President Bush, Please Listen to Robert Rubin: Kevin Hassett
March 13 (Bloomberg) -- Washington was abuzz last week when former Treasury Secretary Robert Rubin turned down a personal appeal from President George W. Bush for help with a bipartisan commission to reduce entitlement costs.
In an interview with Bloomberg that aired March 4, Rubin urged Democrats not to play ball unless the whole budget, including the Bush tax cuts, was also on the table.
For Bush, reeling from the Dubai ports fiasco, being rebuffed by Rubin wasn't exactly what the doctor ordered. Conservative columnist Robert Novak took Bill Clinton's Treasury chief from 1995 to 1999 to task, accusing him of being ``intensely partisan.''
But on this one, Rubin is correct and Bush is wrong.
The entitlement problem is almost unfathomably large. The high estimate from the Congressional Budget Office's latest long- term outlook placed the cost of entitlements in 2050 at more than 28 percent of gross domestic product. Total federal outlays today -- not just for entitlements such as Social Security and Medicare -- are about 20 percent of GDP.
Immediately and Forever
Economists Jagadeesh Gokhale of the Cato Institute and Kent Smetters of the University of Pennsylvania's Wharton School have estimated that we could cover the looming fiscal imbalance by more than doubling the combined employer and employee payroll tax immediately and forever, taking it to more than 33 percent from 15.3 percent.
If we tried to fix the shortfall with income taxes instead, Gokhale and Smetters estimated in a 2003 book, we would have to immediately increase them across the board by two-thirds. That might be bad enough, but if we wait, the story gets much worse. If we raise taxes a bunch now, we accumulate funds that can be used to pay off future benefits, reducing required boosts in the future. If we wait, they will have to be much larger.
Those tax increases are extremely unattractive, but the only alternative is to cut benefits, which is also unattractive.
Indeed, Washington is divided into two camps. One wants to fix the problem by raising taxes, but would never dare say so publicly. The other wants to fix the problem by cutting benefits, but would never dare say so publicly.
Soon Unbearable
If we offered Washington policy makers a choice between taking a policy stance on entitlements and having a root canal, all would choose the root canal. It's so much easier to talk about Dubai.
People resort to dentistry when their toothache gets unbearable. The entitlement catastrophe isn't unbearable yet, but it will be soon. Eventually, key members of both parties will have to sit down in a room and talk under the cone of silence about solutions. After much deliberation, a compromise solution must be reached, and presented to the public with wide bipartisan support. No other approach has any chance.
Which means that an entitlement commission needs to start with absolutely no strings attached. Those who think tax boosts are necessary have strong constituents, as do those who hate the idea. Both should respectfully seek common ground.
That's why Rubin is right. He perceived Bush's vision as an entitlement-cutting enterprise. The whole thing was set up with the presumption that the tax increasers would begin the process by conceding everything. It would be like asking Republicans to join a commission charged with figuring out how best to raise taxes.
Exactly Right
I'm not sure of the exact charge the president might have had for Rubin, so maybe his request was more sensible than characterized in the press. But I do know that the commission Rubin described could be exactly the right move to break the gridlock over entitlements.
Now that Rubin is on the record with an explicit recommendation, Bush should enthusiastically endorse it. I suggest he bring one condition to the table: The Democrats suggest the names of five people they think should be on the commission, Republicans suggest five names, and both sides agree to take any proposal the commission makes to Congress.
Rubin's old friend Alan Greenspan is unemployed. Perhaps he and Rubin could head the commission. With their gravitas and the hopeful endorsement of Congress, who knows, something might actually happen?
Time for Leadership
Americans need our leaders to work this one out. The stakes are too high, the system too far out of whack. Democrats care about entitlements, and could use Bush's relative lack of political momentum (to put it mildly) as an opportune moment to seek an advantageous compromise.
And Republicans can respectfully sit down at the table now, at a time when they have enough political power to genuinely guide the outcome. Alternatively, they could wait until some point in the future, perhaps a time when Rubin's political allies have all of the power, and work it out then. For them, isn't the choice obvious?
Rubin did the honorable thing under the circumstances. He made a constructive and positive proposal. Republicans should take him up on it.
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