Romney Stresses Need for Entitlement Reform, Revenue Increases in NYT

Former Senator Mitt Romney (R-UT), a board member of the Committee for a Responsible Federal Budget, published a guest essay in The New York Times today highlighting the need to address our fiscal situation.

In the piece, Senator Romney focuses on the looming insolvency of Social Security and the dangers of our unsustainably rising national debt. Noting the consequences of inaction, Senator Romney explains:

Today, all of us, including our grandmas, truly are headed for a cliff: If, as projected, the Social Security Trust Fund runs out in the 2034 fiscal year, benefits will be cut by about 23 percent. The government will need trillions of dollars to make up the shortfall. When lenders refuse to loan the money unless they are paid much higher interest rates, economic calamity will almost certainly ensue. Alternatively, the government could print more money, inducing hyperinflation that devalues the national debt — along with your savings.

To stem rising debt and secure Social Security, Senator Romney suggests a balanced approach. He focuses first on the importance of grappling with entitlements – namely Social Security and Medicare – because they represent most of federal spending and the main source of spending growth. In particular, Senator Romney discusses means-testing benefits for high earners and along with raising the eligibility ages for the programs to rise with life expectancy.

To generate additional deficit reduction and solvency improvement, Senate Romney argues for raising revenue from high earners. For Social Security, he suggests raising the $176,100 taxable maximum that limits how much income is subject to the payroll tax. Senator Romney remarks that he “long opposed increasing the income level on which FICA employment taxes are applied (this year, the cap is $176,100). No longer; the consequences of the cliff have changed [his] mind.” (We recently proposed an alternative way to progressively raise revenue for Social Security and Medicare – an Employer Compensation Tax.)

These three policies alone could significantly improve solvency. As an example, based on our Social Security Reformer tool, indexing the retirement age to life expectancy, capping the cost-of-living adjustment (COLA) to the median level, and raising the taxable maximum to cover 90% as opposed to the current 83% of wages would close two-thirds of Social Security’s solvency gap and potentially save $1.5 trillion or more over a decade, depending on design.

Senator Romney also focuses on closing tax loopholes for high earners. “But the term ‘loopholes’ grossly understates their scale,” Senator Romney remarks. “’Caverns’ or ‘caves’ would be more fitting.”

In particular, Senator Romney points out that stepped-up basis of capital gains at death offers a huge tax avoidance strategy for those with significant wealth, and he proposes closing this loophole for very high earners. Based on recent Congressional Budget Office estimates, ending step-up basis altogether could raise $230 to $570 billion over a decade.

Senator Romney also proposes to end or and reform other provisions such as the 1031 like-kind exchange loophole, the carried interest provision, the state and local tax deduction, charitable deductions for estates, and certain depreciation rules.

Senator Romney concludes by explaining a common refrain about tax cuts and economic growth:

I believe in free enterprise, and I believe all Americans should be able to strive for financial success. But we have reached a point where any mix of solutions to our nation’s economic problems is going to involve the wealthiest Americans contributing more.

Of course a much faster growing economy would save us from the debt cliff. This truism has long rationalized politicians’ failure to act: Faster growth, promised with tax cuts, is always just around the corner, but that corner never arrives.

Yes, taxes can slow growth. But most of the measures I propose would have a relatively small impact on economic growth. If my party wants to be the one to give working- and middle-class Americans greater opportunity — to be the party that is trying to restore some sense of confidence in our capitalist system — this would be a start.

Senator Romney is exactly right – we will need to make hard choices to address our unsustainable fiscal situation. And that will mean reforming entitlements like Social Security and Medicare as well as raising tax revenue.

Read the full piece by Senator Romney here.