Representative Paul Ryan, chairman of the House Budget Committee, has produced another bold budget. He knows that President Obama and the Democrats will not allow his budget plan to become law this year, but he wants to recommit the Republican party to spending restraint, tax reform, and a strong defense.
Naturally, the Obama White House is already shrieking. Ryan’s budget, it says, “fails the test of fairness, balance, and shared responsibility.” The test of balance? Ryan’s plan moves the federal budget into sustainable balance, even on the unfavorable assumptions of the Congressional Budget Office. President Obama has never produced a plan to balance the budget on any time frame. His treasury secretary, Timothy Geithner, admitted as much in recent testimony before the House. Nor have Senate Democrats, who have not produced any budget at all for three years. We doubt that most Americans will find that consistently large deficits and ever-rising debt levels meet their definition of fairness, balance, and responsibility. Nor will they favor what we suspect is the president’s real, though secret, plan: to allow taxes to rise on everyone, in effect cycling the middle class’s money back to it through Washington for the benefit of the Democratic party.
The Ryan budget would spend $5 trillion less than President Obama plans to spend over the next decade. It repeals Obamacare. It limits Medicaid spending by offering states a capped amount of funds, ending the current practice of bribing them to expand coverage. It commits to a tax code that raises the same revenue, as a proportion of the economy, as we have historically raised, but does so with lower tax rates, less hostile treatment of capital, and fewer loopholes.
The main change Ryan has made between last year’s Republican budget and this one concerns Medicare. Last year, he proposed that in the future, the government should defray the cost of whatever coverage plans senior citizens choose, with the amount of the subsidy varying by their age and health risks, and with total spending rising at the rate of inflation. If they choose more expensive plans, they will have to pay more. This year, the budget proposes that instead of rising at a predetermined rate, the size of the subsidy should depend on the results of a bidding process in which insurers in each of Medicare’s administrative regions compete to cover the minimum benefits package at the lowest price. In addition, under Ryan’s new proposal, one of the options seniors would be able to choose would be a traditional fee-for-service plan run by the government.
In principle, these changes could be advances for conservatism rather than concessions. If competition and price sensitivity drove costs down, a competitive-bidding model could reduce Medicare spending more than last year’s proposal would have. (If the program failed miserably, spending would still be capped at the level the Obama administration has stipulated.) It would be important that the implementing legislation gave no artificial advantages to plans that operate on the fee-for-service model. But if that condition were met, the resulting reform would be a giant step toward free markets and national solvency.