Entitlement Reform: What Next?
Paul Ryan’s budget proposal jump-starts the conversation on Medicare, Medicaid, and Social Security.


Rep. Paul Ryan’s budget plan takes a step toward solving the fiscal crisis created by entitlements and discretionary spending, although it should have, at a minimum, balanced the budget within the ten-year budget window. Still, his plan’s lower tax rates would boost economic growth and help to create more and better jobs, which will generate revenue to balance the federal budget.

The budget plan proves that Republicans are serious and presents President Obama with a huge opportunity. The country is looking for leadership on these issues, and if he were to address them responsibly, he would be rewarded in 2012.

But the president almost certainly will not show such leadership. As a result, the right strategy for Republicans is to use the coming debt-ceiling vote to force tough and enforceable limits on government spending and debt. Voters hate the idea of raising the debt ceiling, and that leverage can be used to build a legal framework to force President Obama to the table.

Republicans should aim to pass a balanced-budget amendment to the Constitution in return for raising the debt limit. The amendment itself is enormously popular. Obama can score an economic, political, and policy trifecta by coming out in support of it. The stock markets will soar on the news that the political system can escape gridlock and avoid a fiscal crisis. With surging confidence about our fiscal future, investment and the economy will boom and unemployment will fall. Political independents will be drawn to President Obama, congressional Republicans, and moderate Democrats, dramatically improving their political prospects next year.

If a balanced-budget amendment is passed and states begin to ratify it, that will put enormous pressure on Obama and Congress to begin its implementation. It will finally force both sides to confront entitlements and nonessential discretionary spending.

— David Keating is the executive director of the Club for Growth.

Government spending has brought us to a genuine crisis point. The question is whether we’ll enact the fundamental reforms that will allow us to cut spending in a positive, pro-growth, pro-worker way or whether we will allow a bond-market crisis to precipitate a crash program that would almost certainly include economically disastrous tax increases.

Meanwhile, states face their own budget crises, driven largely by Medicaid obligations (made worse by maintenance-of-effort requirements in the stimulus bill and in Obamacare), which are already breaking many states and will break all the states in the next few years if the are no reformed.

It’s important to remember that Medicaid, unlike Social Security and Medicare, is not a universal entitlement program. It is a means-tested, state-administered welfare program. Block grants are the proven solution for reforming such programs.

The Ryan budget does the exact opposite of what the stimulus bill did: Instead of sending federal funding only with strings attached, in order to force higher state spending, Ryan’s budget would transform Medicaid into a finite block grant to states with no strings attached. The block grants would allow states to run their own programs, innovate, and implement needed reforms. If a state can operate its program more efficiently, it can keep the leftover federal dollars. Incentives are aligned.
Perhaps the greatest bipartisan policy success of the 1990s was repealing the old Aid to Families with Dependent Children and replacing it with finite block grants to the states, which allowed states to innovate, to improve benefits for the truly needy, and to shrink the welfare rolls — not, as the Left had warned, by kicking people out into the streets, but by getting them into the workforce.

Block-granting Medicaid, as Ryan has proposed, would repeat that success on the biggest budget item now constraining the states, while simultaneously containing one of the federal government’s biggest fiscal challenges.

— Phil Kerpen is vice president for policy at Americans for Prosperity.


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