Ryan’s “Adult” Debt Plan Deserves Serious Treatment

April 7, 2011 • Commentary
This article appeared on Bloomberg Government on April 7, 2011.

After weeks of watching Democrats and Republicans squabble over spending cuts that amount to less than 1.5 percent of this year’s federal spending, it is shocking when an actual adult wades into the federal budget debate.

That’s what House Budget Committee Chairman Paul Ryan did this week with his proposed fiscal 2012 budget, calling for $6.2 trillion in spending cuts over the next 10 years and reform of the so‐​called entitlement programs that are driving this country toward bankruptcy.

Ryan, a Republican from Wisconsin, proposed cuts that have predictably been demagogued as “extreme.” Already, some Democrats have raised the traditional charges that it will leave seniors eating cat food or denied health care, while “slashing” spending for other popular programs. In reality, Ryan’s proposed cuts are fairly modest.

Ryan would roll most domestic discretionary spending back to 2008 levels. He also has shown a willingness to buck many of his fellow conservatives and cut defense spending. He cuts farm programs. Overall, he would target federal spending to roughly 20 percent of gross domestic product by the end of the decade.

While that’s down from the nearly 25 percent of GDP that we are spending today, it is still higher than the 18 percent of GDP the federal government spent under President Bill Clinton just a decade ago. And government seemed to get along quite well back then.

Ryan would also lower both personal and corporate tax rates, while eliminating many distorting tax loopholes under the current code. The new simpler, fairer system, with a top tax rate of 25 percent, would go a long way toward spurring economic growth and reducing unemployment.

Escalating Health Costs
More important for the long term, Ryan would make significant changes to Medicare and Medicaid in an effort to contain their rapidly escalating costs.

On Medicaid, Ryan would follow the lead of the successful Clinton‐​era welfare reform and return funding and responsibility for the program to state governments in the form of a block grant. And on Medicare, Ryan would not make any changes for current recipients or those nearing retirement, but for those younger than age 55 he would transition recipients to private insurance, giving seniors a $15,000 voucher (with extra payments for the poor and sick) to buy insurance on the private market.

Even these proposals are not particularly radical. They draw on proposals that Ryan originally drafted together with Alice Rivlin, who was Bill Clinton’s budget director. They are based on ideas that have been endorsed by a number of Democrats in the past, including former Senators Bob Kerrey of Nebraska and John Breaux of Louisiana.

Not Far Enough
It says something about the fiscal mess we are in that even Ryan’s plan doesn’t go nearly far enough. Despite these supposedly “extreme” cuts, Ryan’s doesn’t actually bring the budget into balance over the next 10 years. It adds roughly $6 trillion to the national debt over the next decade.

That’s still a huge improvement over President Barack Obama’s proposed budget, which would increase the size of government relative to GDP and add more than $13 trillion to the national debt. Then again, the president set the bar pretty low.

If anything, Ryan could have, and should have, gone farther. He could have made much bigger cuts in defense spending, ending the wars in Iraq, Afghanistan and Libya. He essentially ducks the need for Social Security reform in this budget, calling instead for a “trigger” that would force Congress to act in the future.

Holding Back
Ryan’s had solid ideas for Social Security reform in the past, including proposals for personal accounts. He should have included them. At the very least he could have gone as far as the president’s bipartisan deficit commission and recommended raising the retirement age or otherwise restraining benefit growth.

And, since his Medicare proposals would actually produce a better program with more choices for seniors, there was no reason except fear of politics to delay implementation of his reforms. Still, even if it falls a bit short, Ryan has produced the first serious deficit reduction proposal that this town has seen in years. It deserves a better response than simply calling it “extreme.”

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