The chairman of the House Budget Committee, Rep. Paul Ryan of Wisconsin, will unveil his FY2012 budget tomorrow. Not all the details are public yet, but what we do know is very encouraging.
Ryan’s plan is a broad reform package, including limits on so‐called discretionary spending, limits on excessive pay for federal bureaucrats, and steep reductions in corporate welfare.
But the two most exciting parts are entitlement reform and tax reform. Ryan’s proposals would simultaneously address the long‐run threat of bloated government and put in place tax policies that will boost growth and improve competitiveness.
- The long‐run fiscal threat to America is entitlement spending. Ryan’s plan will address this crisis by block‐granting Medicaid to the states (repeating the success of the welfare reform legislation of the 1990s) and transforming Medicare for future retirees into a “premium‐support” plan (similar to what was proposed as part of the bipartisan Domenici‐Rivlin Debt Reduction Task Force).
- America’s tax system is a complicated disgrace that manages to both undermine growth and promote corruption. The answer is a simple and fair flat tax, and Ryan’s plan will take an important step in that direction with lower tax rates, less double taxation of saving and investment, and fewer distorting loopholes.
One potential criticism is that the plan reportedly will not balance the budget within 10 years, at least based on the antiquated and inaccurate scoring systems used by the Congressional Budget Office and Joint Committee on Taxation. While I would prefer more spending reductions, I’m not overly fixated on getting to balance with 10 years.
What matters most is “bending the cost curve” of government. Obama’s budget leaves government on auto‐pilot and leaves America on a path to becoming a decrepit European‐style welfare state. Ryan’s budget, by contrast, would shrink the burden of federal spending relative to the productive sector of the economy.
Along with other Cato colleagues, I’ll have more analysis of the plan when it is officially released.