Republicans Flirt With a Very Risky Issue: Cutting Social Security

A NEW GENERATION OF YOUNG REPUBLICANS, determined to impose fundamental change in key programs, wants to reform Social Security, impose a Value Added Tax, and risk a default on U.S. debt. They sense a deficit crisis coming, and are eager to take drastic action to curb the budget deficit.

BUT THIS COULD BACKFIRE ON REPUBLICANS: The public wants incremental changes, or none at all — there’s no public call for cutting Social Security benefits. Gaining power is a powerful aphrodisiac, it has emboldened House Republicans, but that risks a blow-back from voters.

AS WE WROTE YESTERDAY, spending for Social Security (23% of the federal budget) and Medicare (14%) now dominates the budget. To their credit, most Republicans understand that the growth of these entitlement programs has to slow. So they are now considering reforms, the Washington Post reports this morning.

ADVOCATING SOCIAL SECURITY CHANGES could backfire spectacularly on the GOP. giving Joe Biden and congressional Democrats an issue — cutting Social Security. Even a very modest proposal a decade ago by Paul Ryan — reducing the CPI calculation in the annual cost of living adjustment — blew up on the GOP.

EVEN DEEPER REFORMS, such as raising the retirement age, curbing some benefits and hiking payroll taxes, almost certainly would fail (see: Emmanuel Macron). The politics of this is simple — in 2022, an average of 66 million seniors received a Social Security check each month; more than 59 million people are enrolled in a Medicare plan. And these folks vote.

YET THE REPUBLICANS ARE FORMING COMMITTEES to examine entitlement cuts. “Everyone has to look at everything,” said Rep. Kevin Hern (R-Okla.), the leader of the House Republican Study Committee.

MANY MODERATE REPUBLICANS ARE INCREDULOUS that the party would give such a gift to the Democrats. Former President Donald Trump warned last week about “cutting even a single penny” from Social Security or Medicare. Trump never cared about deficits; he favored more, not less, entitlement benefits.

STILL ANOTHER RISKY GAMBIT is the Republican flirtation with a VAT tax, which analysts believe would benefit wealthy taxpayers and disproportionally hurt middle and lower class taxpayers. A consumption tax will get an airing in coming months, giving Democrats another juicy target.

BOTTOM LINE: Joe Biden finally caught a break — Mike Pence also had top-secret documents, weakening the Republicans’ hand on this issue. And Biden can bash away at the GOP’s consideration of Social Security cuts, which will not pass (neither will a VAT tax).

THE KEY AS THIS EPIC BUDGET FIGHT HEATS UP will be which party can win the public relations battle? Everyone seemingly wants spending restraint — but if this fight comes down to Social Security cuts, the Republicans will lose.

Related: Will Jerome Powell Play a Role in the Debt Crisis?

The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.

The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.

AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.