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April 04, 2011

Rep. Ryan’s Budget: Change You Can Believe In

Any politician who claims federal spending can be brought under control without substantial changes to Medicare, Medicaid, and Social Security is at least ignorant and, if not ignorant, lying; but most Republicans campaigned on a platform of reduced budgets and ignored or denied the need to cut these entitlements. Any politician who thinks that the federal budget can keep growing at the rate forced by the growth in these three programs is doing electoral and not budget math; but most Democrats in Congress have voted for continual expansion of these programs. Politicians know that even people who are for "less spending" don't want programs cut which they think benefit them.

The fiscal year 2012 budget proposal prepared mainly by House Budget Committee Chair Paul Ryan (R-WI) is a welcome act of political bravery: it addresses all three of these entitlements and reduces the anticipated federal deficit over the next decade by $4 trillion (which, incidentally, doesn't eliminate the deficit). It also proposes fixing the very broken tax system which results in some paying punitive rates while others (can you spell GE?) paying nothing.

The full plan is slated for release later this week, but, according to details in a Wall Street Journal article based on a Fox News Sunday interview with Rep, Ryan, Medicare (health care for the elderly) as we know it today would be replaced by an insurance premium subsidy program with higher payments to those in greatest health or financial need. Geezers (like me) who are already on Medicare or will be on Medicare in the next ten years would be able to stay with the current program if we want to; those who are currently under 55 won't have this choice. Even though Ryan developed the Medicare proposal together with Democrat Alice Rivlin of the Brookings Institute, this part of the budget plan is certainly to be the lightning rod for political attacks. There is nothing as easy to be a demagogue on as the fear of us seniors of being left without adequate medical care unless it is the fear of potential heirs that we'll spend all "their" money keeping ourselves alive.

Medicaid (health care for the poor), under the proposal, would be converted to block grants to the states. Today the states get federal matching funds to implement Medicaid but struggle under federal rules and mandates and compliance reviews which drive up costs while making the programs less effective than they could be. Opponents will fear, with some justification, that states will now race to cut their Medicaid expense to no more than whatever the feds pay; states are taking more control over their own budgets anyway now that the flood of stimulus dollars is gone. However, states go through elaborate machinations to make as many expenses as possible qualify for Medicaid reimbursement in order to attract more federal money; the more a state spends (with limitations), the more it gets from the feds. The result has been a fast ratchet upward of Medicaid expenditures. With full control over Medicaid, states will be able to coordinate it with other aid programs to the same population.

So far we don't know the specifics of the plan to bring Social Security costs down. Of the three entitlements, it is the one with the least immediate problems.

As draconian as this all sounds, the result is just to bring federal spending down to roughly 20% of gross national product – exactly where it has been for decades and was in 2008 (although GNP was bubbling in 2008). Keep that in mind when you hear the howls of protest.

According to the WSJ, part of the full proposal is likely to be eliminating loopholes and deductions in the tax code and bringing the top rates down. Like reigning in entitlements, these are changes that need to happen for the sake of fairness and the economy. Like reigning in entitlements, this proposal will generate a chorus of "but you can't eliminate MY loophole." These complaints will come from those whose campaign contributions bought the loopholes and tax expenditures (credits) in the first place. It will take great political courage to stand up for a fair and simple tax code, which doesn't have anywhere for GE to hide – but also makes it less expensive, on the whole, to pay one's fair share.

Rep. Ryan has done us all a huge favor by bringing the important issues out of the closet. We owe it to ourselves to have a real debate which goes beyond pandering, fear mongering, slogans, and sound bites.

Related posts:

Post Stimulus, States Are Where the Action Is

The Deficit Reduction Draft Proposal is the Stimulus Program We Need!

Cutting the Deficit – Just Do It!

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