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Heritage to Congress: Means-Test Entitlements and Flatten Taxes

December 8, 2011 - 6:00pm

A new study on federal spending gives Republicans fiscal ammunition to fight Democrats' relentless push for tax hikes on Capitol Hill. It also gives Democrats a tool to go after "rich" retirees.

The failure of the budget supercommittee to agree on $1.2 trillion in deficit-reduction measures over 10 years has intensified pressure on the GOP to embrace "revenue enhancements."

But the conservative Heritage Foundation points out that even doubling tax rates for all Americans over the next 30 years -- reaching a 66 percent rate for middle-income earners -- would not balance the books.

"Americans realize from experience that if more of their money is sent to Washington to 'deal with the deficit,' Congress will likely spend it," states the Heritage report, "Saving the American Dream."

While lawmakers haggle around the margins, Heritage executive Alison Acosta Fraser said any meaningful deficit reduction effort will stand on four pillars:

  • Overhauling the entire tax code, and implementing a new flat tax.
  • Assessing the core responsibilities of the federal government versus the states.
  • Privatizing and selling off federal assets not connected to those core responsibilities.
  • Reforming entitlements.

The supercommittee was tasked to chip away at just 3 percent of federal spending over the coming decade. Heritage says its plan would balance the budget by then.

Countering the Occupy Wall Street crowd that vilifies the "1 percent," Fraser, director of the Thomas Roe for Economic Policy Studies, said Heritage's goal is to "make everyone part of the solution."

"The left would raise taxes on everyone, but tax rates on the wealthy are already too high. Instead of redistribution, we look to keep the roots of free enterprise," said Fraser, formerly a budget manager for Orange County, Calif., and deputy director of Oklahoma's Office of State Finance under then-Gov. Frank Keating.

While Heritage's first three pillars are significant, the fourth -- entitlement spending -- "crowds out everything else," Fraser said in an interview with Sunshine State News on Friday.

On Social Security, Heritage proposes to gradually reduce checks to upper-income retirees and end payouts altogether for those earning more than $100,000 in non-Social Security income.

On Medicare, Heritage would emulate the Federal Employees Health Benefits Program with a "premium support" model that drives competition. A sliding scale of benefits would slice federal contributions to higher-income recipients. Those earning more than $110,000 annually would get no federal support.

Such "means testing" seeks common ground with Occupy Wall Streeters and Democrats. The wealthiest top 3.5 percent of current Medicare recipients, for example, would receive no federal payouts under the Heritage plan.

"It will keep you out of poverty, but it won't keep you on the private golf course," Fraser quipped.

Although a modest form of Medicare means-testing already exists, and President Barack Obama has indicated he is open to doing more, AARP and hard-line Democrats remain adamantly opposed.

If there's consensus on anything, it's that something must be done to bring unsustainable entitlement costs under control.

Robert Moffit, senior fellow at Heritage's Center for Policy Innovation, estimates that Medicare alone faces an unfunded liability of almost $37 trillion.

Heritage calculates that its Medicare and Social Security reforms would bring the programs' combined costs down to 9.1 percent of GDP by 2030, compared with a projected 17.1 percent if they continue on their current course.

Ultimately, the Washington, D.C.-based think tank says a simplified flat tax system will benefit working Americans and spur the slumping economy.

It also would give Congress less to bicker about by short-circuiting arguments where progressives complain about "the rich" not paying their "fair share," and conservatives ridicule a system in which 47 percent of adult Americans pay no federal income tax.

"The [Social Security] payroll tax is gone" under the Heritage plan, Fraser points out. "Everybody will pay something."

Bottom line: Heritage believes the Democrats' prescription of higher taxes and increased government spending is a dead end for younger Americans.

Indeed, younger voters -- a big bloc for Obama's 2008 election -- are drifting away from the president. A Quinnipiac University poll this summer showed voters aged 18 to 34 saying they would choose a generic Republican over Obama, 37 percent to 34 percent. A subsequent poll found Obama's approval rate among 18- to 29-year-olds has fallen from 71 percent to 56 percent.

In addition to eroding America's competitiveness in the global economy, higher taxes sap entrepreneurial spirits on Main Street, Heritage contends.

"Raising taxes will hit younger generations longer and will shift much of the burden onto the people who did not cause the problem," the Heritage report concluded.

Contact Kenric Ward at or at (772) 801-5341.

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