Tag: paul ryan

Why Should Social Insurance Reform Not Affect Those Over Age 54?

House Budget Committee Chairman Paul Ryan’s budget plan is ostensibly for FY 2012, but it contains reforms with far-reaching implications for the nation’s fiscal condition.

Most of the action in his plan is on the spending side and mainly on health care entitlements: Medicare and Medicaid.  Many pundits on the left are claiming it is a political document rather than a serious budget proposal, especially because it lacks details on many of its proposed policy changes. 

One thing that stands out, as pointed out by David Leonhardt in the NYT, is that Ryan’s plan exempts people older than age 55 from bearing any share of the adjustment costs.  They should, instead, be called upon to share some of the burden, Leonhardt argues — a point that I agree with.  If seniors are receiving tens of thousands of dollars more than what they paid in for Medicare, then they should not be allowed to hide behind the tired old argument of being too old to bear any adjustment cost.  Indeed, seniors hold most of the nation’s assets and a progressive-minded reform would ask them to fork over a small share to relieve the financial burden that must otherwise be imposed on young workers and future generations.

The numbers presented by Leonhardt are computed by analysts at the Urban Institute.  However, those numbers aren’t quite as one-sided as Leonhardt and Urban scholars suggest, because they only compare Medicare payroll taxes by age group to Medicare benefits.  A large part of Medicare benefits (Medicare’s outpatient care, physicians’ fees, and federal premium support for prescription drugs) are financed out of general tax revenues, not just Medicare taxes. General tax revenues, of course, include revenues from income taxes, indirect taxes, and other non-social-insurance taxes and fees.  Seniors pay some of those taxes as well — especially by way of capital income and capital gains taxes — but the Urban calculations fail to account for this.  That means that the net benefit to seniors from Medicare is smaller than Leonhardt claims in his column.  I don’t know whether it would bring the per-person Medicare taxes and benefits as close to each other as they are for Social Security, however. (See Leonhardt’s column for more on this point.)

Leonhardt also notes that Chairman Ryan’s proposal leaves out revenue increases as a potential solution to the growing debt problem.  Leonhardt argues that wealthy individuals (mostly large and small entrepreneurs) received high returns on assets during the last few years (pre-recession) and could afford to pay more in taxes.

But it would be poor policy to raise these entrepreneurs’ income taxes — that would distort incentives to work, invest, innovate, and hire in their businesses.  Instead, policymakers should consider reducing high-earners’ Medicare and Social Security benefits (premium supports under the Ryan plan) in a progressive manner, including allowing them to opt out of Medicare and Social Security completely if they wish to.

During recent business trips to a few Midwestern towns, I met several investors and professionals in real estate, financial planning, and manufacturing concerns, most of whom expressed their willingness to forego social insurance benefits during retirement.  So there seems to be some public support for such a reform of social insurance programs.

Why Are Self-Proclaimed Deficit Hawks Unenthusiastic about the Ryan Budget?

Washington is filled with groups that piously express their devotion to balanced budgets and fiscal responsibility, so it is rather revealing that some of these groups have less-than-friendly responses to Congressman Ryan’s budget plan.

The Committee for a Responsible Federal Budget, for instance, portrays itself as a bunch of deficit hawks. So you would think they would be doing cartwheels to celebrate a lawmaker who makes a real proposal that would control red ink. Yet Maya MacGuineas, president of the CRFB, basically rejects Ryan’s plan because it fails to increase the tax burden.

…while the proposal deserves praise for being bold, the national discussion has moved beyond just finding a plan with sufficient savings to finding one that can generate enough support to move forward. All parts of the budget, including defense and revenues, will have to be part of a budget deal… Now that both the White House and House Republicans have made their opening bids, this continues to reinforce our belief that a comprehensive plan to fix the budget like the one the Fiscal Commission recommended has the best hope of moving forward.

I’m mystified by Maya’s reference to an “opening bid” by the White House. What on earth is she talking about? Obama punted in his budget and didn’t even endorse the findings of his own Fiscal Commission. But I digress.

Another example of a group called Third Way, which purports to favor “moderate policy and political ideas” and “private-sector economic growth.” Sounds like they should be cheerleaders for Congressman Ryan’s plan, but they are even more overtly hostile to his proposal to reduce the burden of government.

House Budget Chairman Paul Ryan’s budget is a deep disappointment. There is a serious framework on the table for a bipartisan deal on our long term budget crisis. It’s the Bowles-Simpson blueprint, now being turned into legislation by the Gang of Six. It puts everything on the table – a specific plan to save Social Security, significant defense cuts, large reductions in tax expenditures and reforms to make Medicare and Medicaid more efficient, not eliminate them.

That sounds hard left, not third way. But it’s not unusual. Many of the self-proclaimed deficit hawks on Capitol Hill also have been either silent or critical of Ryan’s plan.

Which leaves me to conclude that what they really want are tax increases, and they simply use rhetoric about debt and deficits to push their real agenda.

Ryan’s Plan for Farm Subsidies

I thought I would add some detail to the posts my colleagues have already written on Congressman Paul Ryan’s (R-Wisc.) 2012 budget resolution.

Interestingly – and, I would argue, appropriately – the agriculture stuff appears in the “Ending Corporate Welfare” section of the plan, most of  it on page 36. After outlining the ways that farming America is doing well, Ryan’s plan would cut almost $30 billion (or 20 percent of projected outlays) over the next 10 years from farm subsidies (direct payments, currently costing about $5 billion per year) and crop insurance subsidies. Cuts will also reportedly fall on nutrition and conservation programs, but I will let my colleagues weigh in on those.

The focus on crop insurance is encouraging, because crop insurance is an increasingly important part of U.S. farm policy, especially in recent years when commodity prices have been high: high prices reduce the amount of money taxpayers spend on commodity payments, but increases crop insurance premiums, which we all subsidize. They now cost about $6 billion, or more than commodity payments.  And, as the blueprint points out, surely farmers “should assume the same kind of responsibility for assuming risk that other businesses do.” Well played, Congressman.

One point on where the cuts fall on the commodity payments side: As a free-marketeer, I acknowledge that direct payments are less market-distorting than price-linked payments, and they are less (although not fully) questionable under World Trade Organization rules.  If we are going to shovel money to farmers, in other words, sending unconditional welfare checks is the least distorting way to do it. But there is no money to raid from the price-linked programs because of high prices, so if savings are to be found, we need to raid the direct payment cookie jar. And, really, with $7 corn and red ink from here to eternity, surely this is an ideal time to wean farmers off of the government teat.

Reactions from the farmers’ friends, by the way? Predictable. The Chairman of the House Agriculture Committee dismissed the blueprint’s plans for agriculture as “simply suggestions” and that the Agriculture Committee will write the 2012 Farm Bill, thankyouverymuch. (Ryan himself said that the cuts should start in 2012, implying that the Farm Bill schedule should go ahead as planned).

The National Farmers Union spoke the usual blather about Americans spending less of their income on food than in other nations (perhaps because we are, you know, richer?) for the “safest, most abundant, most affordable food supply in the world,” which has been the favorite line of the farm lobby for years now.  The Corn Growers and the National Cotton Council joined them in trotting out variations of the new favorite talking point, about how agriculture has already taken a hit from cuts to crop insurance and that cuts to agriculture’s budget should be no larger than cuts to other areas. 

The blueprint is not my ideal plan, to be sure. That plan would have a line in it about removing the federal government once and for all from all aspects of the agricultural market, including by disbanding the U.S. Department of Agriculture.  It would at least include something about disbanding the production- and price-determined subsidies, so we’re not all on the hook again if prices fall. But it is a good start.

Rep. Ryan’s Budget Avoids Cuts to Military Spending

For all the boldness of Rep. Paul Ryan’s proposal to reduce projected federal expenditures by $6 trillion, an initiative that I support, the Pentagon’s budget emerges essentially unscathed in Ryan’s plan. This is a mistake on both fiscal and strategic grounds. Significant cuts in military spending must be on the table as the nation struggles to close its fiscal gap without saddling individuals and businesses with burdensome taxes and future generations with debt. Such cuts will also force a reappraisal of our military’s roles and missions that is long overdue.

The Pentagon’s base budget has nearly doubled during the past decade. Throw in the costs of the wars in Iraq and Afghanistan, plus nuclear weapons spending in the Department of Energy, and a smattering of other programs, and the total amount that Americans spend annually on our military exceeds $700 billion. These costs might come down slightly as the wars in Iraq and Afghanistan are drawn to a close – as they should be – but according to the Obama administration’s own projections, the U.S. government will still spend nearly $6.5 trillion on the military over the next decade. Surely Rep. Ryan could have found a way to cut…something from this amount?

Defense is an undisputed core function of government – any government – and spending for that purpose should not be treated on an equal basis with the many other dubious roles and missions that the U.S. federal government now performs. But please note the emphasis. The U.S. Department of Defense should be focused on that purpose: defending the United States. But by acting as the world’s de facto policeman, we have essentially twisted the concept of “the common defence” to include the defense of the whole world, including billions of people who are not parties to our unique social contract.

The rest of the world is more than content to free ride on Uncle Sam’s largesse. Absolved of their core obligation to provide for the defense of their own citizens, the governments in other countries have been busy expanding the social welfare state and growing the public sector. The true burdens fall on U.S. taxpayers who spend two and a half times more on national security programs than do the French or the British, five times more than citizens living in other NATO countries, and seven and a half times more than the average Japanese. Meanwhile, our troops and their families are struggling to cover the many commitments that their civilian leaders have unwisely incurred. And yet the defenders of the status quo – those who prefer that Americans pay these costs and bear these burdens – cry for more. More money and more missions.

Fiscal hawks such as Ryan are not serious if they cannot see massive waste and inefficiency in the Pentagon. Robert Gates’ ballyhooed reforms barely scratch the surface of the problem. Mismanagement of major weapons programs is rampant; cost overruns are the norm. A meaningful cap on future defense expenditures will force the Pentagon to seriously confront these inefficiencies, and might also precipitate some useful competition between the services on who is best positioned to keep the country safe and secure.

If Washington is serious about cutting spending, and if the Pentagon’s budget is included in the search for savings, then we need to adopt a different strategy, one that would husband our resources, focus the military on a few core missions, call on other countries to take responsibility for their own defense, and share the burdens of policing the global commons. A serious proposal for reining in runaway Pentagon spending would have precipitated such a strategic shift. By giving the Pentagon a free pass, Rep. Ryan practically ensures that such a discussion never sees the light of day.

Cross-posted at The National Interest.

Federal Spending: Ryan vs. Obama

House Budget Committee Chairman, Paul Ryan, introduced his budget resolution for fiscal 2012 and beyond today entitled “The Path to Prosperity.” The plan would cut some spending programs, reduce top income tax rates, and reform Medicare and Medicaid. The following two charts compare spending levels under Chairman Ryan’s plan and President Obama’s recent budget (as scored by the Congressional Budget Office).

Figure 1 shows that spending rises more slowly over the next decade under Ryan’s plan than Obama’s plan. But spending rises substantially under both plans—between 2012 and 2021, spending rises 34 percent under Ryan and 55 percent under Obama.

Figure 2 compares Ryan’s and Obama’s proposed spending levels at the end of the 10-year budget window in 2021. The figure indicates where Ryan finds his budget savings. Going from the largest spending category to the smallest:

  • Ryan doesn’t provide specific Social Security cuts, instead proposing a budget mechanism to force Congress to take action on the program. It is disappointing that his plan doesn’t include common sense reforms such raising the retirement age.
  • Ryan finds modest Medicare savings in the short term, but the big savings occur beyond 10 years when his “premium support” reform is fully implemented. I would rather see Ryan’s Medicare reforms kick in sooner, which after all are designed to improve quality and efficiency in the health care system.
  • Ryan adopts Obama’s proposed defense (security) savings, but larger cuts are called for. After all, defense spending has doubled over the last decade, even excluding the costs of wars in Iraq and Afghanistan.
  • Ryan includes modest cuts to nonsecurity discretionary spending. Larger cuts are needed, including termination of entire agencies. See DownsizingGovernment.org.
  • Ryan makes substantial cuts to other entitlements, such as farm subsidies. Bravo!
  • Ryan would turn Medicaid and food stamps into block grants. That is an excellent direction for reform, and it would allow Congress to steadily reduce spending and ultimately devolve these programs to the states.
  • Ryan would repeal the costly 2010 health care law. Bravo!

To summarize, Ryan’s budget plan would make crucial reforms to federal health care programs, and it would limit the size of the federal government over the long term. However, his plan would be improved by adopting more cuts and eliminations of agencies in short term, such as those proposed by Senator Rand Paul.

Tuesday Links

  • Republicans have a big opportunity to undo Obamacare and reform Medicaid and Medicare all at once.
  • It’s a good thing, too, because we’re facing a big debt crisis and if we don’t change course, federal spending will crest 42% of GDP by 2050.
  • There’s also a big elephant in the room in an excessively complicated tax code.
  • One has to wonder if the Republicans intend to put the big sacred cow of defense spending on the table.
  • Unrelated to the budget, education choice proponents scored a big victory in the U.S. Supreme Court yesterday in ACSTO v. Winn, a decision that upheld education tax credits: