The 2014 Budget

by Yuval Levin

We’re still waiting on the president’s 2014 budget proposal, which was due February 4th. And we’re waiting to see if Senate Democrats will in fact deliver on their promise to actually propose and vote on a budget resolution, which they haven’t done since 2009. But we know the House will deliver a budget, and that it will likely be introduced next week. We also know that House Republicans have pledged that this year’s budget will balance in 10 years, rather than the several decades their last two budgets took to get there. 


A couple of stories today about how the Republicans plan to get there strike me as a bit confused, though, or at least confusing. Stories in both The Hill and Politico note that Paul Ryan is talking to fellow Republicans about setting the premium-support reform of Medicare in his budget to start in a certain year, rather than to take effect when people who are 55 years old today retire. His idea, I gather, is to say in this year’s budget that the reform would begin in 2023, which is the same year it was set to begin in last year’s budget. By keeping the year the same, rather than having it start 10 years out each year and therefore effectively putting it off by a year with each new budget, House Republicans would make it clear that Medicare’s fiscal problem has to be dealt with and that they plan to do it. People retiring after 2022 should expect to be in a new system in any Republican budget. 


I think that’s certainly better than putting the reform off again each year, though I frankly think nine years out is still entirely too far. Since the Ryan Medicare reform now includes a federal fee-for-service option and a premium-support level set by competitive bidding (and therefore effectively a guaranteed comprehensive benefit that keeps up with costs), there is nothing in particular for people to prepare for (other than more options and a Medicare benefit that looks like today’s prescription-drug benefit), and there is no reason to wait that long to launch a reform. It’s true, of course, that Republicans have told voters each year that those older than 55 would not be affected by the reform, but that remains true—those older than 55 when those promises were made would not be affected. Does it make sense to repeat that pledge every year to a new cohort of voters? Or do Republicans actually mean to implement this reform at some point? 


Be that as it may, the implication that The Hill, for instance, draws from this discussion is that Ryan needs to move the Medicare reform up in order to achieve his 10-year-balance commitment. Ezra Klein, in his own version of this argument today, writes that in order to reach a 10-year balance, “they’re going to need to propose much deeper cuts than in their previous budgets. Ryan is reportedly considering breaking the GOP’s promise to keep Medicare unchanged for everyone over age 55.”  


That just doesn’t make sense. First year savings on this kind of reform would be very small—the idea is that it gets rolled out gradually and incrementally. Tethering the reform to a particular year would be better policy, but I don’t think it would get you noticeably closer to a 10-year balance. And I also don’t think any such thing is really necessary to get to a 10-year balance, or that “much deeper cuts” in general are necessary. 


The Ryan budgets have always been pretty close to a 10-year balance on CBO’s current-policy baseline (as opposed to its current-law baseline, which until this January assumed all the Bush tax cuts would disappear, and had to score the Republican budgets as vastly increasing the deficit by keeping the Bush rates). In the wake of the fiscal-cliff deal, which kept the Bush rates for almost everyone, CBO’s baseline is much more favorable to Ryan’s budgeting. In fact, the latest baseline, released in February, not only reflects the effects of the cliff deal on the revenue line but also includes somewhat lower Medicare cost projections (very largely because the prescription drug benefit has cost less than CBO projected it would) and rosier projections regarding growth and interest rates. Maybe these projections are more accurate and maybe they’re not, but they are the baseline from which the new Ryan budget will be judged, and it seems to me that they mean that the 2014 GOP budget will not look noticeably different from the 2013 GOP budget. It could fairly easily balance in 10 years without any significant new features or major changes. 


I also suspect that it will not actually tether its Medicare reform to 2023 but will instead again start 10 years out. Though I do hope I’m wrong on that front.

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