Politics & Policy

Roadmap to Solvency

Congressman Paul Ryan responds to OMB director Peter Orszag.

Congressman Paul Ryan recently put forward “A Roadmap for America’s Future 2.0,” a comprehensive entitlement-reform proposal. The CBO has certified that Ryan’s plan solves the long-term fiscal crisis. Ryan’s proposal has attracted the attention of the president and Office of Management and Budget director Peter Orszag. The Roadmap has proven attractive in light of the debt-exploding budget the administration has submitted to Congress. In a recent conference call with reporters, Orszag said the following:

Now, with regard to Representative Ryan — I have a lot of respect for Mr. Ryan, and I have read the plan that he put forward — it is worthy to delve into that for a moment, because it provides a contrast. His plan succeeds in addressing our long-term fiscal problem, which is a significant accomplishment. But let’s examine how he does that. He takes the Medicare program, and for those 55 and below turns it into a voucher program, so that individuals are on their own in the health-care market. And the voucher does not keep pace with health-care costs over time.

So it is not surprising that if you shift dramatically, both in terms of risk and expected cost, obligations from the federal government onto individuals, you can reduce the projected cost. He introduces individual accounts, privatization into Social Security. He has significant changes to the tax code that would provide large tax benefits to upper-income households, while shifting the burden onto middle- and lower-income households. He eliminates the tax preference that currently exists for employer-sponsored insurance.

So it is worthy of pausing. He has put forward an interesting plan. There are many aspects of that that are worthy of further discussion and debate, but it is a dramatically different approach in which much more risk is loaded onto individuals and in which the Medicare program in particular is dramatically changed from its current structure.

The following is Ryan’s response.

Peter Orszag is right that the Roadmap dramatically changes the future structure of the Medicare program. But that’s the point. The Roadmap preserves the current program for those 55 and older — many of whom have planned their retirement years based on the current system — and begins a gradual transition to a reformed program that meets the needs of future generations.

And yes, Medicare costs will grow more slowly under the Roadmap than they would otherwise. Again, that’s the point. Even the president acknowledges that, absent reform, Medicare will go bankrupt. Director Orszag has stated in the past that nothing else we do on the fiscal front will matter if we fail to address the unsustainable future of Medicare; after the program goes bankrupt, it will drag down the entire federal budget and U.S. economy. Medicare’s trustees project that the program will go bankrupt within the next seven years.

Contrast this plan with the Democrats’ health-care bills. Their legislation relies on cuts to Medicare for current retirees — and uses the proceeds to pay for a new entitlement instead of making the program solvent. These Medicare reductions would significantly affect the delivery of services to beneficiaries.

On the health-care tax-credit issue, Director Orszag is correct that eliminating the tax preference for employer-sponsored health insurance alters the health-insurance market. But there is consensus among health-care experts — even those in the administration — that the current tax treatment of health care is discriminatory and inflationary. In its analysis of the Roadmap, the CBO states that this change in the tax code reduces the number of uninsured primarily among low-income earners, as the current tax structure is most helpful to high-income workers.

On Social Security, the Roadmap provides seniors with the option either to stay in the traditional government-run system or to enter a system of guaranteed personal accounts. Neither option is privatized. In the personal-accounts system, the accounts are managed and overseen by a government board — not a stockbroker or private investment firm. People choosing the reformed system select from a handful of low-risk, government-regulated options — just as members of Congress and federal employees do.

Director Orszag is also mistaken that the tax plan in the Roadmap would shift the burden onto middle- and lower-income households. The Simplified Tax was designed to be just as progressive as the current code. It cleans out the tangled web of tax deductions and credits that are disproportionately used by the wealthy so that the tax base can be broadened and rates can be lowered. It also offers generous standard deductions so that a middle-income family of four pays no taxes on the first $39,000 of its income. More important, the business-tax changes in the Roadmap would deliver what all Americans seek at this time — increased job opportunities and higher economic growth.

The overall tax plan would also keep the tax burden in line with its historical average. Under the status quo, the tax burden would have to double in the coming years just to meet the government’s spending obligations. That revenue path would increasingly fall on low- and moderate-income individuals, would sink the economy, and would lead to a decline in living standards for everyone.   

There are few paths forward more destructive, more painful, and more irresponsible than the one advanced by those clinging to the unsustainable status quo. There is consensus that entitlement reform is urgently needed, and I welcome constructive criticism of my plan — a CBO-certified plan that actually solves the long-term fiscal crisis. What is unaffordable and unacceptable, however, are political attacks unaccompanied by alternative plans. Those who would rather kick the can down the road are consigning the next generation of Americans to not only a broken social safety net, an inferior standard of living, and bankruptcy — but a future in which America’s best days are behind it.

– Rep. Paul Ryan represents Wisconsin’s 1st congressional district.

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