ConservativeHome's Big Ideas blog

John Thune: "The Republican Party must reclaim the mantle of reform"

Senator John Thune of South Dakota, whose name has been floated as a potential presidential contender in 2012, recently answered 10 questions from ConservativeHome's Ryan Streeter.

In the interview below Senator Thune says that:

• Republicans need to become reformers again by remembering what limited government, fiscal responsibility, and pro-growth policies require of us.
• America's debt is a national security problem, as Admiral Mullen says, and therefore we need budget reform legislation along the lines of what Sen. Thune proposed this past summer if we're going to get America's fiscal house in order.
• From the real and present danger of Iran's nuclear program to our ongoing commitments in Iraq and Afghanistan, we as a country need to remember just how much it costs to prevent more terrorist attacks.  
• The middle class understands that runaway spending will destroy their children's future. We owe it to them to show serious leadership on fiscal responsibility.

RS: What is your first political memory and/or what event or person first got you interested in politics? 

Sen. Thune: My interest in politics was sparked at a young age. After making five of six free throws during a basketball game as a freshman in high school, I was greeted by a spectator who said, "I noticed you missed one." That spectator happened to be well-known sports enthusiast and U.S. Representative Jim Abdnor. That introduction was the start of a friendship that ignited my career in public service. After completing my MBA at the University of South Dakota, I went on to work for then U.S. Senator Jim Abdnor and have stayed in close contact ever since.

RS: Who is your political hero and why? 

Sen. Thune: President Ronald Reagan is a political hero of mine. I was inspired by the strength of his convictions, by his belief in American exceptionalism and by his willingness to confront the communist threat. There was an authenticity about him that is too often lacking in politics today. He had a big, bold vision for this country but never lost his common touch or his fundamental belief in the greatness of the American people. I had the privilege of serving in his administration and have tried in my public life to live up to the high standard that he set.

Another one of my heroes is former Senator Jim Abdnor, whom I also had the privilege of working for as a young staffer. His decency and integrity were the embodiment of everything that is good about public life and a great example to me.

RS: Looking to 2012, are there 3 big ideas that you think should determine the presidential race (ie, which 3 issues should the Republican candidate use to set him/herself apart from President Obama)?

Sen. Thune: Voters sent a clear message to Washington this past November. Americans are not happy with the direction in which our country is headed and are seeking a new way forward. In order to successfully lead our country to more prosperous days, I believe Republican leaders must return to the time honored Republican principles: (1) A limited government and a government that works, which means unwinding the massive health care takeover, and reform of entitlement, budget, and tax policies. The Republican Party must reclaim the mantle of reform. (2) Fiscal responsibility—living within your means is an American tradition that needs to become a Washington tradition. (3) Pro-growth, pro-jobs policies that focus on free enterprise and free markets as opposed to government expansion. That means reducing America's tax and regulatory burdens on businesses, thereby lowering the cost of doing business in this country, and allowing America's entrepreneurs to be competitive in the global marketplace.

RS: What can Republicans in Congress do beginning in 2011 to respond to the public's mounting frustration with runaway spending, the deficit, and the size of government?

Sen. Thune: According to the Chairman of the Joint Chiefs of Staff, Admiral Mike Mullen, America's biggest national security threat is our national debt. To attack out of control spending and borrowing, this past summer I introduced a budget reform bill, the Deficit Reduction and Budget Reform Act of 2010. My legislation gets our country's fiscal house in order by cutting discretionary spending, reforming Washington's broken budget process, and creating a permanent Joint Committee on Deficit Reduction. There are 26 committees or subcommittees in Congress that spend money, but none that save money. It is high time that changed and my bill does that.

Additionally, I recently proposed a resolution that was accepted by the Senate Republican Conference to cut non-security discretionary spending back to 2008 levels. Since 2008, non-security discretionary spending has increased by over 20 percent, at a time when inflation in our economy amounted to less than two percent. In other words, the federal government has been spending at 10 times the rate of inflation. While every day, hardworking Americans struggle to make ends meet, Washington continues to spend with reckless abandon. This unsustainable level of spending has to stop. We can start by forcing votes on reducing spending back to 2008 levels to see who's serious about fiscal responsibility.

Social Security reform: 5 things every taxpayer needs to know before it's too late

ConservativeHome's Ryan Streeter recently put 5 questions to Charles Blahous, one of America's most prominent Social Security experts, on what we all need to know about reforming the program - which is on the road to bankruptcy. The interview shows that:

• The longer we wait to enact serious reform, the more our taxes will rise, period - time is not on our side
• The only way to avoid rising tax burdens is by constraining the rate of spending - by raising the retirement age or slowing the growth of benefits or both
• Private savings accounts are an important part of the solution - but not the top priority in constraining spending
• High-income Americans will be hit the hardest under any successful reform plan - and they should let Congress know if they prefer their taxes to go up or their benefits to grow more slowly
• New members of Congress should work to stop the spread of new entitlements and begin talking about ways to use the deficit commission's recommendations to slow the growth of Social Security spending

Blahous, a Hoover Institution research fellow, currently serves as one of the two public trustees for the Social Security and Medicare Programs. He was formerly deputy director of George W. Bush's Economic Policy Council and executive director of the bipartisan President's Commission to Strengthen Social Security. He is author of the newly-published Social Security: The Unfinished Work.

RS: What does every voter in America need to understand most about the current Social Security shortfall and why it has has gotten to this point?

Blahous: If there is one thing every voter needs to better understand, particularly every taxpayer -- and even more particularly every fiscally conservative taxpayer -- it's how further delay in repairing Social Security inevitably means bigger tax increases down the line.  This is partially because of demographics, and partially because of the wage-indexed benefit formula, but it's also because we have a pretty firm bipartisan consensus - from the most conservative to the most liberal members of Congress - not to cut benefits for those already receiving them.  

This means that with each passing year, we have millions of additional baby boomers on the rolls whose benefits are politically inviolate.  It's then too late to pre-fund those benefits, and they're not open to renegotiation; they can only be financed by raising tax revenue.  The deck is thus really stacked against those who worry about the growth of taxpayer burdens. It's not so simple as saying, "I don't like this particular Social Security deal -- let's come back in 4-5 years and strike a better one."  4-5 years later, we're on the hook for much bigger tax burdens. Time is not our friend here.  

Now, that's the main thing. But there are other issues that need to be better understood as well.  One is that the crafters of the 1983 Social Security reforms never intended to build up a big Trust Fund, nor did they believe that doing so would effectively fund future benefits; we've had a failure of national memory on this point.  Also, if we act now, future benefits don't need to decline in real terms. But again, that's only if we act soon.  We'd benefit from broader understanding of all of these points.

RS:  You favor reforming Social Security to fix the shortfall by moving toward a defined contribution approach. Can you explain what this would mean for a middle income family of 4, where the parents are between 40-45 years of age?

Blahous: I should clarify. In my ideal world, I would favor a "partial" defined-contribution approach. Sticking wholly with pay-as-you-go defined-benefit financing is the path of least resistance in the short term, but is the hardest on younger generations.  Alternatively, immediate transition to a fully-funded system would be great for future generations, but murder on the transition generation, because they would have to pre-fund all of their own future benefits while also paying pretty much the entirety of older generations' benefits.

A system that is partially a funded defined contribution system is the fairest middle ground between these extremes. What this would mean for the parents who are 40-45, would be that they would put aside a little income in a savings account so that their benefits aren't paid entirely by taxing the next generation. They couldn't spend that money, nor could the government spend it for them on additional services.

Meanwhile, the growth of their taxpayer-financed benefits would be scaled back. The kids would benefit enormously because they would be excused from some of the mounting tax burdens under pay-go defined benefit financing.  In sum, partial pre-funding means that today's working generations put aside a little saving in order to head off the mounting tax burdens now facing their kids.

RS: When it comes to fixing Social Security, how would you weigh the importance of raising the retirement age, instituting private accounts, and constraining Social Security spending growth as parts of the solution?  

Blahous: Constraining Social Security spending growth is the highest priority from the standpoint of program finances, whether it's done by changing the benefit formula or by adjusting the retirement age. The math is pretty simple: taxpayer costs go up because we have an aging society in which people receive benefits for a lot longer, and because we are paying them higher real benefits each year, even in per-capita terms. You have to deal with both if you want to avoid a large rise in taxpayer burdens.  

Of these items, I'd (perhaps surprisingly) rank the accounts last. They're important for arresting the decline in the money's worth treatment of younger generations, but all they can do is to arrest that decline -- no matter what, younger generations still will get lower returns than earlier ones, because of the enormous cost to them of financing trillions in unfunded benefits over the next few decades. We can only limit the overall negative hit if we contain the growth of costs, whether that's done in the benefit formula or through the retirement age. 

RS: Let's say Congress enacted the perfect Social Security reform bill tomorrow (yes, I know, dream on!), which part of the American population would be most negatively affected, and what can they do to prepare
themselves?

Blahous: No question on this one: high-income Americans.  Every single plan will hit them disproportionately. Plans from the right do it by constraining the growth of their benefits, plans from the left would raise their taxes. But both sides of the aisle are trying to protect people on the low-income end, which means people on the high-income end will pay the price of getting to solvency. So high-income Americans should either prepare themselves to depend less on Social Security or to contribute more to it. They can also provide a signal to legislators as to what they really care about. The left believes that high-income Americans will withdraw their political support if their benefit growth is constrained; the right believes that high-income Americans are more worried about their tax burdens.  High-income Americans could actually help legislators resolve this argument if they clearly conveyed to their own congressional offices whether they would be more perturbed by higher taxes or by slower benefit growth.  

RS: If you were a newly elected member of Congress and you had promised voters you would do something about America's entitlement crisis, what would do upon arriving in your office in January?

Blahous: First, contain any immediate damage.  Any spending increases that haven't gone into effect yet (some of which were recently legislated in the health care bill) need to be stopped before there is a dependency on them. It's very hard to slow down spending once people are already dependent on it. The logical place to start is with spending that hasn't yet become entrenched.  

Second, signal a willingness to work on a Social Security deal that contains cost growth, possibly including a close look at the fiscal commission's recommendations.  

Third, reassess the federal government's myriad actions that fuel health care cost inflation, including everything from government-subsidized insurance, to ages of eligibility, to tax preferences for compensation in the form of health benefits. 

4 thought leaders on the "most exciting" ideas for tackling the deficit

Ryan Streeter

The Washington Post has aired its Sunday Topic A feature online today in which it asks 4 thought leaders what "the most exciting ideas" are in the current deficit reduction plans being debated in Washington.

Here's a summary of what they said:

1. Diane Lim Rogers, Chief economist at the Concord Coalition and blogger at EconomistMom.com:  The one-year payroll tax holiday. Though it actually increases the deficit in the short-term, it is fiscally responsible because it means "getting the most out of every dollar of deficit spending we do and avoiding the unnecessary deficit financing of longer-term spending or tax cuts."
2. Mark Zandi, Chief economist at Moody's Economy.com: Getting rid of the myriad tax exemptions, deductions, credits, and exclusions. All of these provisions are more accurately thought of as expenditures and cost the federal government $1 trillion each year, with the home mortgage interest deduction costing $100 billion alone. Scaling them back over the next decade will make the tax code fairer and prevent it from distorting the market.
3. Maya MacGuineas, President of the Committee for a Responsible Federal Budget. The Ryan-Rivlin approach to defining contributions rather than benefits in healthcare. This would use market forces and consumer incentives to reign in healthcare spending, which should be healthcare reform's chief goal. MacGuineas also cites the Bowles-Simpson proposals to freeze and cut discretionary spending and to reform tax expenditures.
4. Douglas Holtz-Eakin, President of the American Action Forum, former director of the Congressional Budget Office, and senior economic adviser to Sen. John McCain's presidential campaign:  Cutting the corporate tax rate from 35 percent to 26 percent and moving past our outmoded worldwide tax system. The US currently has the highest corporate rate among developed nations. This needs to change to spur growth.  In addition, because we are stuck in an old-fashioned system of taxing our businesses worldwide, which no other developed country does, we are giving our competitors "an advantage over U.S. firms in international competition for 95 percent of the world's consumers."

Taken together, these form the basis of a possibly productive bi-partisan agreement (the only kind of progress we'll see in the next 2 years, if we see progress at all) on deficit reduction.

Fix the Deficit - Yourself!

Ryan Streeter

Well, that's not exactly what the New York Times "You Fix the Budget" puzzle says, but it does give readers a chance to take a whack at the federal budget in an effort to fix the deficit by 2030.

The interactive tool has been getting quite a bit of play in the blogosphere, coming on the heels of the Bowles-Simpson proposals for cutting the deficit as it did, and it has spilled into mainstream news: Wolf Blitzer covered it on CNN today. Readers have taken it on themselves to start proposing their own fixes.

One of the engineers of the puzzle-gizmo, David Leonhardt, covers its use at the Economix blog. This morning he posted the fix-it plan proposed by Barry Ritholtz of The Big Picture, which I post below. It's a mix of cuts (including to the military), combined with raising retirement ages, pegging Social Security to income, and more. Looking at a list like this gets the juices, and discussion, going much as the Bowles-Simpson proposal has.

More about that below, but let me lay out the main issue that should be at the center of the continuing debate about how to fix the deficit. As James Pinkerton writes today, the Bowles-Simpson plan doesn't account for growth and optimism, and is therefore a static accounting exercise rather than a dynamic one. This is an important point. He mentions Robert Solow's work on technology as an example of the dynamism inherent in how growth works itself out.

Keeping that in mind, here is the Ritholtz list cited above:

Eliminate earmarks
Eliminate farm subsidies
Cut pay of civilian federal workers by 5 percent
Reduce the federal work force by 10 percent
Cut 250,000 government contractors
Make other cuts to the federal government
Cut aid to states by 5 percent
Reduce nuclear arsenal and space spending
Reduce military to pre-Iraq War size
Reduce Navy and Air Force fleets
Cancel or delay some weapons programs
Reduce noncombat military compensation and overhead
Reduce the number of troops in Iraq and Afghanistan to 30,000 by 2013
Increase the Medicare eligibility age to 70
Reduce the tax break for employer-provided health insurance
Raise the Social Security retirement age to 70
Reduce Social Security benefits for those with high incomes
Tighten eligibility for disability
The Lincoln-Kyl proposal
President Obama’s proposal (Investment taxes)
Allow expiration for income above $250,000 a year
Payroll tax: Subject some incomes above $106,000 to tax
Millionaire’s tax on income above $1 million
Eliminate loopholes, reduce rates (the Bowles-Simpson plan)
Bank Tax

So, the question becomes, what type of dynamic model would make some of these kinds of reforms unnecessary? Who is our current generation's Robert Solow (in mind, not politics), who might help us figure out how to factor the impact of "growth and optimism" on the deficit?

The best model is going to have to figure out:

• Which types of tax cuts will result in greater investment, not just consumption?
• And what would the effects of increasing savings among Americans have, especially if that savings were part of plans to help prepare for an increase in retirement and eligibility ages?

Readers can always email me with whoever they think might have the best ideas on this front.