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


Paul Ryan’s proposed Medicare and Medicaid reforms are exactly the right way to approach major deficit reduction. The reforms, if enacted, would produce reliable, structural deficit reduction spread out over decades. Americans 55 and older are exempt from any program changes, so current retirees and those nearing retirement would suffer no interruption of benefits. Those who will be affected will have time to plan ahead for new programs.

The deficit reduction contained in the Ryan proposal is positive for the economy, accompanied as it is by tax reform — lower tax rates and fewer loopholes — of a sort that research shows can add about half a percentage point to growth, thereby helping reduce the debt-to-GDP ratio, the best criterion for measuring budget-policy sustainability. Rising global confidence that the U.S. government is finally serious about eliminating America’s debt buildup will keep interest rates from rising and thereby will further support growth.
Of course there will be opposition to an effort to shrink government. But the political backlash will be limited by a growing conviction among voters that government and government debt are growing too fast. Exempting those 55 and older from changes will be perceived as fair and so will garner support from the important demographic group — baby boomers — now entering or approaching retirement.

John Makin is a resident scholar at the American Enterprise Institute, where he writes the monthly Economic Outlook.

Paul Ryan’s new roadmap is a game changer. While Obama has no plan other than to continue spending on autopilot after adding on Obamacare, the Republicans now have a real entitlement-reform plan that takes the lessons learned from the successful welfare reforms of the Nineties and extends them to Medicaid, food stamps, and other forms of welfare.

Obama created a spending problem that can only be measured in trillions. Paul Ryan has created a reform that will reduce spending by trillions. Not mere billions.

Ryan takes the 25 percent of GDP swallowed whole by Obama-level government and brings it down to 20 percent of GDP over the next decade. By reforming Medicare to create a defined-contribution program that is self-sustaining, he brings spending down to 14 percent of GDP by 2050. Ryan’s federal government is half the size of Obama’s in 2050.

Will the Ryan plan pass Congress and be signed by the president before 2012? Very unlikely. Obama and the Democratic Senate wish to move in the opposite direction. They wish to keep Obamacare rather than repeal it. They wish to maintain the welfare state unreformed.

Ryan’s budget and tax reforms give all Republicans, Tea Partiers, and independents a reason to vote in 2012 for a president and Senate that will pass the Ryan reforms.

The terrain of the 2012 election is now visible. Ryan’s low-tax, high-growth tax code — top rate 25 percent — coupled with reforms that reduce spending along the lines of welfare reform circa 1996, will compete with Obama’s policy of “full speed ahead,” which will bankrupt our future.

Obama has no plan. Ryan shows us a debt-free future and reformed and sustainable entitlement programs.

The danger, as always, comes from those who are in a hurry to “compromise.” Senator Coburn has been pushing a $1 trillion tax hike from the Simpson-Bowles commission proposal he helped write.

Ryan’s budget is all spending reform and spending cuts. Coburn’s “Gang of Six” budget is trillions of dollars in tax hikes over the next decades (at least $1 trillion per decade). And it requires that you to trust Democratic senator Dick Durbin to actually deliver spending restraint.

First Ryan must defeat Coburn and the effort to repeat the compromises (read tax hikes and no spending cuts) of 1982 and 1990. Then we defeat the Democrats.

Grover Norquist is the president of Americans for Tax Reform.


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