A kind of myth has grown up that congress is regularly scheduling future Medicare cost-savings that it doesn’t follow through on. This is an intellectual superstructure built out of two different grains of truth. One is that in 1997, Congress really did enact a set of Medicare savings, called Sustainable Growth Rate, that proved unrealistically aggressive. The other is that during the Bush years it became standard budgetary practice to write documents that assumed SGR would be applied even when absolutely nobody intended to apply it. That said, the SGR process did in fact reduce Medicare spending below the trend line and the fact that the Bush administration loved budget funny business shouldn’t obscure that. Indeed, as an important Center on Budget and Policy Priorities report argues what normally happens when Congress agrees to restrain Medicare spending is that Medicare spending gets restrained.
I would also emphasize that the SGR trick—like a similar tax-side trick in which congress pretended to believe congress wouldn’t amend the AMT rules—only ever took in the very naive. The Congressional Budget Office produced “alternative fiscal scenario” reports detailing its actual prediction. When the CBO says a bill would reduce the deficit, they’re saying, in part, that they don’t believe you’re looking at a replay of this scam.
That said, the future politics of a thing are always impossible to forecast precisely. The weird thing about the current version of this debate is that the very same conservative politicians saying these bills won’t really reduce the deficit are also busy trying to take out the reductions in Medicare spending. I think it’s pretty clear that insofar as the American political party that’s friendlier to budget cuts demagogically opposes every possible means to reduce Medicare spending that it will, in fact, be very challenging to reduce Medicare spending in the long run. But that’s an accusation to fling at them. And, frankly, I don’t see a particular reason to believe it’s a trend that will be adhered to once the particular politics of 2009-2010 pass away. But if it does, then I think the onus is on free market types to try to do some organizing and activism to have some influence on the elected officials on their side. But how many “anti-spending” tea partiers were denouncing the GOP’s defense of Medicare bloat earlier this week? Greg Mankiw didn’t see fit to mention it at all.