The Political Opportunity Structure of Mounting Federal Deficits: Enter Paul Ryan

Congressman Paul Ryan gets under the radar.  He’s handsome, speaks well, and unlike many of the more-notorious Conservative Republicans he grasps the difference between ideological consistency and crude hostility.  This makes him a worthy Republican point man for a proposal to drastically reduce health care for the elderly and poor.

I see no malice in Ryan’s proposal, for what difference that makes.  In his somewhat-stiff opposition response to President Obama’s State of the Union Address in January—I note that it was stiff only to emphasize that Ryan’s true love is policy and that he hasn’t always sought the spotlight—Ryan expressed worry about the tax liabilities his 3 children and future grandchildren would assume.  He really seems to be troubled about this.  Now that I’ve got that out of the way, let’s focus on what he is proposing to do.

Ryan’s proposals would leave Social Security essentially intact, though it would index the benefits of wealthier recipients less-closely to the cost of living, and it would gradually increase the benefit collection age.  The latter in particular is a commonsense reform.  Less commonsense is Ryan’s proposal to revive personal investment accounts for Social Security.  (Has Mr. Ryan forgotten about 2008 or did the Financial Crash really make so little of an impression on him?)

The plan would repeal President Obama’s hard-won Health Care Reform (of course), and replace it with tax credits of up to $2,300 for individuals and $5,700 for families to purchase health insurance.  Ryan has at least realized that those reforms included about $500 billion of savings in Medicare over the next 10 years; Ryan’s plans would maintain those provisions of Health Care Reform, though a lot of cost-rising dysfunction endemic to our health care sector would certainly return without some of the recently-passed regulations.  (The subsidies that allow tens of millions of Americans to buy health insurance would be scrapped to save money)

Ryan’s plan would replace Medicare with vouchers for conventional health insurance premiums, starting with those under age 55.  Those already 55 or older would keep traditional defined-benefit Medicare while entitles seniors to specific procedures.  Low-income citizens would get Federally-funded medical savings accounts, while other Americans could set up their own medical savings accounts tax-free.

Ryan also proposes transforming Medicaid into a series of block grants to the States–the benefits of which the State governments could reduce on their own motion.

The proposals for Medicare and Medicaid have each appeared in the Libertarian Cato Handbook for Policymakers.  The proposal to replace Medicare with premium vouchers would make Medicare solvent by stabilizing its payments, but it would also gradually make Medicare even less-efficient than it is now, and increasingly-inadequate for seniors, as putting the elderly on private health insurance plans, even with Federal support, would do little if anything to slow the rise of health care costs–and it would subject seniors to the dirty tricks health insurance companies traditionally have pulled on the rest of us, and which Health Care Reform has been designed to address.

Interestingly, Ryan doesn’t propose any changes for the far-less insolvent Social Security–though his plan does insist that the President and Congress should come together to produce a plan to ensure the solvency of Social Security should its account approach deficit.

Ryan’s budget plan proposes reducing domestic discretionary spending at least to 2008 levels–which has been a goal of the Republican leadership in principle (though not in practice) since campaign season last year.  It proposes eliminating a number of subsidies, particularly for renewable energy and some farm subsidies.

Finally, Ryan proposes to reduce the top income tax rate to 25% while eliminating many tax deductions, and to lower the corporate income tax rate.

Congressman Ryan has proposed exactly the budget plan we should have expected him to propose.  Almost everything he has proposed here was part of a somewhat more-ideological proposal he made back in January 2010, when Democrats still had a large House majority.  Other aspects of his budget plan, such as his proposal to simplify and reduce Federal taxes, now evoke comparisons to some of the recommendations of President Obama’s Deficit Commission, on which he served but whose final plan he didn’t endorse.  In any case, this is all stuff he has discussed before.

The Liberal Ironist doesn’t want a lot of Congressman Ryan’s proposals here to be adopted.  (I expect his State block grant plan for Medicaid and premium vouchers replacement plan for Medicare, for example, would make the former program more-efficient at the expense of the poor and the latter program *less*-efficient at the expense of seniors.)  Among Ryan’s more-interesting critics was Ross Douthat, the straight-shooting Conservative op-ed columnist for the New York Times.  Douthat argued that any long-term Federal budget plan has to find ways to budget for economic growth, austerity, and our cherished value of equality of opportunity–and that on this last count Ryan’s budget manifestly comes up short.  Tyler Cowen, a market-oriented economic theorist who has previously addressed the premise of our age of limits, had some interesting rapid-fire observations on his Marginal Revolution blog about possibly defective proposals in Ryan’s budget as it stands.  Finally, Liberal economist Paul Krugman, in a recent New York Times op-ed, condemned Ryan’s plan as utter fantasy that would actually increase the deficit to accomodate more tax cuts.  (His speed and intensity in this condemnation, of course, surprised none of Krugman’s usual readers.)

On the other hand, the Economist praised Congressman Ryan for raising the tough subject.  “It is far from perfect,” their article on Ryan’s deficit-reduction plan acknowledges, “but it is the first sign of courage from someone with actual power over the budget.”  I agree that President Obama should have taken the initiative when the Bowles-Simpson Deficit Commission came back with an interesting report.  He was never obligated to embrace every recommendation the Commission made; it would have been enough to start with them and then retool the plan towards his own philosophical objectives–which is what Ryan has done.  President Obama had almost 5 months between the Commission report and Ryan’s unveiling of his plan in which to make his case for (gasp!) tax increases on the rich, cuts in farm subsidies and certain redundant Defense weapons systems, and perhaps a bold elimination of our costly War on Drugs and the like.  Instead, he made a deal with Congressional Republicans to cut taxes further in December.  (I agreed with that deal because of the large number of good bills Senate Republicans allowed the Democrats to pass on its simple terms, but the point is that the President’s own actions made the need for Federal solvency greater, and still he more-or-less abandoned the issue.)

Because the President put off the question of controlling the Federal deficit, Congressman Ryan was left free to propose what is basically the Libertarian Cato Institute‘s vision of the Federal Government.  In a time of record deficits where the 2 parties have both contributed to the problem since the end of the Clinton surplus, Ryan found the hook he needs to start a big debate on the terms of his choosing.  “In hoc signo vinces,” goes the reasoning.  But now the President has proposed his own deficit-reduction plan in a multi-year budget plan.  He has gone so far as to touch our ridiculous new “third rail” of tax increases, taking for a given that there is no reason for the rich to be taxed at the lowest rates since the Great Depression.

The optimistic way to read this situation would be to say that with a Democratic President and split-party control of Congress we have a rare opportunity for a long-term deficit-reduction plan that can address and adjudicate concerns and objections of both sides.  The pessimistic perspective simply says that we will end up with legislative morass, because we are living in a brave new World of diminished expectations–and that means no more of the Republicans’ having their cake and the Democrats’ eating it, too.

In any case, while  I’m with those who think Paul Ryan’s long-term budget plan took courage to propose, I’m also with those who think that courage often doesn’t evince perspective.  The Liberal Ironist hopes President Obama plays politics with Ryan’s plan to convert Medicare into premium vouchers and Medicaid into block grants; it’s the right thing to do.

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