President Bush's plans for a second term threaten a devastating series of far-reaching challenges to the viability of the Democratic Party itself. Under Bush's slogan of an "ownership society," the Republicans intend a long-term effort, using changes in Medicare, Social Security and taxes to pit better-off and worse-off Democrats against each other, offering all-but-irresistible incentives for some to desert the others -- and any progressive national coalition. Congressional Democrats reeling from the impact of the last four years of Republican government in the White House and Congress (apart from the brief Democratic-controlled Senate in part of 2001-02) will find no respite in the platform's subtext about the party-splitting wedges ahead. A second-term Bush agenda will constantly impale Democrats on the dilemma of abandoning their poorer, sicker, older and minority groups, or seeing their better-off, healthier and younger members lured off to the other party. If it sounds like a political nightmare for the Democrats, that's because that's what it is planned to be.
A prime provision of the Republican platform touts Bush's Medicare act of late 2003, focusing public attention on the drug benefit provisions and such nice-sounding themes as providing more healthcare choice and having a free market in healthcare. Meanwhile, the Republicans distract attention from the less visible part of the 2003 act, the Medicare Modernization Act (MMA), which made the most radical alteration to Medicare in years. These Medicare maneuvers occurred with the typical Republican stealth; the act was written in a closed-door conference committee that excluded meaningful Democratic input and rammed through Tom DeLay's House of Representatives by a single vote late at night as the rule for debate was extended for hours while moderate Republican doubters were coerced with threats.
Traditional Medicare unifies seniors into a group that can come together to defend it because it enrolls everyone in its public fee-for-services plan. The MMA begins the political splitting of seniors by adding a new private Preferred Provider Organization option, dubbed in Orwellian fashion "Medicare Advantage."
Medicare Advantage drains Medicare's total funding by giving away billions in lopsided subsidies to the private insurers who provide such plans, with the expectation that they can pocket most of those subsidies as profits and yet still offer incentives to some seniors to join. For example, such plans can provide the seniors they entice to sign up with a drug benefit plan without all the cutoffs and ceilings that make Bush's standard Medicare drug benefit plan a hollow offering for many seniors. But the insurers enroll only the healthier and better-off seniors into these plans. As a result, traditional Medicare, which must carry an increasingly concentrated share of the costlier patients, gets perceived as overspending per patient. This benefits Bush's corporate backers in the insurance industry who have the healthier, inexpensive beneficiaries to generate profits without any particular efficiency by the insurer itself.
Then, another part of Bush's MMA sets up "premium support demonstration projects." Under the new rules, competition between traditional Medicare and private plans will sharply force up the premiums seniors pay for traditional Medicare. At their start, these projects will affect about 6 million of the 41 million people in Medicare and will expand later. When Republicans have their way, the harsh consequences, such as 30 percent hikes in premiums, would be imposed on seniors who, for geographic and other reasons (for example, they live in Democratic voting states, they are working poor), Republicans see no reason to spare. Again, in these project sites, healthier and wealthier seniors, who can take the risk of leaving traditional Medicare, would depart for private insurers.
Once that happens, the whole senior population would be split into two antagonistic camps. The sicker and poorer group would be forced to stay behind in traditional Medicare, which would suffer increasing underfunding. However, the healthier and wealthier group of seniors moving into Bush's private plans would be well taught to identify their interest with the Bush-supporting private insurers. Both the insurers, and this group, would see merit in supporting tough cost-savings in the traditional Medicare group -- treating it increasingly the way stingy states treat Medicaid beneficiaries.
Some tough measures against traditional Medicare's increasingly beleaguered beneficiaries may include folding some poorer Medicare beneficiaries into their state's Medicaid program -- a rough fate in states that take full advantage of potentially lax federal oversight -- or perhaps even moving some parts of the Medicare population further toward the Republican ideal of a capped voucher system. Once the Republicans have such a capped voucher system, they can make further cuts from time to time that put all the fiscal pain of the system's limits, including its industry subsidies, on those who can least bear it.
Politically, the healthier and wealthier group would eschew the classic seniors' thoughts that traditional Medicare deserves protection and that Republicans are not protecting it. That political trend would become especially strong because the MMA includes a fast-track provision that could be traditional Medicare's death warrant. This provision, in circumstances that portend a larger Medicare draw upon general revenues, puts Republican-style changes, like benefit cuts, on a fast track through the House, rigged to work even if miraculously the Democrats regain procedural leadership. Democratic-style changes, like restructuring the self-serving drug industry, would of course be stymied. With traditional Medicare seeming to be doomed, those who could would depart, not defend it.
In every election thereafter, an alliance of drug companies, insurers and other Republican supporters would spend heavily in floods of easily understood, simplified advertising to label the Republicans as Medicare's saviors through so-called choice for beneficiaries, while labeling the Democrats as draconian tax increasers (who would also be implicitly stigmatized as defending minorities). As Medicare's beneficiaries increasingly separate into two classes, one of them susceptible to Republican lures, a unified and vigorous Democratic defense of Medicare would either crack up or lose key support through desertion.
Bush's vision of a so-called ownership society is code language for dismantling not only Medicare, but also the existing Social Security system and replacing it with a system by which individuals' contributions go into personal accounts. Even Bush's handpicked commission got nowhere on solving the huge problem of financing the transition from the current pay-as-you-go system to Bush's privatization scheme. Perhaps Bush will continue simply presenting his vision as an unfunded mirage. Or, in order to provide some actual funding for the change, a Bush victory would be the context in which to unveil a new tax that hits people harder the less they have, like a value-added tax that works like a sales tax but is not separated out and visible. Either way, Republicans could pitch to younger and better-paid workers who see no personal payoff right now in their paycheck deduction for Social Security.
Ordinarily, proposing a new federal tax akin to a national sales tax would involve too much risk for Republicans. However, the risk might drop if it were introduced as a way to end Social Security taxes, at least in part. As with Bush's tax cuts and the 2003 Medicare act, a long rosy-hued public phase of talking up the wonders of the proposal would get it through the House and Senate into a conference committee. Under cover of political darkness, this conference committee would produce quietly and in hard-to-decipher form the actual law that transfers funds on a broad scale from the have-nots to the haves.
In any event, through this plan, whether or not it's funded by something like a national sales tax, Bush would make a play to split younger from older Democrats. As with Medicare, he would shred the concept of a social safety net for all -- a unified protection for the national community. In election campaigns, Democrats, for trying to hold that unified protection together, would be depicted as -- no surprise here -- simple-minded excessive taxers, this time as to the payroll taxes.
Democrats may look at the Republican platform's call for more tax cuts and assume it just means an effort to extend in time the tax cuts of 2001 and 2003. That alone would be painful enough for Democrats and for the country. The Congressional Budget Office recently confirmed that a third of President Bush's tax cuts have gone to the top 1 percent of income. And the CBO estimates show that of the $10 trillion of newly piled-on debt anticipated from Bush's actions from 2002 to 2014, Bush's tax cuts (including their renewal) would amount to $5.5 trillion -- an enormous debt burden that will fall primarily on the middle class.
However, digging a little deeper, Bush's proposals carry a stealth plan to pit middle-class and worse-off Democrats against each other. Nina Olson, the Internal Revenue Service's national taxpayer advocate, gave a largely overlooked taste of this on June 23 in Chicago at the National Community Tax Coalition's conference of advocates for low-income taxpayers.
Olson warned the group that the earned income tax credit (EITC), the tax code provision that aids the working poor, could fall under the knife that tax writers will wield in coming years. Until now, even Bush, with his zeal to play reverse Robin Hood, has not dared to openly propose assailing the popular and efficient EITC. Olson points to the EITC's vulnerability in the context of an impending crisis arising from the alternative minimum tax (AMT), the additional income tax that kicks in principally for those who take certain specific deductions. "Unless you get attuned to the conversation of how the tax system is going to deal with the AMT, you will be left in the dirt," she said.
The AMT taxes incomes at a flat rate of 26 or 28 percent, and omits certain key deductions allowed from the regular income tax, notably state and local income taxes. Unlike the regular income tax brackets, which are indexed for inflation, the AMT's thresholds are not. So, the AMT will kick in at levels that stay the same despite inflation -- levels that look increasingly middle-class for those who have sizeable deductions for state and local income taxes -- while the high-rate income tax brackets kick in only at higher income levels due to tax cuts and inflation. This means that, absent relief, in a few years the AMT will impose scores of billions of dollars in taxes that the middle class would have been spared from paying as regular income taxes.
In plain English, if you're in the middle class, it's likely you have been paying only your regular income tax, but in a few years you'll find yourself paying not just that but also an increasingly hefty AMT. (Bush's tax cuts in 2001 and 2003 gave very short-term fixes to this problem. But those short-term fixes expire at the end of 2005, after which the AMT will increasingly become a burden on the middle class.)
Now here is an especially devious aspect of the Republican plot. Republicans did not show the interest in a long-term fix for the AMT in 2001 that they showed for slashing the estate tax, or in 2003 for chopping the tax on corporate dividends. After all, those are taxes that irritate very wealthy Republicans. By contrast, it so happens that the AMT's rise creates a much bigger problem for Democrats than Republicans. The states and localities that levy income taxes tend to be more Democratic, like California and New York, than the states that do not, like Texas. So that's where the taxpayers are whose income tax, but not their AMT, is reduced by deducting state and local income taxes -- and who will find themselves paying lots of AMT in a second Bush term. Thus the AMT performs the politically dangerous trick of surcharging Democratic areas and sparing Republican ones.
In fact, the partisan effect of leaving the AMT without a long-term fix is so potent that an article in the tax journal Tax Notes during the passage of Bush's 2001 tax bill had the stark headline, based on the AMT's long-term effect, "No Tax Cuts for the Gore States." Change "Gore" to "Kerry" or just plain "Democratic" and the post-2005 prospect becomes alarmingly clear.
In order to close the jaws of this political trap, in 2005-06 a Republican Congress and president will repeatedly and visibly put congressional Democrats to the politically lethal dilemma of having to vote on a package that patches the AMT and slashes the EITC. How would this work politically for the Republicans? Abolishing the AMT would cost $85 billion, and could be matched by a repeal of low-income tax credits, principally the EITC, thereby imposing $74 billion in taxes on the working poor, according to Olson. Forced to vote on such a package, some Democratic members may vote in favor of the measure to avoid the wrath of their own states and districts that otherwise face an increasing share of the federal tax burden as the AMT increases for them. But such votes to slash the EITC would then turn off the party's base among the working poor.
Thereafter, near election time, the Republicans would spend heavily on easily understood, oversimplified negative advertising to label the Democrats, whichever way they vote, as tax increasers for either their geographic or economic bases. Meanwhile, Bush could use whatever funds, such as even more piled-on debt, he wishes to devote to more regressive tax cuts, for those measures -- like repealing estate tax for estates of unlimited size -- which, unlike cutting the AMT or maintaining the EITC, put money in bulging pockets of his own high-income constituency.
The basic pattern is clear. The 2004 Republican platform and the program for a second term provide the blueprint for long-term Republican entrenchment in office. Bush intends to split the Democratic coalition by devastating the social gains the nation has created to guard against the worst effects of economic downturns, gross inequalities and the health vulnerabilities of the old.
Some observers may comfort themselves with the reassurance of a pendulum theory of government, in which even if Bush wins and presides over a unified Republican government, he may still have no popular mandate to pursue such a program. In this complacent view, the pendulum may have swung right at the present, but it must swing back, not onward even further toward the far right. But Bush and Karl Rove have proved they do not passively await popular mandates or pendulum swings. They have already done much of the preparatory work for their radical plans in the past four years. The Medicare revision, for example, already provides all the legal authority Bush needs; it only requires a tough-on-beneficiaries approach by those under his command who make the Medicare rules.
Bush stands on the threshold of his great dream -- or our nightmare -- of a nation in which key former Democratic coalitions lose large and important groups that have an investment in a government that serves the common good. If Bush succeeds, the Democratic Party may become a weakened shadow that can rarely, if ever for very long at a stretch, deploy the national authority for great public ends. It happened here before -- after the Progressive era in the 1920s that led to the crash and Great Depression. It can happen again.