Debt Digest | The Political Incentive for Republicans to Reform Medicaid
Links & Fiscal Facts
Here are this week’s reading links and fiscal facts:
Seize the moment to rein in spending and avert fiscal disaster. House Budget Committee Chairman Jodey Arrington (R-TX) told Fox News Radio: “If we don’t change course soon—and I think we have a generational opportunity to do that with the Republican trifecta and with the tool of budget reconciliation—then I think we not only undermine the economy and our future prosperity, but we jeopardize our national security, our children’s future, and America’s global leadership in the world. That’s why I refer to the almost one-quarter cut in the federal discretionary budget as a battle plan, because I don’t think it’s going to be bullets and bombs that destroy the greatness of America. I think it will be our insatiable appetite to spend and our lack of political courage to rein it in.” As Dominik Lett and Boccia have written, to avoid fiscal catastrophe and maximize the generational opportunity Rep. Arrington describes, Congress should adopt a path to long-term fiscal balance. At a minimum, Congress should enact the $2 trillion in modest, concrete spending reductions outlined in the House budget resolution—rather than follow the Senate’s approach to expand tax cuts and spending with no meaningful spending reductions, calling the latter “a blatant attempt to abandon any semblance of fiscal sanity.”
Medicaid expansion supports Democrats’ voter turnout. The Economic Policy Innovation Center’s Paul Winfree and the Paragon Health Institute’s Brian Blase highlight a political incentive for Republicans to reduce Medicaid spending: “Studies show Medicaid enrollment boosts voter turnout, especially in Democratic areas. Enrolling in Medicaid traps recipients in a welfare program, links them to nonprofits offering voter registration, and places them squarely in the sights of campaigns’ get-out-the-vote efforts.” They argue GOP lawmakers shouldn’t settle for modest changes such as work requirements for able-bodied adults but also fix Medicaid’s core structural flaws—including lowering federal reimbursement rates for able-bodied adults and fixing the provider tax loophole. Broader reforms will reduce the likelihood that holdout states will join the Medicaid expansion bandwagon under the political cover of ‘work requirements’. As Cato’s Michael Cannon, Krit Chanwong, and Dominik Lett have written: “Along with Medicare, Medicaid is the main reason the federal government is hurtling toward a debt crisis. [...] It is long past time for Congress to implement fundamental reforms to Medicaid.” If Congress won’t be convinced to reduce Medicaid spending growth because it is good policy, perhaps the political calculus will change some minds. Incentives matter!
Trump’s Skinny Budget Cuts Would Require Bipartisan Approval. The National Desk’s Cory Smith quotes Boccia on President Trump’s “skinny” budget and the reconciliation package. On the “skinny” budget: “Many of the specific cuts that the president is asking for are long overdue [...] Because it would reduce spending on federal programs that should not be within the purview of the federal government to begin with, such as reducing grants and aid to the states, thereby reviving federalism, asking states to fund their own priorities and not rely on federal taxpayers to fund state and local priorities. And it would also cut certain spending where the private sector is better equipped to handle these priorities, like art and culture funding, for example.” However, “The fiscal 2026 budget [including Trump’s proposed cuts] will be harder to pass [than reconciliation], requiring some Democrats to get on board to clear the 60-vote threshold in the Senate. ‘You can basically rule that out,’ Boccia said.” On reconciliation: “There's certainly the opportunity for Congress to also reduce Medicare spending in the reconciliation package [...] That seems less likely, because it's easier for Congress to put Medicaid in the welfare bucket and highlight fraud and abuse.” Meanwhile, the Mercatus Center’s Veronique De Rugy calls POTUS’s skinny budget “another big-government blueprint in small-government clothing.” For more on Trump’s budget and the reconciliation package, see here and here.
Government data overstates senior poverty. American Enterprise Institute’s Andrew Biggs challenges the claim that senior poverty has remained unchanged since the 1990s: “[O]fficial government poverty statistics don’t count retirement account withdrawals as income. [...] But it’s increasingly important for seniors, so much so that the official poverty rate for Americans aged 65, which largely ignores income from retirement accounts, is nearly double the true rate when retirement account withdrawals are included.” For example, while official data puts senior poverty at 9.7 percent in both 2000 and 2024, Census Bureau data that corrects for this critical flaw in income statistics shows a 41 percent decline in elderly poverty between 1990 and 2018—from 9.7 percent to 5.7 percent. Although improved data isn’t available for 2024, Biggs estimates that applying the same correction would mean over one million fewer seniors living in poverty today. For more on this and the myth of the retirement crisis, check out Biggs’ new book The Real Retirement Crisis: Why (Almost) Everything You Know About the US Retirement System Is Wrong.
The Social Security trust fund is just an accounting mechanism. At a 2005 Senate hearing, former Comptroller General David M. Walker explained how the Social Security trust funds really work: “[F]ocusing on trust fund solvency alone is not only insufficient, it can be very misleading with regard to the state of the Social Security system. We need to put the program on a path of sustainable solvency. Candidly, the Social Security Trust Funds are nothing more and nothing less than a sub-account in the government's financial records and badger accounts. They are not real trust funds. If you looked in Webster's Dictionary, or if you have been a fiduciary for private pension plans and other arrangements, it is not a trust fund in the sense that any of us normally would refer to as a trust fund. It is a sub-account of the general ledger.” Explore our interactive feature that visually explains why the Social Security trust fund is just an accounting mechanism, not a depository of workers’ savings, and read more in our related blog post.
