Paul Ryan and House Republicans are in a familiar quandary: They know that it is necessary, both economically and politically, for them to introduce a budget with reforms sufficient to place the national debt on a path toward stabilization. They also know that such a budget has only the most theoretical chance of passing Harry Reid’s Democrat-controlled Senate or being signed into law by President Barack Obama. The question before them is how many steps toward fiscal rectitude they can take before the budget debate ceases to be an exercise in balancing politics with policy and becomes instead an exercise in politics exclusively.
Ryan’s proposal shows its best face when paired with the Democratic alternative, to be formally released by Democratic senator Patty Murray’s Budget Committee on Wednesday. The Democratic proposal contains: 1.) a tax increase of nearly $1 trillion, 2.) a new $100 billion stimulus bill, 3.) $275 billion in health-care cuts that are unlikely to be enacted, and 4.) $240 billion in military cuts that will be enacted. In exchange for all this, the Democrats’ proposal achieves less than half of the deficit reduction of the Ryan plan.
The Ryan plan begins with an enormous concession: While the budget calls for some important tax-code reform, the revenue line stays where it is under current law. That is, Ryan’s budget grants President Obama and the Democrats their recent tax increases, including those associated with Obamacare. (Obamacare itself would be repealed, but the tax level it established would be maintained.) On this point, we think the Republicans made the wrong choice.
Otherwise, the new Republican proposal will be in its broad strokes familiar to those who know Ryan’s early proposals. It contains tax reform that will trade the elimination of certain exemptions and deductions for reduced tax rates. This alone will neither reduce the deficit nor add to it, but the simplification of our overcomplicated tax code will encourage investment and growth, and will bring some measure of relief to those taxpayers who do not at present benefit from the panoply of federal special-interest tax benefits. But if it seriously reduces the mortgage-interest deduction and similar benefits enjoyed by middle-class taxpayers — in exchange for reducing the tax rate for the highest earners to 25 percent — it will be very difficult to defend politically. It would be better to begin by jettisoning those deductions that are least defensible and then adjust rates down proportionally, rather than assuming a top rate of 25 percent and then eliminating deductions until the point of revenue neutrality is reached.
Ryan’s budget is designed to eliminate the federal deficit within ten years. That would be a remarkable achievement made more remarkable still by the fact that the budget includes no net tax increases and achieves its savings largely through Medicare reforms that are desirable in and of themselves, regardless of their effect on the deficit.
What Ryan’s budget does not contain, it should be emphasized, is spending cuts. The difference between Ryan’s balanced budget and Obama’s crippling deficits is this: Ryan proposes that federal spending be allowed to grow at 3.4 percent a year rather than the 5 percent rate it is expected to hit otherwise. That is the most important context for this debate: For a difference of 1.6 percentage points in the growth of federal spending, we get a balanced budget in ten years instead of a headlong rush into a debt crisis on the Greco-Spanish model.
Besides the repeal of Obamacare, the most controversial aspect of Ryan’s proposal will be his Medicare reforms. They will be controversial not because the policy itself is remarkably austere — it is in fact very mild — but because Democrats know from long experience that they can have a great deal of success frightening old people and their economically illiterate base with the specter of helpless grandmothers’ having their Medicare benefits snatched away. In reality, Ryan’s plan will affect nobody over 55 years old, and it will not necessarily affect anybody else, either: Ryan’s plan is to offer “premium support” — converting traditional Medicare benefits into a subsidy for buying health-care coverage in the private marketplace — as an option for those seniors who prefer it. The other option is Medicare. The politics of this are obvious: Democrats have had great success with Medicare demagoguery; Ryan’s plan to allow seniors the choice to substitute private insurance for traditional Medicare will make such cynical manipulation of the electorate’s fears much less effective.
On Medicaid, the Ryan plan would see the federal government continue to provide the bulk of the funding for the program through block grants, which would be administered at the state level — an important money-saving move, but also one that would be desirable regardless of its effect on spending: State legislatures and governors are better positioned to understand and respond to local conditions in their jurisdictions than are faraway Washington pooh-bahs.
Changes to Social Security will be necessary at some point, but they are not contemplated by the Ryan budget. They should be: Along with accelerating the schedule for Medicare reform, reforming Social Security would enable a balanced budget with smaller but more realistic cuts.
As a broad vision for the fiscal future of the United States, the Ryan budget would represent an important step in the right direction if it were to become law. Its structural reform of Medicare would do a lot to limit the welfare state’s cost while making it less bureaucratic; it would thus be a more important achievement even than eliminating the deficit in a decade. As a workable legislative package, the budget is in need of two pieces of companion legislation: The first order of Republican business is coming up with a practical vision for health-care reform to replace Obamacare after its repeal; the insecurity that many Americans feel with regard to their health-care coverage is acute and it is justified, and it is the reason we got Obamacare in the first place. Repealing Obamacare will be a knife fight; replacing it will be all-out war. But it must be done. The second task is for the tax-writing committees to flesh out the specifics of the broad reforms the Ryan budget envisions.
Critics will say that the Ryan budget is unserious because its enactment would require President Obama to sign off on the repeal of his hallmark legislation as well as swallow entitlement reforms that are inimical to his party’s political interests. But the reality is that the continuation of Obama-scale deficits into the indeterminate future creates a brake on economic growth, certainly in the long term and likely in the present. If Barack Obama wants to hold reform hostage to his own political interests, it is not Paul Ryan and the House Republicans who are unserious.