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By Jay Cost

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How Far Will Democratic Leaders Go?

The two American political parties are great institutions with long, rich histories that stretch from the 1800s all the way to the present day. Today's parties are deeply connected to their past incarnations. Abraham Lincoln "belongs to the ages," as Edwin Stanton said, but the Republican Party of today has a special bond with the 16th President. The same goes for the Democrats and Franklin Roosevelt. All Americans can be proud that this country produced such a great leader. Yet he was a Democratic leader, which gives today's Democratic Party a special linkage to him. These connections are not merely nominal. Rather, there is a real intellectual tradition in both parties that unites past, present, and future.

This is why I have been frankly surprised by some of the concessions the Democratic Party's leaders have been willing to make in pursuit of a comprehensive health care reform bill. Each party has short term policy goals - in this case, the Democrats want to expand coverage. Yet these short term goals fit into a bigger philosophical framework. Some of these compromises seem to challenge that framework.

A big issue I have already discussed is their planned $491 billion reduction in Medicare over the next ten years. Medicare is the most significant fiscal policy achievement of the Democratic Party in the last seventy years. Protecting it from Republican cuts was a major reason Bill Clinton won reelection. To say the least, it is surprising that today's Democratic leaders are willing to make reductions in Medicare. What's especially surprising is that the cuts are coming not as an end in themselves (i.e. the party is finally focusing on stabilizing the system for future generations), but to find spare cash to finance another entitlement. Medicare has been lost in the shuffle of public options, abortion restrictions, taxes, regulations, and mandates - none of which has anything to do with it.

This lack of consideration is apparent in another aspect of the Senate bill. Keith Hennessey points out that it includes a Medicare payroll tax increase on those making more than $200,000 a year. He speculates that Senator Harry Reid chose this as a way to make up revenue lost by limiting the tax on "Cadillac" insurance plans. Hennessey rightly notes the significance of this policy:

With this proposal, Senator Reid is leading Democrats across a major philosophical threshold. Since Social Security was created in the 30's and Medicare in 1965, payroll tax revenues have been "dedicated" to financing these programs. While not all funding to finance Medicare comes from payroll taxes, all funding from the Medicare payroll tax finances Medicare. In other words, the 2.9% Hospital Insurance payroll tax that you and your employer pay on your wages is all supposed to offset Medicare spending. That is part of the social insurance model, in which everyone pays in a fraction of their wages, and everyone receives benefits later...

Leader Reid's bill would use new Medicare payroll taxes to finance a new health entitlement outside of Medicare. His bill would turn Medicare payroll taxes into a general financing mechanism like the income tax. There is a slippery-slope argument against this that I would normally expect from the Left. If Republicans (or my former boss) had proposed this, I would expect AARP to come unglued and raise fears among seniors that, if this proposal becomes law, future Congresses might take payroll tax revenues and use them for highways or defense or other non-social insurance spending.

This expansion of the payroll tax is indeed a major shift. The social insurance model was a political innovation that sold Americans on the idea of Social Security. It was a way to provide for seniors without making anybody feel as if they were on the dole. This is not something that you would expect the Democrats to alter without serious deliberation - but they apparently are. Plus, as Hennessey notes, it potentially threatens the system in the future. If some Medicare dollars can be used to finance an expansion of welfare rather than the social insurance system, who's to say that more dollars from the system couldn't be used to finance capital gains tax cuts or missile defense?

Both of these policy innovations seem inconsistent with the grand traditions of the Democratic Party. I would expect its leaders to treat Medicare a little more reverently. And there might be one more innovation in the offing: the elimination of the public option. This would produce an extraordinary policy, one you would not expect to come from the Party of Jackson.

Why? Because there will presumably still be an individual mandate in the bill. Keeping the individual mandate but dropping the public option means that the Democratic Party will force many individuals to engage in commerce with private businesses that would intend to make a profit from such interactions. That is unbelievable! The Democratic Party was founded as an opposition group to the established economic and political orders. That opposition connects party leaders across the ages: Jackson's destruction of the Bank of the United States, Bryan's "Cross of Gold," FDR's New Deal, LBJ's Great Society. These leaders pursued different means, but ultimately for the same end: protect the little guy from the powers that be. If the Democrats pass a health care bill with an individual mandate but without a public option - they'll be forcing the little guy to contract with those powers. And remember, the government is going to be imposing more regulations on these companies, and providing subsidies to them (by covering at least some of the costs of those deemed eligible). So, expect the insurance companies to quadruple the number of lobbyists they have stationed inside the Beltway, whispering in the ears of legislators about what sort of changes should be made to the system. Yet the little guy doesn't have any K Street lobbyists, and he won't be sending any in the future. That's what makes him the little guy.

Franklin Roosevelt did not go against the core principles of the Democratic Party to achieve his policy goals. Instead, he re-imagined those principles with his ingenious social insurance model. That's how he could provide assistance to the elderly without the label of "welfare." It was an important distinction for Americans, whose individualism is unmatched throughout the entire world. This social insurance model was such a durable framework that Lyndon Johnson could expand it to include Medicare for seniors. The Democrats want to expand health care further. A noble goal - but their challenge is to do it in a way that the public accepts and that is true to their history. It seems less and less likely that the final bill will fit these requirements.

As I have noted on my "About the Author" page, I am not a Democrat. Yet I respect the Democratic Party, not only because of its important contributions to the nation's history, but also because America needs the Democratic Party, just as it needs the Republican Party. The evolving health care proposal does not feel like something I'd expect the Democratic Party to produce. Instead, it is starting to seem like something drafted by a bizarre hybrid of the old Federalist Party and the British Labor Party.

I think it's time for Democrats to return to their Rooseveltian roots: find a commonsensical solution to the health care problem that the country can embrace, and one that is more consistent with the party's history and core beliefs.

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-Jay Cost