More on the GOP Budget

by Reihan Salam

Ryan Avent of The Economist highlights some dubious assumptions regarding future employment levels in the Republican budget proposal. Ezra Klein follows up with measured criticisms of his own.

Many left-of-center commentators have been throwing everything they can at the Rep. Paul Ryan, the kitchen sink included, but criticisms rooted in overoptimistic projections shouldn’t be dismissed just because they’re occasionally lumped together with loopy scaremongering. What we have seen, encouragingly, is a moving of the needle on entitlement reform.

Ezra touts the Rivlin-Domenici Medicare reform proposal as an alternative to Rivlin-Ryan, and Rivlin-Domenici is, in my view, a huge improvement over the Medicare status quo:

The Rivlin-Domenici plan (pdf) had a pretty good proposal: You could stay in traditional Medicare or choose a private plan. Either way, if your plan was growing faster than GDP+1 percent, you’d have to pay the difference. The idea would essentially convert Medicare into a universal version of the Affordable Care Act, albeit with a strong public option, and a way to enlist richer seniors in the fight for cost control.

I don’t endorse the rest of Ezra’s post, but this might represent a decent near-term compromise. Austin Frakt writes along similar lines:

If we do force private plans to compete against traditional Medicare in a fair, head-to-head test, the results are likely to be mixed. What we are likely to find is that traditional Medicare is cheaper in rural areas, due to the high costs of establishing provider networks in such areas. Provider market power in rural areas mean private insurers would have to pay high prices, costing the government and/or beneficiaries more. Traditional Medicare, being immune from market forces (though not political forces) can counter that provider market power, essentially setting “below market” prices by fiat. (Don’t go thinking this is an affront to a perfectly competitive market. High provider market power is itself a deviation from a perfect market.)

The flip side is that private insurers (or some of them) might actually be cheaper in urban markets in which there is enough provider competition. Though politics essentially compels traditional Medicare to pay providers enough so that nearly all will participate, private insurers need not do so. They can establish networks, excluding higher cost providers. The benefit of selective contracting is lower prices.

Medicare FFS would survive in much-reduced form, as a public insurance provider for rural America. This too would represent significant progress. And now, as Ezra suggests, Ryan’s proposal might give the Fiscal Commission report a second wind. That seems like incredibly good news. 

We’re seeing a strange political reversal. Republicans haven’t exactly covered themselves in glory in recent years when it comes to questions of fiscal sustainability. The classic Republican position has been to call for tax cuts without calling for commensurate cuts to mandatory spending, i.e., the party has advocated shifting the tax burden from today’s workers to future workers, without saying so explicitly. Republicans have had the luxury of taking potshots at Democrats without offering a plausible path to fiscal sustainability of their own. This allowed Democrats to claim to be the more fiscally responsible party, despite the fact that they too were offering a pie-in-the-sky approach, in which hikes in marginal tax rates on high earners were offered as a cure-all. 

Now, in contrast, we have prominent Republican legislators getting behind deep cuts in entitlement spending as a strategy for forestalling future tax increases. One could counter by arguing that higher taxes on the non-poor — that is, on middle-income as well as high-income households — are preferable for reasons X, Y, and Z, and that a centralized approach to cost control is better than a decentralized approach to cost control. We definitely hear the latter argument here and there, at least from left-of-center wonks. But it’s only a doughty handful few critics who explicitly make the case for higher middle-class taxes to fund a progressive welfare state. As Matt Yglesias recently, er, tweeted,

I think Obama taking all middle class taxes off the table makes something approximating Ryanism inevitable: http://ygl.as/hg0Kdb

That sounds about right. 

So yes, let’s continue the debate about whether Rep. Ryan’s cuts are too deep. But it’s time for the other shoe to drop. If the cuts really are too deep, which taxes should we increase? There is, after all, only so much revenue we can squeeze high-earners.

James Capretta has made this case more clearly than yours truly:

 

For starters, it completely recasts the struggle between the political parties. Everyone knows that what the president and his allies really want to do is raise taxes. They might agree to some tinkering around the margins on entitlements for show. But in their heart of hearts they believe the solution is higher rates of taxation.

The problem is they don’t have the guts to say so in public. They know that’s the surest way to permanent minority status. And so they are hoping for a more indirect route to their goal, using guile to lure gullible Republicans (see here) into agreeing to their approach without ever having to sell it to a tax-averse electorate.

The Ryan plan blows this kind of plotting by Democrats to smithereens. There’s no tax increase in the Ryan plan, and there’s no debt crisis. What’s required is far-reaching entitlement reform and serious spending discipline. By staking out that position, Ryan and his comrades have improved their leverage immensely. There’s no need to agree to tax hikes to solve the budget problem. What’s needed is for Democrats to get serious about spending reform, as Ryan has.

Moreover, with a Republican plan on the table, the media will surely start to ask Democrats, “Hey, where’s your plan?” This will force them to either come clean with their tax-hike vision, or become the party that pushed the country toward a debt-induced economic crisis. Either way, with more clarity about where the parties actually stand, Republicans can win the public fight.

I wouldn’t put it this way. I actually don’t know if the president and his allies understand the scale of the tax increases their long-term spending priorities will require.

I’ll also add that I think James is being unfair to the Republican members of the “gang of 6,” particularly because I think tackling costly tax deductions is sensible for many reasons. And as I’ll note in my next post, there are legitimate concerns about how quickly the Roadmap strategy gets us out of the fiscal danger zone. Regardless, one hopes that James is right to suggest that the media will start asking for a serious Democratic alternative.