Unveiling his new budget proposal, Paul Ryan once again reminds us that he is one of the few men in Washington with guts and brains operating in harmony. His budget asks the big question in American politics: What is the middle class willing to give up in order to save the country?
I am afraid that the answer will be: Not very much.
Ryan’s Medicare and Medicaid reforms are both slow, workable, conservative solutions to the fiscal imbalances of those programs. The American middle class may not accept Medicare reform willingly, but it is something close to a mathematical certainty that it ultimately will accept it in some form: One possible form is that the checks stop coming as the nation becomes insolvent, another is that the government pays benefits nominally to the penny but radically devalues the dollar to do so. I suspect that the Ryan plan, or something like it, will be enacted long before that happens. We’re stupid, but we’re not that stupid.
The reaction to Ryan’s tax plan will be the truly telling thing. He proposes to create two relatively low tax brackets but to do so in a way that achieves revenue neutrality by eliminating most deductions and exclusions. Almost certainly this will mean reducing or eliminating the mortgage-interest deduction, deductions for state and local taxes, and deductions for charitable giving. (Ramesh’s beloved child tax credit probably will survive, unfortunately.) The Committee to Reinflate the Bubble will fight tooth and talon to defend the mortgage-interest deduction, and they’ll have a great many middle-class homeowners behind them.
Politicians in both parties (and many of my colleagues at this magazine) speak constantly of defending the interests of the middle class, but it is precisely the middle class that will have to see higher taxes or lower benefits or both if the country is to remain solvent. We could tax the rich at 100 percent and still fail to balance the budget, and the Bush tax cuts for the $200,000-and-up set are dwarfed by the Bush tax cuts for the middle class. Meanwhile, more than two-thirds of federal transfer payments go to the non-poor, mainly to the middle class. It is the middle class, not the wealthy, that enjoys relatively light taxation.
Some generations have to storm Normandy, some have to give up tax-code housing welfare for relatively well-off homeowners. Watch your back, Mr. Chairman.