Iraq Is Foremost, But Other Issues Deserve Debate

Posted September 24, 2004 at 2:47pm

Iraq deserves to be Topic A of the presidential campaign, especially in advance of this week’s debate on foreign policy. But three other crucial issues ought not get lost. [IMGCAP(1)]

They are: (1) How will this country afford the retirement costs of the baby boom generation? And (2) how can Americans maintain their standard of living in an increasingly competitive globalized economy?

And key to answering (1) and (2) is: (3) How are we going to lower health care costs, which hike the cost of U.S. products abroad and threaten to overwhelm the budget?

President Bush and Democratic nominee John Kerry have vastly different approaches to solving these problems, but they’ve scarcely been given the prominence they deserve.

All three challenges require huge changes in existing U.S. patterns of behavior: more savings, more investment, more individual self-reliance and a vast improvement in U.S. education, especially in science.

We can’t afford the 77 million-strong baby boomers’ retirement, especially their Medicare costs, without either cutting benefits, raising taxes or reforming retirement programs, perhaps by means-testing.

We can’t stay competitive without improving our advantages in technology and productivity. That means making U.S. education the world’s best and funding basic science.

Nor can we stay competitive if, for example, health insurance premiums add more than $1,000 to the sticker price of every U.S. auto and if premiums are rising at double-digit rates every year.

My opinion is that Bush addresses all three issues better than Kerry does, because he, unlike Kerry, is willing to institute necessary reforms in this country’s retirement, regulatory and health care systems. But Bush has given away so much money in tax cuts that he can’t afford to implement them.

Bush’s concept of the “ownership society” contemplates near-revolutionary changes in the U.S. social compact, giving individuals power, and responsibility, over their retirement funds, job-training decisions and health care.

Kerry, like many Democrats, is so wedded to New Deal and Great Society programs that he can’t bring himself to consider personal savings accounts or health savings accounts.

He’s also so wedded to organized labor, including teachers’ unions, that he’s likely to backslide on his past support for free trade and higher education standards. And he’s so beholden to trial lawyers that he can’t support litigation reform.

On the other hand, Kerry is willing, and able, to invest more money in science, education and health care because he’d cancel Bush’s tax cuts for the top 2 percent of taxpayers, reaping $860 billion over 10 years.

In fact, Kerry has a potentially powerful short-term political and economic position that I’m amazed hasn’t gained more traction: “Everybody but those making over $200,000 a year keeps their Bush tax cuts. The rich simply return to Clinton-era levels. And with the money we can insure the uninsured and give everyone a chance to go to college.”

Kerry also claims that he can halve the federal deficit, currently topping $448 billion, over a four-year period. That would keep interest rates low, add to national savings and help keep Social Security solvent without cutting benefits or “privatizing” the program.

Bush counters that Kerry’s tax increases would hit job-creating small businesses and that his proposals would cost much more than $860 billion, making it impossible to reduce the deficit without bigger tax hikes.

The Bush campaign also argues that its tax cuts are already hiking economic growth, increasing federal revenues, reducing the deficit and making it possible to get halfway to a balanced budget in five years.

But that’s all short term. Longer term, Bush wants to offer younger workers a chance to put a portion of their Social Security into private savings accounts earning higher yields than the government guarantees.

Kerry declared last week in Florida, “Let me make it clear. I will never privatize Social Security. Never. I will not cut benefits. I will not raise the retirement age and I will not privatize Social Security.”

Chances are, he will have to raise payroll taxes instead. And, if he means the same about Medicare and Medicaid benefits, the costs will amount to 27 percent of gross domestic product by 2050 — more than the entire federal budget today.

The problem with Bush’s Social Security reform is that it costs more than $1 trillion in “transition costs” — money that younger workers are saving and that can’t be used to support seniors. He’s tax-cutted that money away.

On competitiveness, Kerry is trying to keep jobs in the United States by preventing U.S. companies from escaping taxes on profits abroad. However, U.S. multinationals could be put at a comparative disadvantage, which would encourage them to relocate abroad.

Bush’s alternative is to “make this country the best place in the world to do business” by reducing regulation and litigation, including malpractice suits that drive up health costs.

Bush also wants to encourage health care savings accounts that would provide catastrophic coverage and make people sensitive to the cost of medical services they receive. The problem is that Bush can’t offer HSA tax breaks to everybody. He can’t afford it.

So, whom to vote for? A would-be reformer who can’t pay, or a willing payer who won’t reform? It’s a hard one.