National Review Online
Wednesday, March 13, 2013
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 (Obamacare itself would be repealed, but the tax level it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.
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.
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