—but they would be a powerful start that would markedly alter the nation's fiscal trajectory.

At the start of a President's second term, the political stars are in the best possible alignment for solving big problems. All the President needs to do is seize the moment. This is the moment; President Obama must lead.

Many events arrive by chance, but the present fiscal spectacle is not one of them. The fiscal cliff results from explicit actions by Congress and the President to push difficult fiscal policy issues past the recent election. In this, they succeeded, although it took a series of legislative acts to accomplish it. With regard to taxes:

The payroll tax cut, extended in the spring of 2012, will expire on December 31, 2012. The extension of the Bush tax cuts, signed into law in December 2010, will expire at the end of the year. This same law also established a new structure for the death tax with a 35 percent rate and a $5 million exemption per spouse, which will expire at the end of the year. Various Obamacare tax hikes begin at the start of 2013.[2]

The same pattern holds for the spending cuts. For example, the sequester slated to gouge defense spending while making modest cuts—such as a 2 percent across-the-board cut to Medicare providers—reflects the final leavings of the earlier Budget Control Act, which created the failed "supercommittee." Early in 2012, Congress also prevented deep and disastrous reductions in Medicare provider payments, but this "doc fix" remedy expires at the end of the year.

In May 2011, the federal government exhausted its legal authority to finance deficit spending by issuing debt. The U.S. Department of the Treasury exercised its typical but limited authorities for temporarily creating more room under the "debt limit," allowing policymakers to postpone action until early August. A brutal and economically risky political battle ensued, eventually resulting in legislation that raised the debt limit by $2.1 trillion, sufficient to fund the federal government past the November election.

Projections now suggest that the government will reach the debt limit late in 2012, after which the Treasury will again deploy its limited authorities. This will trigger what could be another difficult negotiation for Congress and President Obama—a negotiation that will be heavily influenced by what happens with the fiscal cliff.

President Obama clearly believes in raising taxes on upper-income taxpayers, and he is willing to weaken the economy, slow job growth, and constrain wage growth to do so. It is difficult to fathom his acceptance of this trade-off of economic security for an ideological doctrine of social justice, especially considering that this long-standing debate likely will rage indefinitely. However, these tax hikes are a distant sideshow in the present context, a political distraction that diverts attention from the central fiscal issue of runaway spending, which gives rise to persistent and economically dangerous deficits.

In his own budget, the President proposed to extend the Bush tax cuts except for those making $250,000 or more, raising $836 billion over the next 10 years. His companion proposal to limit the value of deductions for upper-income taxpayers would raise another $574 billion, for a total of $1.4 trillion. In absolute terms, that is a lot of revenue. However, even allowing for all the other budget gimmicks and tax hikes in Obama's budget, the federal debt would rise by $7.7 trillion over the next 10 years including these tax hikes and by $9.1 trillion without them.

Obama's tax hikes would reduce the rise in federal debt over the next 10 years by about 15 percent. The President is silent about the remaining 85 percent. The numbers confirm that President Obama's tax hike demands are at best tangential to attaining a balanced budget.

As large and as major a concern as federal budget deficits are today, they are nevertheless secondary in consequence to the fiscal quagmire of unaffordable entitlements. Social Security and Medicare in particular share certain vital characteristics. Both programs are extraordinarily complicated, having been built up in complexity over the years one Congress at a time. Similarly, each program badly needs programmatic reforms. For example, the minimum benefit in Social Security is woefully inadequate to protect low-income seniors from poverty, and Medicare still lacks a catastrophic benefit. These are only some of the many shortcomings that must be addressed in fundamental overhauls of each program.

Of most immediate concern, however, is that Social Security and Medicare are unaffordable in their current forms. When this year's kindergarteners enter college, just 13 years away, spending on these two programs plus Medicaid and interest on the debt will devour all tax revenue. (See Chart 1.)

Social Security will lack the funds to pay full benefits beginning as early as 2033.[3] Medicare's unfunded promises in current dollars reach into the many tens of trillions of dollars. These facts are not in dispute. Solutions to our fiscal challenges are needed, urgent, and inevitable.

The fiscal cliff and the debt limit have set the stage, but there is also the reality of the rhythms in the American political system. There are certain windows in every four-year or eight-year cycle when bold leaders can achieve bold things. The first few months of a reelected President's second term is one such window, but it closes fast, and lame-duck status arrives quickly.

Thus, the President must adopt the mantle of leadership, rather than brinksmanship, to steer the nation away from the fiscal cliff and all that is set to follow, and he must start with spending. However, the critical silver lining is that simple, commonsense, and thoroughly vetted solutions such as the four listed below constitute a strong start on the journey to more complete programmatic reforms remedying acknowledged flaws in these programs, and they already enjoy broad support across the political spectrum.

Raise the Social Security eligibility age to match increases in longevity. Originally set at 65, the normal eligibility age is rising two months every year until 2022, when it will reach 67. According to the Social Security actuaries, continuing to increase the eligibility age to 69 by the year 2034 and allowing it to rise more slowly thereafter to reflect gains in longevity could go a long way toward reducing Social Security's funding shortfall.[4] While this would not reduce today's budget deficit, it would strengthen Social Security's finances and dissipate far more important long-term budget pressures. Correct the cost-of-living adjustment (COLA). The annual COLA benefit adjustment is determined today by the Bureau of Labor Statistics' Consumer Price Index (CPI). However, the CPI, an antiquated measure, generally overstates inflation, meaning that benefits are increased a bit too much each year to offset inflation. The effect on benefits in a given year of switching to a more accurate inflation measure is minute, but Social Security spans generations.[5] Again, according to the Social Security actuaries, using a more modern inflation measure would substantially reduce Social Security's shortfall over time. Raise the Medicare eligibility age to agree with Social Security. Medicare has an eligibility age problem, but unlike Social Security, the Medicare eligibility age remains stuck at 65. An obvious solution is to wait five years and then slowly raise the eligibility age to align eventually with the Social Security eligibility age. While the short-term budgetary savings would be negligible, the long-term savings in Medicare would be profound. Reduce the Medicare subsidy for upper-income beneficiaries. In 2012, the average Medicare beneficiary received a subsidy of about $5,000. The subsidy is the per capita amount of Treasury revenue that is used to fill the financial hole arising each year because Medicare's premiums are inadequate, in conjunction with its other revenue sources, to cover Medicare's total costs. Subsidizing Medicare benefits for low-income seniors—and perhaps for some middle-income seniors—makes sense, but upper-income seniors do not need and should not receive a $5,000 subsidy to buy Medicare health insurance. The Medicare subsidy was first cut for the wealthiest seniors in legislation signed by President George W. Bush in 2004 by income-relating premiums so that higher-income beneficiaries pay a higher share of their Medicare cost. It was cut further in Obamacare, and President Obama proposed to pare it back still further in his budget proposals of February 2012 with still-higher premiums for upper-income beneficiaries.

Medicare has many programmatic problems that demand attention, and the sooner the better, but the immediate fiscal problem is straightforward: It is the subsidy. The total cost of the Medicare subsidy—about $230 billion in 2012—will soar over time as health care costs rise and the baby boomers retire.[6] Paring back the subsidy for well-to-do retirees is an obvious step toward reducing the budget deficit today and shoring up Medicare for the long run.

The four foregoing proposals for Social Security and Medicare meet the test of simplicity, being relatively easy to communicate to the American people, having been thoroughly vetted, and enjoying widespread support. Together, they would dramatically improve America's fiscal future for the better. Two additional proposals, one each for Social Security and Medicare, meet the tests of simplicity and effectiveness but have not been considered as intensively. Yet they should also garner bipartisan support and consideration.

Phase out Social Security benefits for upper-income retirees. Everyone who has ever paid into Social Security is entitled to the benefits prescribed by law. However, as a nation, we need to ask whether today's working families should pay payroll taxes so that upper-income retirees can continue to receive their checks. We need to ask why phasing out the Medicare subsidy to upper-income seniors while continuing to send them their full Social Security check would make sense. In short, Social Security should be social insurance against poverty rather than a government-run pension scheme.

Some might charge that this is redistributionism, but would anyone suggest that millionaires should receive food stamps? Food stamps and other welfare programs are specifically intended to operate as part of the social safety net, yet their existence constitutes a form of redistributionism that most Americans accept. Social Security (and Medicare) should become real insurance against poverty, meaning that only those seniors who need help should receive help. On the other hand, if Social Security remains a universal government-run pension, then it remains a vastly larger program built on an entirely different redistributionist principle: redistribution from workers to retirees, including the wealthy.

Consolidate Medicare's elements and collect a single higher premium. Medicare is actually three distinct components, referred to generally as Parts A, B, and D, reflecting the fact that Medicare was built up over many years. This antiquated structure is confusing and inefficient. An obvious reform is to consolidate the three distinct parts into a unified Medicare program.

Medicare Parts B and D each require beneficiaries to pay a premium covering 25 percent of the cost of the programs. As the Medicare Parts are consolidated, the premium should be consolidated as well and then raised to 35 percent of the relevant costs.[7]

The nation's fiscal problems, today and beyond, derive entirely from excess spending, especially entitlement spending, not a dearth of revenue. While current revenues are exceptionally low as a share of the economy, this is due almost entirely to the weak economy. As analysis by the Administration's budget office and the Congressional Budget Office affirm, revenues will return to a more normal 18.5 percent of the economy as the economy recovers. Given these facts, President Obama's insistence on an economically harmful tax hike for what is essentially a fiscally meaningless increase in revenues will not help policymakers navigate successfully around the fiscal cliff.

A hopeful sign, however, is that the political timing is propitious, and important policy reforms in Social Security and Medicare are simple, straightforward, and well known. These proposals, while not correcting more fundamental programmatic flaws, would materially correct the spending excesses in these programs. Better yet, these proposals are not partisan in nature, but have been supported on a bipartisan basis in the past.

All that is lacking to avoid the fiscal cliff, profoundly stabilize the nation's public finances, and shore up these critical entitlement programs is for the President to take the lead. The nation waits.

—J. D. Foster, Ph.D., is Norman B. Ture Senior Fellow in the Economics of Fiscal Policy in and Alison Acosta Fraser is Director of the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

[1] Alison Acosta Fraser, “Boehner’s Olive Branch: More Revenues, but Only Through Growth,” Heritage Foundation, The Foundry, November 9, 2012, http://blog.heritage.org/2012/11/09/boehners-olive-branch-more-revenues-but-only-through-growth/.

[2] Curtis S. Dubay, “Taxmageddon: Massive Tax Increase Coming in 2013,” Heritage Foundation Issue Brief No. 3558, April 4, 2012, www.heritage.org/research/reports/2012/04/taxmageddon-massive-tax-increase-coming-in-2013.

[3] David C. John, “Social Security Finances Significantly Worse, Says 2012 Trustees’ Report,” Heritage Foundation Issue Brief No. 3577, April 23, 2012, www.heritage.org/research/reports/2012/04/social-security-finances-significantly-worse-says-2012-trustees-report.

[4] Social Security Administration, Office of the Chief Actuary, “Individual Changes Modifying Social Security,” Actuarial Publications, December 21, 2011, http://www.socialsecurity.gov/OACT/solvency/provisions/index.html (accessed November 27, 2012).

[5] The Social Security actuaries have considered in particular a modern measure of inflation known as “chained CPI” (C-CPI). Price indices of this sort are constructed by looking at a basket of goods and services to proxy all consumer purchases. The traditional CPI rarely changes the basket and thus steadily becomes a less accurate proxy as the pattern of consumer purchases changes. The more modern C-CPI, relying on advances in economic theory, updates this reference basket regularly and thus better proxies consumer purchases.

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JP Morgan Wins ‘Crisis Management’ Award For London Whale Scandal That Cost It $6 Billion

JP Morgan Chase accepted a “crisis management” award at an event Thursday night that rewarded the bank for the way it handled the London Whale trading crisis that cost the bank at least $6 billion. The trade set the financial world ablaze when the firm’s chief executive, Jamie Dimon, announced it, considering JP Morgan had been the strongest megabank throughout the financial crisis and Dimon often bragged of its “fortress balance sheet.”

But the firm handled the crisis with flying colors, at least according to award presenters, the Wall Street Journal reports:

“J.P. Morgan Chase is winning for its handling of the $6.2 billion trading loss by the London Whale last year,” the event’s host, CNN anchor Ali Velshi, said. “I would say that’s what you call making lemonade out of lemons.”

Kathy Hu, an executive director in J.P. Morgan’s investor relations department, accepted the award and quipped: “Can I just say, ‘Crisis? What crisis?’”

The United States Senate took a slightly different view. In a bipartisan report from the Senate Permanent Subcommittee on Investigations issued last week, senators blasted the bank for misleading regulators and sidestepping regulations that should have banned the type of trades that kept the loss from occurring.

JP Morgan has been among the fiercest lobbyists against regulations like the Volcker Rule, which was meant to keep financial institutions that have the backing of taxpayers from engaging in risky forms of trading that result in large losses that could pose a risk to the overall economy. As U.S. News and World Report’s Pat Garofalo explained, this should have been a lesson in why the Dodd-Frank Wall Street Reform Act and the rules it contains should be strengthened. Instead, it won JP Morgan an award.

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ANALYSIS-Antibiotics crisis prompts rethink on risks, rewards

* Big Pharma retreat leaves antibiotic pipeline bare

* Low prices and limited usage key deterrents for industry

* Regulators plan "reboot" of drug approval process

* GSK boss sees need for new, creative market models

LONDON, March 18 (Reuters) - Thirty years ago, when the world faced the terrifying prospect of an untreatable disease known as AIDS, big drugmakers scented an opportunity and raced to develop new medicines.

Today, as the world confronts another crisis, this time one of antibiotic resistance, the industry is doing the opposite. It is cutting research in a field that offers little scope for making money.

Antibiotics have become victims of their own success. Seen as cheap, routine treatments, they are overprescribed and taken haphazardly, creating "superbugs" they can no longer fight.

These "superbugs" are growing, but are not yet widespread, so the costly research needed to combat them is not worthwhile. Medical experts say this dilemma could return medicine to an era before Alexander Fleming discovered penicillin in 1928.

Fixing the problem will need both faster approval of last-resort drugs and new ways to guarantee rewards for companies, according to both industry leaders and public health officials who have been sounding the alarm.

Paul Stoffels, pharmaceuticals head at Johnson & Johnson , is better placed than many to understand the problems.

His company offered a rare glimmer of hope in December when it won regulatory approval for a new treatment for drug-resistant tuberculosis - a growing issue in many countries.

Unfortunately for the world, it was a one-off and J&J is not currently developing any more antibiotics.

"The market for a new antibiotic is very small, the rewards are not there and so the capital is not flowing," he said in an interview in London.

"It's about the sheer amount of money people are prepared to pay for a drug. In cancer, people pay $30,000, $50,000 or $80,000 (per patient) for a drug, but for an antibiotic it is likely to be only a few hundred dollars."

On Monday, AstraZeneca, facing tough decisions about where to invest, said it would put less money in developing anti-infectives. "We have to make choices and we have to focus our investments where we think we can make a substantial difference," CEO Pascal Soriot told Reuters.

The regulatory bar for drug approval is a key consideration for any company weighing R&D investment.

For antibiotics is very high, partly due to a scandal over the approval of Sanofi's drug Ketek in 2004, which U.S. officials said later should be reserved for serious diseases due to the risk of side effects.

The head U.S. Food and Drug Administration's (FDA) drugs wing, Janet Woodcock, last year pledged a complete "reboot" of the approval process, aware of the stifling effect recent official caution has had on the development of new drugs.

The rapid approval of J&J's tuberculosis drug in December, based only on mid-stage Phase II data, may be a sign of a new flexibility at the FDA, which matters because the United States is the world's biggest drugs market.

The Generating Antibiotic Incentives Now (GAIN) Act, which came into effect in the U.S. last October, will also help by offering an extra five years of market exclusivity.

Still, the Infectious Diseases Society of America (IDSA)believes more legislation is needed to set out a clear path by which new antibiotics can be approved for a limited population after much smaller and faster clinical trials.

Just as in the early years of HIV, it argues, the world must accept riskier new drugs for incurable infections when there are no alternatives and patients' lives are on the line.

The European Medicines Agency is also working on new rules to encourage antibiotic development, while the European Union last year launched a novel public-private partnership to get governments and companies to share information and funding.

FEE INSTEAD OF PRICE?

Such public-private alliances across countries could start to change the conventional market model, according to Andrew Witty, CEO of GlaxoSmithKline, another of the few Big Pharma companies still actively researching antibiotics.

He favours greater sharing of research and has made an offer to England's chief medical officer Sally Davies to create new laboratories for developing research ideas brought in by others.

"I'm pretty sure that a classic model isn't going to solve this question and we need to be much more creative," Witty said.

New market approaches could include doing away with a price and instead having the healthcare system paying the inventor a fee per year as a reward for delivering a medicine, he said.

In some years, society would end up paying more in fees than it would in drug bills; in other years less. But at least companies would have an assured revenue stream.

Healthcare officials on both sides of the Atlantic are showing a willingness to do things differently after drawing attention to the antibiotic crisis this month.

Davies said the steady rise in resistance in the last five years represented a "ticking time bomb" that ranks alongside terrorism as a threat to the nation. Tom Frieden, director of the U.S. Centers for Disease Control and Prevention, called for an urgent fight-back against "nightmare bacteria".

RUSH FOR EXIT

The rush for the exit on antibiotic research has been dramatic.

Pfizer, once the leader in the field, closed its antibiotic R&D centre in Connecticut in 2011, to the dismay of many scientists. It now focuses anti-bacterial work on vaccines.

Others to have quit include Roche, Bristol-Myers Squibb and Eli Lilly, leaving only a handful of firms like GlaxoSmithKline, AstraZeneca and Merck & Co in the game. With basic research providing few new leads for drug targets, they are finding it tough.

Some smaller companies like Cubist Pharmaceuticals, Forest Laboratories, The Medicines Company and Optimer Pharmaceuticals are also active, hoping to capitalise on a niche left vacant by Big Pharma.

But Robert Guidos, public policy expert at the IDSA, fears minnows will struggle.

"Small companies rely on larger companies to help them get through Phase II and Phase III clinical development because it is so expensive," he said.

"The fewer large companies you have, the less help the smaller ones get and, as a result, few of the antibiotics now in early development are likely to make it across the finish line."

Since the 1980s, the number of new systemic antibiotics approved by the FDA has plunged from 16 in 1983-87 to just two in the last five years, according to the IDSA.

In the meantime, the "superbugs" are on the increase.

One of the best known is methicillin-resistant Staphylococcus aureus, or MRSA, which alone is estimated to kill some 20,000 people every year in the United States - far more than AIDS - and a similar number in Europe.

Others are spreading. Cases of totally drug resistant tuberculosis have appeared in recent years, as have untreatable strains of gonorrhoea, and a new wave of "super superbugs" with a mutation called New Delhi metallo-beta-lactamase (NDM 1), first seen in India, has now turned up across the globe.

As head of the company that developed AZT, the first HIV drug, GSK's Witty thinks the antibiotic problem can be cracked, given sufficient political will - but it won't happen overnight.

"This is a long cycle time business. Even if we get this absolutely brilliantly tuned up it is going to be a five to 10 year journey," he said.

(Editing by Philippa Fletcher)

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Boehner Agrees With Obama: The Debt Crisis Is Not ‘Immediate’

The arrival of budget season has brought debt panic back to the Beltway. But President Obama threw cold water on the matter last week, telling ABC’s George Stephanopoulos that the United States does not face “immediate crisis in terms of debt.” And this morning, House Speaker John Boehner (R-OH) essentially told ABC’s Martha Raddatz he agrees with Obama, calling the debt crisis “looming,” but not “immediate.”

“We do not have an immediate debt crisis,” Boehner said on ABC News’s “This Week With George Stephanopoulos.” “But we all know that we have one looming. And we have — one looming — because we have entitlement programs that are not sustainable in their current form. They’re gonna go bankrupt.” [...]

“[President Obama's] point, as he went on to say in that interview, is that we don’t — we don’t really need to do anything at this point. And I would argue that we do need to do something,” said the House speaker.

Debt is already projected to remain at or below its current share of the economy for the next decade, and it’s good that Boehner is standing in agreement with the president on that point.

Unfortunately, the budget the House Republicans just released does not reflect this realization. It cuts all spending that isn’t Medicare, Social Security, or the military down to near-historic lows over the next ten years. America’s economy remains in the doldrums, leaving the unemployment rate at 7.7 percent (it has never been that high for that long since the Great Depression) and all the real-world evidence we have indicates that austerity in depressions cripples economic growth. If everyone agrees the debt crisis is not immediate, then job growth and economic revival should be topping deficit reduction on the country’s list of priorities.

Nor is there a great deal of evidence to back up Boehner’s distinction between an “immediate” and “looming” debt crisis. The long-term projections of mounting debt he and other D.C. lawmakers rely on are in fact riddled with dramatic assumptions and uncertainties about the future behavior of both Congress and the economy.

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Six Bipartisan Entitlement Reforms to Solve the Real Fiscal Crisis: Only Presidential Leadership Is Needed

Abstract: The United States faces a real fiscal crisis, and the impending fiscal cliff of massive tax hikes and spending cuts in January is only the first act. In early 2013, the federal government will exhaust its ability to issue debt legally. Yet as large and as major a concern as federal budget deficits are today, they are of secondary consequence compared with the fiscal quagmire of unaffordable entitlement spending in the next decade. Fortunately, the entitlement problem can be resolved by six simple reforms to improve the fiscal future for Social Security and Medicare. But to implement these reforms, President Barack Obama must lead.

A high-stakes fiscal policy debate of unique size and import has just begun. Absent congressional action to the contrary, a massive slate of tax hikes and spending cuts will take effect on January 1, and that is only the first act. The second act will occur early in 2013 when the federal government will exhaust its ability to issue debt legally. Both acts need prompt solutions.

Speaker of the House John Boehner (R–OH) made the first move. After congratulating President Barack Obama upon his reelection, Boehner promised a willingness to work with him, giving Obama the additional revenues he desired through pro-growth tax reform accompanied by reforms in entitlement programs.[1] President Obama's counter, while unsurprising, was unhelpful because he focused exclusively on fiscally meaningless and economically harmful tax hikes on upper-income taxpayers. The President repeatedly has argued for a balanced approach, but he has yet to offer a single meaningful proposal on spending reductions.

While the President prepares to start his second term, he should set about negotiating in good faith with Republicans, especially in the House where Republicans were returned to office in the majority with expectations of cutting spending without increasing taxes. The voters, we are told, expect it. This means the President cannot sit back and just harp on revenues. He needs to address spending and in particular entitlements.

Fortunately, the President has occasion and opportunity to lead by proposing some simple yet transformational reforms in two of the prime sources of the nation's fiscal problems: Social Security and Medicare. Better yet, many such reforms have already been thoroughly considered and enjoy broad bipartisan support, lacking only the moment and the leadership to become a reality. These proposals will not resolve either program's key structural flaws—they constitute a start of the reform journey, not the conclusion—but they would be a powerful start that would markedly alter the nation's fiscal trajectory.

At the start of a President's second term, the political stars are in the best possible alignment for solving big problems. All the President needs to do is seize the moment. This is the moment; President Obama must lead.

Many events arrive by chance, but the present fiscal spectacle is not one of them. The fiscal cliff results from explicit actions by Congress and the President to push difficult fiscal policy issues past the recent election. In this, they succeeded, although it took a series of legislative acts to accomplish it. With regard to taxes:

The payroll tax cut, extended in the spring of 2012, will expire on December 31, 2012. The extension of the Bush tax cuts, signed into law in December 2010, will expire at the end of the year. This same law also established a new structure for the death tax with a 35 percent rate and a $5 million exemption per spouse, which will expire at the end of the year. Various Obamacare tax hikes begin at the start of 2013.[2]

The same pattern holds for the spending cuts. For example, the sequester slated to gouge defense spending while making modest cuts—such as a 2 percent across-the-board cut to Medicare providers—reflects the final leavings of the earlier Budget Control Act, which created the failed "supercommittee." Early in 2012, Congress also prevented deep and disastrous reductions in Medicare provider payments, but this "doc fix" remedy expires at the end of the year.

In May 2011, the federal government exhausted its legal authority to finance deficit spending by issuing debt. The U.S. Department of the Treasury exercised its typical but limited authorities for temporarily creating more room under the "debt limit," allowing policymakers to postpone action until early August. A brutal and economically risky political battle ensued, eventually resulting in legislation that raised the debt limit by $2.1 trillion, sufficient to fund the federal government past the November election.

Projections now suggest that the government will reach the debt limit late in 2012, after which the Treasury will again deploy its limited authorities. This will trigger what could be another difficult negotiation for Congress and President Obama—a negotiation that will be heavily influenced by what happens with the fiscal cliff.

President Obama clearly believes in raising taxes on upper-income taxpayers, and he is willing to weaken the economy, slow job growth, and constrain wage growth to do so. It is difficult to fathom his acceptance of this trade-off of economic security for an ideological doctrine of social justice, especially considering that this long-standing debate likely will rage indefinitely. However, these tax hikes are a distant sideshow in the present context, a political distraction that diverts attention from the central fiscal issue of runaway spending, which gives rise to persistent and economically dangerous deficits.

In his own budget, the President proposed to extend the Bush tax cuts except for those making $250,000 or more, raising $836 billion over the next 10 years. His companion proposal to limit the value of deductions for upper-income taxpayers would raise another $574 billion, for a total of $1.4 trillion. In absolute terms, that is a lot of revenue. However, even allowing for all the other budget gimmicks and tax hikes in Obama's budget, the federal debt would rise by $7.7 trillion over the next 10 years including these tax hikes and by $9.1 trillion without them.

Obama's tax hikes would reduce the rise in federal debt over the next 10 years by about 15 percent. The President is silent about the remaining 85 percent. The numbers confirm that President Obama's tax hike demands are at best tangential to attaining a balanced budget.

As large and as major a concern as federal budget deficits are today, they are nevertheless secondary in consequence to the fiscal quagmire of unaffordable entitlements. Social Security and Medicare in particular share certain vital characteristics. Both programs are extraordinarily complicated, having been built up in complexity over the years one Congress at a time. Similarly, each program badly needs programmatic reforms. For example, the minimum benefit in Social Security is woefully inadequate to protect low-income seniors from poverty, and Medicare still lacks a catastrophic benefit. These are only some of the many shortcomings that must be addressed in fundamental overhauls of each program.

Of most immediate concern, however, is that Social Security and Medicare are unaffordable in their current forms. When this year's kindergarteners enter college, just 13 years away, spending on these two programs plus Medicaid and interest on the debt will devour all tax revenue. (See Chart 1.)

Social Security will lack the funds to pay full benefits beginning as early as 2033.[3] Medicare's unfunded promises in current dollars reach into the many tens of trillions of dollars. These facts are not in dispute. Solutions to our fiscal challenges are needed, urgent, and inevitable.

The fiscal cliff and the debt limit have set the stage, but there is also the reality of the rhythms in the American political system. There are certain windows in every four-year or eight-year cycle when bold leaders can achieve bold things. The first few months of a reelected President's second term is one such window, but it closes fast, and lame-duck status arrives quickly.

Thus, the President must adopt the mantle of leadership, rather than brinksmanship, to steer the nation away from the fiscal cliff and all that is set to follow, and he must start with spending. However, the critical silver lining is that simple, commonsense, and thoroughly vetted solutions such as the four listed below constitute a strong start on the journey to more complete programmatic reforms remedying acknowledged flaws in these programs, and they already enjoy broad support across the political spectrum.

Raise the Social Security eligibility age to match increases in longevity. Originally set at 65, the normal eligibility age is rising two months every year until 2022, when it will reach 67. According to the Social Security actuaries, continuing to increase the eligibility age to 69 by the year 2034 and allowing it to rise more slowly thereafter to reflect gains in longevity could go a long way toward reducing Social Security's funding shortfall.[4] While this would not reduce today's budget deficit, it would strengthen Social Security's finances and dissipate far more important long-term budget pressures. Correct the cost-of-living adjustment (COLA). The annual COLA benefit adjustment is determined today by the Bureau of Labor Statistics' Consumer Price Index (CPI). However, the CPI, an antiquated measure, generally overstates inflation, meaning that benefits are increased a bit too much each year to offset inflation. The effect on benefits in a given year of switching to a more accurate inflation measure is minute, but Social Security spans generations.[5] Again, according to the Social Security actuaries, using a more modern inflation measure would substantially reduce Social Security's shortfall over time. Raise the Medicare eligibility age to agree with Social Security. Medicare has an eligibility age problem, but unlike Social Security, the Medicare eligibility age remains stuck at 65. An obvious solution is to wait five years and then slowly raise the eligibility age to align eventually with the Social Security eligibility age. While the short-term budgetary savings would be negligible, the long-term savings in Medicare would be profound. Reduce the Medicare subsidy for upper-income beneficiaries. In 2012, the average Medicare beneficiary received a subsidy of about $5,000. The subsidy is the per capita amount of Treasury revenue that is used to fill the financial hole arising each year because Medicare's premiums are inadequate, in conjunction with its other revenue sources, to cover Medicare's total costs. Subsidizing Medicare benefits for low-income seniors—and perhaps for some middle-income seniors—makes sense, but upper-income seniors do not need and should not receive a $5,000 subsidy to buy Medicare health insurance. The Medicare subsidy was first cut for the wealthiest seniors in legislation signed by President George W. Bush in 2004 by income-relating premiums so that higher-income beneficiaries pay a higher share of their Medicare cost. It was cut further in Obamacare, and President Obama proposed to pare it back still further in his budget proposals of February 2012 with still-higher premiums for upper-income beneficiaries.

Medicare has many programmatic problems that demand attention, and the sooner the better, but the immediate fiscal problem is straightforward: It is the subsidy. The total cost of the Medicare subsidy—about $230 billion in 2012—will soar over time as health care costs rise and the baby boomers retire.[6] Paring back the subsidy for well-to-do retirees is an obvious step toward reducing the budget deficit today and shoring up Medicare for the long run.

The four foregoing proposals for Social Security and Medicare meet the test of simplicity, being relatively easy to communicate to the American people, having been thoroughly vetted, and enjoying widespread support. Together, they would dramatically improve America's fiscal future for the better. Two additional proposals, one each for Social Security and Medicare, meet the tests of simplicity and effectiveness but have not been considered as intensively. Yet they should also garner bipartisan support and consideration.

Phase out Social Security benefits for upper-income retirees. Everyone who has ever paid into Social Security is entitled to the benefits prescribed by law. However, as a nation, we need to ask whether today's working families should pay payroll taxes so that upper-income retirees can continue to receive their checks. We need to ask why phasing out the Medicare subsidy to upper-income seniors while continuing to send them their full Social Security check would make sense. In short, Social Security should be social insurance against poverty rather than a government-run pension scheme.

Some might charge that this is redistributionism, but would anyone suggest that millionaires should receive food stamps? Food stamps and other welfare programs are specifically intended to operate as part of the social safety net, yet their existence constitutes a form of redistributionism that most Americans accept. Social Security (and Medicare) should become real insurance against poverty, meaning that only those seniors who need help should receive help. On the other hand, if Social Security remains a universal government-run pension, then it remains a vastly larger program built on an entirely different redistributionist principle: redistribution from workers to retirees, including the wealthy.

Consolidate Medicare's elements and collect a single higher premium. Medicare is actually three distinct components, referred to generally as Parts A, B, and D, reflecting the fact that Medicare was built up over many years. This antiquated structure is confusing and inefficient. An obvious reform is to consolidate the three distinct parts into a unified Medicare program.

Medicare Parts B and D each require beneficiaries to pay a premium covering 25 percent of the cost of the programs. As the Medicare Parts are consolidated, the premium should be consolidated as well and then raised to 35 percent of the relevant costs.[7]

The nation's fiscal problems, today and beyond, derive entirely from excess spending, especially entitlement spending, not a dearth of revenue. While current revenues are exceptionally low as a share of the economy, this is due almost entirely to the weak economy. As analysis by the Administration's budget office and the Congressional Budget Office affirm, revenues will return to a more normal 18.5 percent of the economy as the economy recovers. Given these facts, President Obama's insistence on an economically harmful tax hike for what is essentially a fiscally meaningless increase in revenues will not help policymakers navigate successfully around the fiscal cliff.

A hopeful sign, however, is that the political timing is propitious, and important policy reforms in Social Security and Medicare are simple, straightforward, and well known. These proposals, while not correcting more fundamental programmatic flaws, would materially correct the spending excesses in these programs. Better yet, these proposals are not partisan in nature, but have been supported on a bipartisan basis in the past.

All that is lacking to avoid the fiscal cliff, profoundly stabilize the nation's public finances, and shore up these critical entitlement programs is for the President to take the lead. The nation waits.

—J. D. Foster, Ph.D., is Norman B. Ture Senior Fellow in the Economics of Fiscal Policy in and Alison Acosta Fraser is Director of the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

[1] Alison Acosta Fraser, “Boehner’s Olive Branch: More Revenues, but Only Through Growth,” Heritage Foundation, The Foundry, November 9, 2012, http://blog.heritage.org/2012/11/09/boehners-olive-branch-more-revenues-but-only-through-growth/.

[2] Curtis S. Dubay, “Taxmageddon: Massive Tax Increase Coming in 2013,” Heritage Foundation Issue Brief No. 3558, April 4, 2012, www.heritage.org/research/reports/2012/04/taxmageddon-massive-tax-increase-coming-in-2013.

[3] David C. John, “Social Security Finances Significantly Worse, Says 2012 Trustees’ Report,” Heritage Foundation Issue Brief No. 3577, April 23, 2012, www.heritage.org/research/reports/2012/04/social-security-finances-significantly-worse-says-2012-trustees-report.

[4] Social Security Administration, Office of the Chief Actuary, “Individual Changes Modifying Social Security,” Actuarial Publications, December 21, 2011, http://www.socialsecurity.gov/OACT/solvency/provisions/index.html (accessed November 27, 2012).

[5] The Social Security actuaries have considered in particular a modern measure of inflation known as “chained CPI” (C-CPI). Price indices of this sort are constructed by looking at a basket of goods and services to proxy all consumer purchases. The traditional CPI rarely changes the basket and thus steadily becomes a less accurate proxy as the pattern of consumer purchases changes. The more modern C-CPI, relying on advances in economic theory, updates this reference basket regularly and thus better proxies consumer purchases.

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The New Abolitionists: Global Warming Is The Great Moral Crisis Of Our Time

The UK Guardian has put me in a gallery of “climate change abolitionists, those engaging in an uphill battle to challenge the broken systems that threaten our survival.” They also want your suggestions for who else to add (click here).

Climate change abolitionists: who is fighting for a more sustainable world? It took Abraham Lincoln and others many years of campaigning to abolish slavery — but who are the contemporary figures fighting to abolish dangerous climate change?

Well, I don’t really think I should be mentioned in the same breath as Lincoln — unless you are talking about our mutual love of the figures of speech and my book Language Intelligence: Lessons on persuasion from Jesus, Shakespeare, Lincoln, and Lady Gaga.

The Guardian has a good piece by Andrew Winston accompanying the gallery,”The campaign to abolish slavery has many parallels with the work of today’s climate change activists: it takes bravery and determination to try and make the world a better place.”

I agree that there are many parallels, many of which are spelled out in that article — and in an even longer piece in the Boston Phoenix, by Wen Stephenson, “The New Abolitionists: Global warming is the great moral crisis of our time,” which argues ”the climate-justice movement must embrace its radicalism to fight it.”

And readers of my books know I think metaphors are important — and that our inaction on climate change is a great moral crisis, the greatest moral crisis of our time. But it is also useful to spell out the differences.

Obviously slavery was not merely a great moral wrong, but cruel and inhumane to millions from the very start and for as long as it was occurring.

Unrestricted greenhouse gas emissions became immoral only when we learned that they would destroy a livable climate — and while we certainly need to go to zero this century, ideally by mid-century, we don’t have to go to zero tomorrow whereas, of course, slavery needed to be ended completely and instantly.

Winston writes:

So what are we “abolishing”? Climate abolitionists are not fighting to eliminate growth. Eradicating slavery did not rid the world of cotton or tobacco, and moving away from carbon will not mean abandoning human and economic development – in fact, it will help ensure it. What we want to abolish is our outmoded, broken economic and energy systems that threaten our survival, in part because they put no value on human and ecosystem inputs and impacts. We’re seeking a new way of powering our world that will save vast sums of money (variable costs of near zero), avoid the significant health impacts of burning dirty fossil fuels, and conserve our planet’s ability to support not only our entire $70tn economy, but our very existence.

I do think that is where we need to start. Development will continue, but it will have to continue as CO2 is pulled out of the economy ASAP. I’ll have more to say about “growth” soon.

Stephenson’s piece focuses on Tim DeChristopher. Here are two excerpts:

I want to say a word for radicalism — for the role of the radical in building a movement to confront climate change, the most urgent crisis human beings have ever faced. I want to start with two scenes, and two speakers, who embody the imperatives, and the limitations, of the moment in which we find ourselves.

July 26, 2011. Inside a federal courtroom in Salt Lake City, Utah, a 30-year-old climate activist named  Tim DeChristopher is sentenced to two years in prison and a $10,000 fine for disrupting a Bureau of Land Management auction of oil and gas leases back in December 2008. Registered as Bidder #70, he managed to win bids worth $1.8 million for some 22,000 acres of public land near Canyonlands National Park — bids he had no way of paying. He had acted spontaneously, on his conscience, engaged in nonviolent resistance to the heedless new extraction of fossil fuels that are catastrophically heating the planet and threatening innumerable innocent lives.

Weeks before his sentencing, DeChristopher told Rolling Stone’s Jeff Goodell: “I’m a climate-justice activist…. We want a radically different world. We want a healthy, just world.” But first, he said, “we need to get the fossil fuel industry out of the way. First we’ve got to overthrow the corporate power that is running our government.” He understands what that requires. “It will involve confrontation and it will involve sacrifice.”

At his sentencing, standing before the federal judge, DeChristopher concludes a long, eloquent statement that spreads across the Internet and galvanizes a growing climate-justice movement:

“This is not going away. At this point of unimaginable threats on the horizon, this is what hope looks like. In these times of a morally bankrupt government that has sold out its principles, this is what patriotism looks like. With countless lives on the line, this is what love looks like, and it will only grow. The choice you are making today is what side are you on.”

DeChristopher is truly brave. I’m just a blogger.

Stephenson ends with the words of another truly brave man:

“If there is no struggle there is no progress,” Frederick Douglass said in 1857. “Those who profess to favor freedom and yet deprecate agitation are men who want crops without plowing up the ground; they want rain without thunder and lightning. They want the ocean without the awful roar of its many waters. This struggle may be a moral one, or it may be a physical one, and it may be both moral and physical, but it must be a struggle. Power concedes nothing without a demand. It never did and it never will.”

Hear, hear! Speak, speak! Act, act! If not now, when?

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Chart Of The Week: China’s Pollution Crisis Is Worse Than Living In A Smoking Lounge

So it turns out that burning nearly as much coal as the rest of the world combined is not good for public health.

“Beijing’s daily peak and average concentrations of PM2.5, the airborne particulate matter that raises risks for lung and heart diseases, as measured by the U.S. Embassy. The 2013 daily average was 194 micrograms per cubic meter, with an intraday peak of 886 on Jan. 12, the data show. By contrast, PM2.5 levels averaged 166.6 in 16 airport smoking lounges in the U.S.” (Via Bloomberg)

Significantly, though, as one Brigham Young University professor points out, “Unlike cigarette smoking, exposure to ambient air pollution is involuntary and ubiquitously effects entire populations.”

And that reminds me of the line from the Hitchock-esque movie, Diabolique, where a man says to the femme fatale as she lights up a cigarette, “Second-hand smoke kills, you know.” Blowing smoke in his face, she (Sharon Stone, of course) replies, “Not reliably.”

Living in Beijing kills far more reliably. Indeed, during the peak pollution weekend, “the number of emergency room patients with heart attacks roughly doubled” at one hospital.

A World Bank study performed with China’s national environmental agency, concluded “outdoor air pollution was already causing 350,000 to 400,000 premature deaths a year. Indoor pollution contributed to the deaths of an additional 300,000 people, while 60,000 died from diarrhea, bladder and stomach cancer and other diseases that can be caused by water-borne pollution.”

And that was in 2007! One can only imagine what the deaths from pollution in China are now that it burns 40% more coal than it did 6 years ago

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World Bank President On Climate Crisis: ‘If There Is No Action Soon, The Future Will Become Bleak’

Jim Yong Kim Promises To Factor In Global Warming “With Every Investment We Make And Every Action We Take.”

You may recall the shocking World Bank Climate Report from November that concluded: “A 4°C [7°F] world can, and must, be avoided” to avert “devastating” impacts.

What impacts? The must-read report warns that “we’re on track for a 4°C warmer world marked by extreme heat-waves, declining global food stocks, loss of ecosystems and biodiversity, and life-threatening sea level rise.”

Now World Bank President Jim Yong Kim has a strong WashPost op-ed that warns “we need to get serious fast” to avoid the looming “climate catastrophe.” He explains:

The signs of global warming are becoming more obvious and more frequent. A glut of extreme weather conditions is appearing globally. And the average temperature in the United States last year was the highest ever recorded….

If there is no action soon, the future will become bleak. The World Bank Group released a reportin November that concluded that the world could warm by 7.2 degrees Fahrenheit (4 degrees Celsius) by the end of this century if concerted action is not taken now.

A world that warm means seas would rise 1.5 to 3 feet, putting at risk hundreds of millions of city dwellers globally. It would mean that storms once dubbed “once in a century” would become common, perhaps occurring every year. And it would mean that much of the United States, from Los Angeles to Kansas to the nation’s capital, would feel like an unbearable oven in the summer.

What does the physician and anthropologist recommend we do?

The world’s top priority must be to get finance flowing and get prices right on all aspects of energy costs to support low-carbon growth. Achieving a predictable price on carbon that accurately reflects real environmental costs is key to delivering emission reductions at scale. Correct energy pricing can also provide incentives for investments in energy efficiency and cleaner energy technologies.

A second immediate step is to end harmful fuel subsidies globally, which could lead to a 5?percent fall in emissions by 2020. Countries spend more than $500?billion annually in fossil-fuel subsidies and an additional $500?billion in other subsidies, often related to agriculture and water, that are, ultimately, environmentally harmful. That trillion dollars could be put to better use for the jobs of the future, social safety nets or vaccines.

Kim certainly talks to the talk when it comes to the implications of the climate crisis for the Bank itself:

Just as the Bretton Woods institutions were created to prevent a third world war, the world needs a bold global approach to help avoid the climate catastrophe it faces today. The World Bank Group is ready to work with others to meet this challenge. With every investment we make and every action we take, we should have in mind the threat of an even warmer world and the opportunity of inclusive green growth.

Let’s hope he means it. The Bank’s inconsistency on climate has been widely noted — see “Why Does the World Bank Say it Cares About Climate Change, But Continue to Aggressively Push Coal?” The Bank has kept financing large coal plants — most infamously providing a $3.75 billion loan for one of the world’s largest coal plants, located in South Africa. The Bank also pushed a 600-MW coal plant in Kosovo.

Even after the report was released, many questions were raised about whether the Bank would walk the walk:

On the basis of the report and this new op-ed, the bank must stop funding all new fossil fuel plants. I use the word “must” because that is the word the report and President Kim repeatedly use.

And it must be “all new fossil fuel plants” because the International Energy Agency has made clear this year with detailed analysis that natural gas isn’t the solution if your goal is staying far from 7°F warming — see IEA’s “Golden Age of Gas Scenario” Leads to More Than 6°F Warming and Out-of-Control Climate Change. It must be noted that even that IEA gas scenario, which results in too much warning, assumes that not only does global oil consumption peak around 2020 — but so does coal! So if one or both of those peaks don’t happen — and they wouldn’t without a high price of carbon and aggressively clean energy deployment starting now — then the Golden Age of Gas is just Hell and High Water, the  “devastating” scenario laid out in the World Bank report.

The findings of the Bank report match those of PricewaterhouseCoopers, which found that limiting warming to even 7°F requires “nearly quadrupling the current rate of decarbonisation.” That means the only rational clean-tech strategy for a non-suicidal species is “Deploy, Deploy, Deploy, R&D, Deploy, Deploy, Deploy“ [yes, not in that order].

And 4°C [7°F]  is not even the high end of projected warming for 2100 if we stay near our current emissions path (see “The IEA And Others Warn Of Some 11°F Warming by 2100).”

Kim’s ending is simple but blunt:

After the hottest year on record in the United States, a year in which Hurricane Sandy caused billions of dollars in damage, record droughts scorched farmland in the Midwest and our organization reported that the planet could become more than 7 degrees warmer, what are we waiting for? We need to get serious fast. The planet, our home, can’t wait.

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How Jadeveon Clowney’s Smashing Hit Demonstrates Football’s ‘Existential Crisis’

At this point, you’ve probably seen the demolishing hit South Carolina defensive end Jadeveon Clowney, one of college football’s best players, laid on Michigan running back Vincent Smith in the Outback Bowl on New Year’s Day. Clowney, who would be a top five pick in the NFL Draft this year if only an arbitrary age limit didn’t force him to remain in college for another season, burst off the line and laid waste to Davis almost immediately, causing Davis to fumble and sending his helmet 10 yards backward in the process:

That hit, in short, is absolute football perfection, a combination of size, speed, strength, and total athletic dominance that, when brought together in one perfect moment, leads to the type of play that leaves fans, coaches, teammates, opponents, and announcers alike stunned beyond comprehension. It was clean, it was smart, it was beautiful. The two seconds between the snap of the ball and Clowney’s devastation were football at its absolute purest, as Dave Kindred pointed out at Sports On Earth:

I have no use for football’s jack-‘em-up fetish. I loathe the mentality that cheers a blindside block on a helpless defender whose eyes are locked on a kick returner. I have seen cheap shots and I have seen Darryl Stingley in a wheelchair. But what Jadeveon Clowney did to Vincent Smith was none of that. The old Michigan State coach, Duffy Daugherty, once said, “Football’s not a contact sport, it’s a collision sport.” By that definition, Clowney’s tackle was as pure a demonstration of the game’s truest nature as we’re likely to see.

The very fact that the hit was a “pure demonstration” football’s “truest nature,” though, illustrates exactly what is so scary about the future of football: we’ve spent the last year focused on the threat concussions pose to the future of the game, but the real threat may be the game itself, the risk routine hits even less powerful than Clowney’s pose to the brains of the young men who step on the field each weekend. That, as Bloomberg’s Jonathan Mahler argued last month, “Football doesn’t have a concussion problem. It has an existential one.”

Clowney’s hit didn’t cause a concussion, and so it seems just a routine part of the game. But focusing on concussions as the major source of brain injuries in football, as Mahler argued, makes us think the problem can be fixed relatively easily. It makes it seem as if improving how we monitor concussions when they happen and eliminating head-to-head hits will reduce the amount of concussions and thus mitigate the risk of long-term brain trauma for the athletes who take the field. But recent research shows that it doesn’t necessarily take a career full of concussions to lead to the long-term cognitive problems many football players experience after retirement. Rather, chronic traumatic encepholopathy, dementia, depression, and other serious cognitive damage can result from the constant repetition of seemingly minor hits to the head — the kind that happen hundreds of times every game from the NFL level down to youth football.

“Calling the head-injury crisis a concussion crisis made it sound as if it stemmed from how the game is played, not from the game itself,” Mahler continued. It doesn’t take a concussion to damage the brain. It doesn’t even take a hit as devastating as Clowney’s. The routine plays, the beautiful plays, the most purely football plays — they all could be causing brain damage too. That’s a reality nobody wants to acknowledge, because if football’s problem is indeed existential, if the game doesn’t have a crisis but is the crisis, the future of football is in more peril than anyone thinks.

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Six Bipartisan Entitlement Reforms to Solve the Real Fiscal Crisis: Only Presidential Leadership Is Needed

Abstract: The United States faces a real fiscal crisis, and the impending fiscal cliff of massive tax hikes and spending cuts in January is only the first act. In early 2013, the federal government will exhaust its ability to issue debt legally. Yet as large and as major a concern as federal budget deficits are today, they are of secondary consequence compared with the fiscal quagmire of unaffordable entitlement spending in the next decade. Fortunately, the entitlement problem can be resolved by six simple reforms to improve the fiscal future for Social Security and Medicare. But to implement these reforms, President Barack Obama must lead.

A high-stakes fiscal policy debate of unique size and import has just begun. Absent congressional action to the contrary, a massive slate of tax hikes and spending cuts will take effect on January 1, and that is only the first act. The second act will occur early in 2013 when the federal government will exhaust its ability to issue debt legally. Both acts need prompt solutions.

Speaker of the House John Boehner (R–OH) made the first move. After congratulating President Barack Obama upon his reelection, Boehner promised a willingness to work with him, giving Obama the additional revenues he desired through pro-growth tax reform accompanied by reforms in entitlement programs.[1] President Obama's counter, while unsurprising, was unhelpful because he focused exclusively on fiscally meaningless and economically harmful tax hikes on upper-income taxpayers. The President repeatedly has argued for a balanced approach, but he has yet to offer a single meaningful proposal on spending reductions.

While the President prepares to start his second term, he should set about negotiating in good faith with Republicans, especially in the House where Republicans were returned to office in the majority with expectations of cutting spending without increasing taxes. The voters, we are told, expect it. This means the President cannot sit back and just harp on revenues. He needs to address spending and in particular entitlements.

Fortunately, the President has occasion and opportunity to lead by proposing some simple yet transformational reforms in two of the prime sources of the nation's fiscal problems: Social Security and Medicare. Better yet, many such reforms have already been thoroughly considered and enjoy broad bipartisan support, lacking only the moment and the leadership to become a reality. These proposals will not resolve either program's key structural flaws—they constitute a start of the reform journey, not the conclusion—but they would be a powerful start that would markedly alter the nation's fiscal trajectory.

At the start of a President's second term, the political stars are in the best possible alignment for solving big problems. All the President needs to do is seize the moment. This is the moment; President Obama must lead.

Many events arrive by chance, but the present fiscal spectacle is not one of them. The fiscal cliff results from explicit actions by Congress and the President to push difficult fiscal policy issues past the recent election. In this, they succeeded, although it took a series of legislative acts to accomplish it. With regard to taxes:

The payroll tax cut, extended in the spring of 2012, will expire on December 31, 2012. The extension of the Bush tax cuts, signed into law in December 2010, will expire at the end of the year. This same law also established a new structure for the death tax with a 35 percent rate and a $5 million exemption per spouse, which will expire at the end of the year. Various Obamacare tax hikes begin at the start of 2013.[2]

The same pattern holds for the spending cuts. For example, the sequester slated to gouge defense spending while making modest cuts—such as a 2 percent across-the-board cut to Medicare providers—reflects the final leavings of the earlier Budget Control Act, which created the failed "supercommittee." Early in 2012, Congress also prevented deep and disastrous reductions in Medicare provider payments, but this "doc fix" remedy expires at the end of the year.

In May 2011, the federal government exhausted its legal authority to finance deficit spending by issuing debt. The U.S. Department of the Treasury exercised its typical but limited authorities for temporarily creating more room under the "debt limit," allowing policymakers to postpone action until early August. A brutal and economically risky political battle ensued, eventually resulting in legislation that raised the debt limit by $2.1 trillion, sufficient to fund the federal government past the November election.

Projections now suggest that the government will reach the debt limit late in 2012, after which the Treasury will again deploy its limited authorities. This will trigger what could be another difficult negotiation for Congress and President Obama—a negotiation that will be heavily influenced by what happens with the fiscal cliff.

President Obama clearly believes in raising taxes on upper-income taxpayers, and he is willing to weaken the economy, slow job growth, and constrain wage growth to do so. It is difficult to fathom his acceptance of this trade-off of economic security for an ideological doctrine of social justice, especially considering that this long-standing debate likely will rage indefinitely. However, these tax hikes are a distant sideshow in the present context, a political distraction that diverts attention from the central fiscal issue of runaway spending, which gives rise to persistent and economically dangerous deficits.

In his own budget, the President proposed to extend the Bush tax cuts except for those making $250,000 or more, raising $836 billion over the next 10 years. His companion proposal to limit the value of deductions for upper-income taxpayers would raise another $574 billion, for a total of $1.4 trillion. In absolute terms, that is a lot of revenue. However, even allowing for all the other budget gimmicks and tax hikes in Obama's budget, the federal debt would rise by $7.7 trillion over the next 10 years including these tax hikes and by $9.1 trillion without them.

Obama's tax hikes would reduce the rise in federal debt over the next 10 years by about 15 percent. The President is silent about the remaining 85 percent. The numbers confirm that President Obama's tax hike demands are at best tangential to attaining a balanced budget.

As large and as major a concern as federal budget deficits are today, they are nevertheless secondary in consequence to the fiscal quagmire of unaffordable entitlements. Social Security and Medicare in particular share certain vital characteristics. Both programs are extraordinarily complicated, having been built up in complexity over the years one Congress at a time. Similarly, each program badly needs programmatic reforms. For example, the minimum benefit in Social Security is woefully inadequate to protect low-income seniors from poverty, and Medicare still lacks a catastrophic benefit. These are only some of the many shortcomings that must be addressed in fundamental overhauls of each program.

Of most immediate concern, however, is that Social Security and Medicare are unaffordable in their current forms. When this year's kindergarteners enter college, just 13 years away, spending on these two programs plus Medicaid and interest on the debt will devour all tax revenue. (See Chart 1.)

Social Security will lack the funds to pay full benefits beginning as early as 2033.[3] Medicare's unfunded promises in current dollars reach into the many tens of trillions of dollars. These facts are not in dispute. Solutions to our fiscal challenges are needed, urgent, and inevitable.

The fiscal cliff and the debt limit have set the stage, but there is also the reality of the rhythms in the American political system. There are certain windows in every four-year or eight-year cycle when bold leaders can achieve bold things. The first few months of a reelected President's second term is one such window, but it closes fast, and lame-duck status arrives quickly.

Thus, the President must adopt the mantle of leadership, rather than brinksmanship, to steer the nation away from the fiscal cliff and all that is set to follow, and he must start with spending. However, the critical silver lining is that simple, commonsense, and thoroughly vetted solutions such as the four listed below constitute a strong start on the journey to more complete programmatic reforms remedying acknowledged flaws in these programs, and they already enjoy broad support across the political spectrum.

Raise the Social Security eligibility age to match increases in longevity. Originally set at 65, the normal eligibility age is rising two months every year until 2022, when it will reach 67. According to the Social Security actuaries, continuing to increase the eligibility age to 69 by the year 2034 and allowing it to rise more slowly thereafter to reflect gains in longevity could go a long way toward reducing Social Security's funding shortfall.[4] While this would not reduce today's budget deficit, it would strengthen Social Security's finances and dissipate far more important long-term budget pressures. Correct the cost-of-living adjustment (COLA). The annual COLA benefit adjustment is determined today by the Bureau of Labor Statistics' Consumer Price Index (CPI). However, the CPI, an antiquated measure, generally overstates inflation, meaning that benefits are increased a bit too much each year to offset inflation. The effect on benefits in a given year of switching to a more accurate inflation measure is minute, but Social Security spans generations.[5] Again, according to the Social Security actuaries, using a more modern inflation measure would substantially reduce Social Security's shortfall over time. Raise the Medicare eligibility age to agree with Social Security. Medicare has an eligibility age problem, but unlike Social Security, the Medicare eligibility age remains stuck at 65. An obvious solution is to wait five years and then slowly raise the eligibility age to align eventually with the Social Security eligibility age. While the short-term budgetary savings would be negligible, the long-term savings in Medicare would be profound. Reduce the Medicare subsidy for upper-income beneficiaries. In 2012, the average Medicare beneficiary received a subsidy of about $5,000. The subsidy is the per capita amount of Treasury revenue that is used to fill the financial hole arising each year because Medicare's premiums are inadequate, in conjunction with its other revenue sources, to cover Medicare's total costs. Subsidizing Medicare benefits for low-income seniors—and perhaps for some middle-income seniors—makes sense, but upper-income seniors do not need and should not receive a $5,000 subsidy to buy Medicare health insurance. The Medicare subsidy was first cut for the wealthiest seniors in legislation signed by President George W. Bush in 2004 by income-relating premiums so that higher-income beneficiaries pay a higher share of their Medicare cost. It was cut further in Obamacare, and President Obama proposed to pare it back still further in his budget proposals of February 2012 with still-higher premiums for upper-income beneficiaries.

Medicare has many programmatic problems that demand attention, and the sooner the better, but the immediate fiscal problem is straightforward: It is the subsidy. The total cost of the Medicare subsidy—about $230 billion in 2012—will soar over time as health care costs rise and the baby boomers retire.[6] Paring back the subsidy for well-to-do retirees is an obvious step toward reducing the budget deficit today and shoring up Medicare for the long run.

The four foregoing proposals for Social Security and Medicare meet the test of simplicity, being relatively easy to communicate to the American people, having been thoroughly vetted, and enjoying widespread support. Together, they would dramatically improve America's fiscal future for the better. Two additional proposals, one each for Social Security and Medicare, meet the tests of simplicity and effectiveness but have not been considered as intensively. Yet they should also garner bipartisan support and consideration.

Phase out Social Security benefits for upper-income retirees. Everyone who has ever paid into Social Security is entitled to the benefits prescribed by law. However, as a nation, we need to ask whether today's working families should pay payroll taxes so that upper-income retirees can continue to receive their checks. We need to ask why phasing out the Medicare subsidy to upper-income seniors while continuing to send them their full Social Security check would make sense. In short, Social Security should be social insurance against poverty rather than a government-run pension scheme.

Some might charge that this is redistributionism, but would anyone suggest that millionaires should receive food stamps? Food stamps and other welfare programs are specifically intended to operate as part of the social safety net, yet their existence constitutes a form of redistributionism that most Americans accept. Social Security (and Medicare) should become real insurance against poverty, meaning that only those seniors who need help should receive help. On the other hand, if Social Security remains a universal government-run pension, then it remains a vastly larger program built on an entirely different redistributionist principle: redistribution from workers to retirees, including the wealthy.

Consolidate Medicare's elements and collect a single higher premium. Medicare is actually three distinct components, referred to generally as Parts A, B, and D, reflecting the fact that Medicare was built up over many years. This antiquated structure is confusing and inefficient. An obvious reform is to consolidate the three distinct parts into a unified Medicare program.

Medicare Parts B and D each require beneficiaries to pay a premium covering 25 percent of the cost of the programs. As the Medicare Parts are consolidated, the premium should be consolidated as well and then raised to 35 percent of the relevant costs.[7]

The nation's fiscal problems, today and beyond, derive entirely from excess spending, especially entitlement spending, not a dearth of revenue. While current revenues are exceptionally low as a share of the economy, this is due almost entirely to the weak economy. As analysis by the Administration's budget office and the Congressional Budget Office affirm, revenues will return to a more normal 18.5 percent of the economy as the economy recovers. Given these facts, President Obama's insistence on an economically harmful tax hike for what is essentially a fiscally meaningless increase in revenues will not help policymakers navigate successfully around the fiscal cliff.

A hopeful sign, however, is that the political timing is propitious, and important policy reforms in Social Security and Medicare are simple, straightforward, and well known. These proposals, while not correcting more fundamental programmatic flaws, would materially correct the spending excesses in these programs. Better yet, these proposals are not partisan in nature, but have been supported on a bipartisan basis in the past.

All that is lacking to avoid the fiscal cliff, profoundly stabilize the nation's public finances, and shore up these critical entitlement programs is for the President to take the lead. The nation waits.

—J. D. Foster, Ph.D., is Norman B. Ture Senior Fellow in the Economics of Fiscal Policy in and Alison Acosta Fraser is Director of the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

[1] Alison Acosta Fraser, “Boehner’s Olive Branch: More Revenues, but Only Through Growth,” Heritage Foundation, The Foundry, November 9, 2012, http://blog.heritage.org/2012/11/09/boehners-olive-branch-more-revenues-but-only-through-growth/.

[2] Curtis S. Dubay, “Taxmageddon: Massive Tax Increase Coming in 2013,” Heritage Foundation Issue Brief No. 3558, April 4, 2012, www.heritage.org/research/reports/2012/04/taxmageddon-massive-tax-increase-coming-in-2013.

[3] David C. John, “Social Security Finances Significantly Worse, Says 2012 Trustees’ Report,” Heritage Foundation Issue Brief No. 3577, April 23, 2012, www.heritage.org/research/reports/2012/04/social-security-finances-significantly-worse-says-2012-trustees-report.

[4] Social Security Administration, Office of the Chief Actuary, “Individual Changes Modifying Social Security,” Actuarial Publications, December 21, 2011, http://www.socialsecurity.gov/OACT/solvency/provisions/index.html (accessed November 27, 2012).

[5] The Social Security actuaries have considered in particular a modern measure of inflation known as “chained CPI” (C-CPI). Price indices of this sort are constructed by looking at a basket of goods and services to proxy all consumer purchases. The traditional CPI rarely changes the basket and thus steadily becomes a less accurate proxy as the pattern of consumer purchases changes. The more modern C-CPI, relying on advances in economic theory, updates this reference basket regularly and thus better proxies consumer purchases.

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