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Baby Boomer Blues

As a Generation of Americans Gets Older, Entitlement Reform Needs Order

Rep. John Spratt (D-S.C.) has been chairman of the House Budget Committee for only about six weeks, but he already has what may be the toughest job in Congress.

With President Bush having delivered his fiscal 2008 budget proposal to Capitol Hill last week, Spratt is now the House’s point man in figuring out how to balance the budget requests of a diverse House Democratic Caucus, the demands for more military spending and his own expressed desire to eventually bring the budget back into balance.

At the same time, Spratt is thinking about the monumental challenges of long-term entitlement reform and how cost increases in Social Security, Medicare and Medicaid can be kept in check.

Roll Call Executive Editor Morton M. Kondracke recently sat down with Spratt for this extended interview.

ROLL CALL EXECUTIVE EDITOR MORTON M. KONDRACKE: There have been these various proposals to have a commission or high-level negotiations or something like that between the administration and Democrats in Congress to solve the long-term entitlement problem. Where is that going?

HOUSE BUDGET CHAIRMAN JOHN SPRATT (D-S.C.): My attitude has been … that the first thing we should do is concentrate on the main budget — the base budget — because the first entitlement is debt service. It is obligatory. Social Security, Medicare can be changed, but the interest on the national debt has to be paid at market levels, and frankly we have whittled it down during the ’90s [and it’s begun] to expand again. If you can diminish that wedge of the budget you can leave resources for the resolution of Medicare, Social Security where otherwise they would be eaten up by interest payments that have to be made. So I think that is the first step.

Once you get out of that step, in addition to a first start on the problem, it is with some confidence you can move on to bigger and better things. I think it would be a mistake to put all the entitlements in one commission. That is more than the traffic will bear. If you look at other commissions that have done that, their reports are still on the shelf somewhere drawing dust and nothing ever happened to them. The [ex-Sen. Bob] Kerrey (D-Neb.) commission did a very good job, but to no avail. I am not aware of anything that grew out of that report that has been implemented.

So the second point is it needs heavy Congressional involvement so that the leaders in Congress who participated, the Members who participated in it, feel some equity in the outcome. One, they understand it because they have been there putting the issues together, but No. 2, they feel some compulsion to get it passed. …

The one thing that made [the 1997 budget summit] work — it turned out it was not that big a deal because most of the heavy lifting had already been done, but it all just put the budget in the black for the first time in 30 years. Clinton called for those hearings, for those negotiations. I was in favor of it, [then-Rep. John] Kasich (R-Mo.) was in favor of it. [Sen. Pete] Domenici (R-N.M.) and Sen. [Frank] Lautenberg (D-N.J.) — we were all for it. …

ROLL CALL: Do you see any willingness on the part of the parallel participants now to engage in that kind of negotiation?

SPRATT: Of course [Sens. Kent] Conrad (D-N.D.) and Judd Gregg (R-N.H.) have talked extensively about it on a trip they took to South America and came back with some fairly specific ideas. I think it is premature, but it doesn’t hurt to talk about it and see if anything grows out of it.

ROLL CALL: And what kind of interest have they gotten from the White House?

SPRATT: Well, I think what stymied the idea from the start was that the White House resurrected the idea of partial privatization for Social Security, and I think that kind of falls in the waters for now and certainly the attitude here would be, leave that off the table.

ROLL CALL: If the president is willing to say “OK, revenues are on the table,” and he has said that, why shouldn’t partial privatization be on the table for discussion?

SPRATT: The president has said that?

ROLL CALL: Yeah, he said that he was willing to talk about anything. He didn’t say he was willing to accept it. He is not in favor of higher taxes, but he said he is willing to put anything and everything on the table.

SPRATT: … That is another aspect of making talks like this work. Everybody’s got to come to the table and everybody’s got to put some ante on the table, some skin in the game, as it were. They have to show … something near and dear to them they are willing to put at risk or put at play and negotiate. And if he were willing to put his tax cuts on the table … that would allow him also to put Social Security on the table. I don’t speak for anybody but myself in saying that.

ROLL CALL: Would you be a participant in all of this?

SPRATT: I would like to be a participant, yeah. Now these gimmicky proposals where you would have a [Base Realignment and Closure] Commission and they would come with a series of recommendations. No. 1, it sanctifies the BRAC process a bit much for those of us who have watched it.

ROLL CALL: [Rep.] Frank Wolf’s (R-Va.) idea.

SPRATT: Yeah, I think so. Frank’s a great guy. I’m not diminishing Frank, but he has talked to me about this before but I just listen and shake my head. I don’t think it is a good idea. And I don’t think that most Members of Congress would feel that they can outsource or delegate that much of their responsibility — huge fiscal decisions would be made with one up-or-down vote or say that whatever the commission came up with was so ideal that you couldn’t have any amendments to it whatsoever, I think would rankle most Members on both sides of the aisle.

ROLL CALL: So do you have any notion, besides the debt service, what the order should be of attack on these various entitlements?

SPRATT: Sure. I would take them separately. Social Security would come first because there are a variety of ways of fixing Social Security. Nobody wants to talk about any individually because you’ll find them hung around his neck in the next election and they are much easier to support as a package when you can say these things done together will make Social Security assuredly solid for another 75 years. If you can say that, then you can get people to take what would otherwise be some unpleasant steps … .

ROLL CALL: Various people have talked about a grand bargain where you somehow, for people who are younger workers, that there would be some dimunition of promised benefits and there would be some revenues and there would be some investment of Social Security taxes in the private economy by one means or another. Is that the combination that you foresee?

SPRATT: The kind of combination that we could agree to I think … would be one where … there is a supplemental savings account that you could opt into. … It wouldn’t be carved out of Social Security, it would be supplementary to and in addition to. It would be Social Security-plus instead of Social Security now.

And then possibly there would be several funds that you could choose among … four, five choices, you could mix your money up among those choices. What we’ve found, I think, from recent studies is automaticity, maybe one of the most important things to increasing the savings rate. Just making it easy and making it automatic and taking it out of everybody’s check. …

[Former President Bill] Clinton proposed universal savings accounts in a couple different forms and it never got off the launch pad. And one of the reasons is it’s expensive. If it really works, you got 150 million people in the workplace who’ve got one of these ancillary savings accounts everybody participates in with some sort of tax incentive or favor that goes with it. You’re going to have to forgo some of those other tax cuts that are otherwise very popular in order to make this available to everybody because its going to have a big impact on revenues.

ROLL CALL: So what is the holdup on an idea like that? …

SPRATT: The leadership in the Congress and the White House has to genuinely believe in it. For our part on our side, our leadership has to believe this is not some sort of ruse that they are being lured into for talks about the privatization of Social Security. I think that barrier has to be removed for us to move forward.

And then secondarily, I don’t think we want to be lured into talking about entitlement cuts without some assurance that other things are going to be done in the budget. For example, I can come back to my Caucus and say we’ve done this to Medicare and we’ve done this to Medicaid and we’ve done this to [the Children’s Health Insurance Program], people are going to say what you are doing is accommodating the Bush tax cuts, to make it possible for them to declare that they have a balanced budget and they’ve got the tax cuts — they can have the cake and eat it, too. …

ROLL CALL: In theory would Democrats be willing to shave back promised benefits in the future — either by raising the retirement age or indexing to longevity or something like that in return for revenue?

SPRATT: Possibly, yeah, in theory. Sure. It was done in ’83. The genius of ’83 was that everyone at the table had to contribute something to the solution. All the stakeholders gave up something. … And then in the aggregate it amounted to a pretty big fix. …

ROLL CALL: So what would you rate the chances, [from] zero to 100, of actually having a negotiation over Social Security in the next two years.

SPRATT: In the next few years…

ROLL CALL: I mean during the Bush administration.

SPRATT: Oh, during the Bush administration. Well, it is a multivaried equation. I would say they are maybe 40-60, something like that. Not quite 50-50. It is enough of a possibility that if the right people pushed it, supported it, it was conceptualized in the right way, it could work. And I think not making its charter too grand would be important, too.

ROLL CALL: What about Medicare? I mean, that is the big problem.

SPRATT: The big problem with Medicare is that it’s a subset of the cost of health care delivery in our economy as a whole. Medicare does a better job of containing costs; in fact it is a price leader that leads to lower cost that the Blues and other insurance companies actually follow. They use that clout to negotiate it down and then they give you their fee at some percentage of Medicare. But the cost of medical care is going up at 2.5 percentage points above CPI and the beneficiary population is growing.

You got to do something about the systemic problem of cost inflation in health care generally, otherwise all you are doing to Medicare is nickel-and-diming. Maybe you get some big savings or some big reductions in cost, but in the end you don’t get systemic reform I don’t think. You’ll spend the rest of your days nickel-and-diming every couple of years to get it back in line.

ROLL CALL: So how do you foresee tackling the health care cost problem and Medicare at the same time? Is there anything bipartisan willingness? It has to be bipartisan, doesn’t it?

SPRATT: It would have to be, yeah. … Here is the problem. It is complex, obviously. How do you rearrange institutions like that in our society that are so deeply rooted and constitute, what the hell, 16 percent of our GDP. Not easy at all.

When Clinton made his proposal I had my typical meeting with the AFL-CIO counsel about every six months. They’d come up to my office and we sit and talk about everything. And Clinton had just unveiled his proposal. Their message to me, and I saw guys come to this meeting who typically didn’t come to the counsel meeting, their message to me was leave us out of it. We hope you succeed. It would probably help us if you do. We wouldn’t have to bargain as much for health care if we had the government program, but what we’ve got is better than what you are proposing.

ROLL CALL: This is the [Sen.] Hillary [Rodham Clinton] (D-N.Y.) plan?

SPRATT: Yeah, but this is labor talking. While they were nominally in the game, I don’t think that most people that got health insurance — adequate, comprehensive major medical — are satisfied with what they’ve got or rather hold on for something that they don’t understand. So there is a huge inertia out there in American society. They know the cost of medical care can’t keep rising. It has bankrupted firms like Ford and GM — nearly bankrupted them. Could bankrupt the whole country. But you still got a huge volume of people who are satisfied with the system.

ROLL CALL: Do you see the signs that the 2008 presidential election could be about health care reform? That we could really have a debate?

SPRATT: Well, a few months ago before the election a delegation came down here from Wall Street. … I didn’t know why they were coming or what they wanted to talk about when I noticed them on my schedule. They came in and sat down and said we want to talk about health care. … And the message they had for me was we’re from Wall Street … and what has happened to GM and Ford has shaken Wall Street to the point where they are thinking seriously about radical, fundamental change, even considering a single-payer system as an alternative to what we’ve got now. That is not saying they are going in that direction. You would find a lot of resistance to that now in this country. But that is where they are on it now. So, that kind of leadership might make up for the lack of leadership among those elements of our society who are satisfied and content with what they’ve got.

ROLL CALL: Do you think the idea of a mandatory individual mandate for health insurance is gaining traction?

SPRATT: It is a great opportunity for different states to experiment with different approaches, and if that works I’m sure it is marketable elsewhere.

ROLL CALL: Now, what about the idea though of, say, means-testing Medicare benefits? Could Democrats ever go for that?

SPRATT: Well, we’ve gone for that. Got damn little credit for it. Taxing Social Security is a means of means-testing. Taxing Social Security benefits above a certain income level is one way of means-testing Social Security, and the proceeds of that of course are put into the Social Security trust fund and the Medicare trust fund. We talked before about income-relating [the] premium. Never got off the launch pad, but it was seriously discussed and the Republicans are pushing it again. …

ROLL CALL: I suppose there is no objection among Democrats to lifting the cap on either Social Security taxes or attacking the income cap for Social Security or Medicare, is there?

SPRATT: Of course, there is no cap on Medicare.

ROLL CALL: I thought there was. I thought it was a higher cap than Social Security.

SPRATT: No, it is a problem for young people in partnerships, for example, who pay a disproportionate amount. … It is not proportionate at all to the benefits that they are going to one day get and that kind of language.

ROLL CALL: In the current budget the president is calling for something like $283 million in cuts in Medicare. Is that a nonstarter?

SPRATT: I think it probably is. One of the criticisms we made of it today is that none of those cost savings are redirected within the health care realm. For example, [the Children’s Health Insurance Program] has to be renewed and that surely is the best investment we can make in health care, assuming we have healthy children. And we are talking about working-family children, too, not welfare-family children. There is a big group, the Chamber of Commerce included, which would like to expand the reach and scope of CHIP. They don’t have nearly enough money provided there. So instead of making certain changes in certain parts of Medicare and cleaning up funds that might be used for medical coverage where it is needed more, they simply use it really to put back in the budget and to avoid having to reconsider the tax cuts, at least that is the charge we make.

ROLL CALL: Now in terms of your ability to balance the budget by 2011 and thereby reduce the amount of interest we’ve got to pay on the national debt, what do you think your overall strategy is going to be? Are you going to start by letting Bush’s tax cuts lapse for people who make over $200,000?

SPRATT: We’ll make that decision when we get to it. In any event, there are a lot of tax cuts that were passed in ’01 and ’03 that we supported: the child tax credit, the 10 percent bracket, the marriage penalty relief bill, $100,000 expensing for small businesses. All of those things we voted for and right now we would certainly vote to renew. I think the decision could be made better when we get to that point in time and see what the bottom line of the budget looks like.

If it is in surplus there is a good chance a number of those could be renewed. We think that repealing the estate tax, irrespective of the overall budget policy, completely repealing the estate the tax is going too far. We would more like to see a 4 or 5 million dollar exemption that would repeal the estate tax for 99.9 percent of the American public. …

ROLL CALL: You’ve got the problem even for you balancing the budget figuring in war expenses. You are complaining the president is not paying for war expenses. …

SPRATT: We’ve got lots of problems putting something together. I don’t want to get too much into detail because what I am doing is I am meeting with the major committee chairmen who have the stake in the process, and I am meeting with different groups of the Democratic party so they feel like they’ve been consulted. To the extent we can accommodate them we will. But we’ve got to put together some kind of collaborative effort so that they feel that this is an equitable outcome, that they were heard and we tried to put something they wanted to see in the budget resolution. …

ROLL CALL: So what are you going to do about the [alternative minimum tax]?

SPRATT: God only knows. It’s a big deal. And the reason they are able to claim they are going to balance the budget by 2012 is that after 2007 the AMT is in full force and effect. And that means according to [the Congressional Budget Office’s] arithmetic that it brings in 1 trillion dollars in additional revenue over a 10-year period of time, $800 billion to a trillion dollars. That makes a big difference on the bottom line. Now … [the Bush administration has] said in the past that they could reform AMT so that it only applies to the upper-bracket taxpayers for whom it was intended, doesn’t apply to the middle-income people. … That is a lot of moving around in the tax code, particularly for an administration that finds any kind of tax increase an anathema. Most people who were enjoying the benefit of those deductions or credits would regard that as a tax increase.

ROLL CALL: They are relying on full AMT in order to balance their budget. But they have always said that they would find a revenue neutral way to fix it. Do they have a list?

SPRATT: No. Neither do we, but no.

ROLL CALL: So what do you think the chances are that you are going to have to depend on raising taxes on upper-income people in order to balance the budget?

SPRATT: I don’t want to make that speculation. It will be hard of enough to deal with once we’ve decided if that decision is reached. We are going into the budget resolution assuming that we will not raise taxes.

ROLL CALL: Now Bush is basically reducing domestic discretionary [spending] right? By how much, what percent?

SPRATT: Can’t give it to you in dollars, but he’s trying to keep providing a 1 percent increase, 1 percent above inflation, 1 percent nominal. One percent nominal. But you got lots of things in there. You’ve got Homeland Security in the domestic discretionary. … Look at education. Now, that will be a classic piece of it. The Department of Education last year got 57.5 billion dollars. Of the Bush administration budget they will get 56 billion dollars.

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