A Further Perspective

Ryan’s Budget Is Better Than You Know

There is no alternative to its long-term perspective and the squawkers know it.

By 3.28.12

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Both the Left and the Right are grousing about House Budget Committee Chairman Paul Ryan's 2013 budget. Both are factually wrong.

For conservatives, there are two amazing fundamentals in Ryan's budget. First is how quickly it gets spending, deficits, and debt under manageable control. Emphasis on the word manageable, not completely solved.

Ryan's budget actually cuts the total level of federal spending in nominal dollars for each of the first two years. Total federal spending actually declines from 2012 to 2013, and then declines again from 2013 to 2014. That would be the first and only time that has happened since the beginning of the Eisenhower Administration 60 years ago, when we were still climbing down from runaway wartime spending. Total federal spending under Ryan's budget does not rise above the 2012 level until 2016. The total increase in federal spending over those four first years of Ryan's budget is 1.8 percent. Those would be the four most tight-fisted years in federal spending growth since the Eisenhower Administration as well.

By 2015, after just three years under Ryan's budget, federal spending would be nearly back to its long-term, historical average since World War II as a percent of GDP, at 20.1 percent, down from 24.3 percent today. That is a cut in federal spending of 4.2 percent of GDP in just 3 years. Even with Ryan's proposed reductions in individual and corporate tax rates, federal revenues would be restored to their long-term postwar average as a percent of GDP as well. That would leave the deficit in 2015 at a quite manageable 1.7 percent of GDP, compared to roughly 9 percent on average under President Obama.

Balancing the Budget
Most amazingly, even under CBO's static scoring, the federal deficit in actual nominal dollars would be reduced to $182 billion by 2017, the fifth year of the budget. That compares to $1,327 billion, or $1.327 trillion, today. So in just five years, even under CBO's static scoring, the deficit is reduced by 86 percent. The deficit is less than 1 percent of GDP by that year, at 0.9 percent, where it stabilizes for 6 years to the end of the 10-year budget window.

Given the sharp income tax rate cuts in Ryan's budget, with dynamic scoring the budget would probably be balanced by that fifth year, 2017. Club for Growth President Chris Chocola should pay Fiscal Associates the $10,000 that would be needed to do a real dynamic score of Ryan's budget to find out. That would be a major contribution to public policy.

But even under CBO's horse and buggy static scoring, Ryan's budget does solve America's debt crisis. Federal debt held by the public is reduced from 77 percent of GDP in 2013 to 62 percent by 2022, reducing it by a third from the nearly 100 percent it would be by then on our current course. That averts the crisis, assuring that the credit markets will not abandon us as they did in Greece.

Moreover, under Ryan's budget, federal debt held by the public continues on a sharp decline from there, as the long-term effects of Ryan's structural entitlement reforms phase in. Debt held by the public is reduced to 53 percent of GDP by 2030, 38 percent by 2040, and 10 percent by 2050. That means the national debt is all but paid off by 2050, and would be soon thereafter. In fact, under dynamic scoring it probably would be paid off by then.

By contrast, on our current course, under CBO's Alternative Fiscal Scenario, that federal debt rockets to 128 percent of GDP by 2030 (so Ryan cuts that by more than half by then), 194 percent by 2040, and 320 percent by 2050, on its way to over 700 percent by 2080. That is a clear path to bankruptcy, which Ryan transforms into paying off the entire national debt soon after 2050.

You can't discount these longer term projections as meaningless, for two reasons. First, that is how the crisis is defined, by projecting current debt trends long term. You can't define the problem as long-term federal debt projections, and then disdain a long-term solution that transforms those long-term projections. Secondly, the solution is careful, long-term, structural entitlement reform that produces enormous changes over the long run. Under those careful Ryan entitlement reforms, no one gets hurt, contrary to the hysterics of the infantile left (which encompasses today's Democrat party and its media allies). To discount the long-term effects of those careful structural reforms as too far into the future to take seriously is to deny the possibility and opportunity of such fundamental, structural long-term reforms that are politically viable, to embrace draconian, peremptory, entitlement cuts that would be validly subject to the hysterics of infants. That rejects a long-term solution that is viable, for a shorter term solution that is not viable and is never going to see the light of day.

Federal spending as a percent of GDP is reduced to 16 percent by 2050 under Ryan's budget, one fifth lower than the long-term, historical, postwar average. That is not the promise of future spending cuts that will never happen. That is the long-term effect of the entitlement reforms that would be adopted today under Ryan's budget. That is consequently a huge achievement that conservatives should embrace and fight for, not discount. Moreover, that 16 percent would actually be significantly lower under dynamic scoring, because the GDP will be so much bigger by 2050 under Ryan's pro-growth tax reforms.

Reframing the Debate
During the Bush Administration, the President and congressional Republicans did lose control of federal spending, letting it rise by one seventh as a percent of GDP. That reversed a very successful reduction in government spending by the Republican Congress before then, with federal spending declining by one seventh as a percent of GDP from 1994 to 2000, which was accomplished under Newt Gingrich's leadership.

But President Obama is following the Bush apostasy by increasing federal spending as a percent of GDP in four years by one third more than President Bush did in eight years. In his 2013 budget, Obama proposes to increase federal spending by $2 trillion a year by 2022, $9 trillion more over the next 10 years as compared to this year's level of spending over those 10 years.

President Obama's budget actually proposes to spend $47 trillion over the next 10 years, actually increasing spending above the current CBO baseline, ridiculously heedless of America's fiscal crisis. Ryan's budget proposes to cut that by $6.8 trillion. By 2022, Ryan's budget would be spending nearly a trillion dollars less per year than President Obama's budget. That reflects the long-term fix in Ryan's budget.

Here is the bottom line between the two budgets. Ryan returns federal spending to its long-term, historical, postwar average at 20 percent of GDP for the next 20 years. Under the budget proposed by President Obama and the Democrats, federal spending soars to 30 percent of GDP by 2027, 40 percent by 2040, 50 percent by 2060, and 80 percent by 2080. Actually, it is much higher than that, as GDP would collapse under that burden. Add in another 15 percent of GDP for state and local spending, and we are at full blown communism.

Ryan's budget also restores federal revenues to their long-term, historical, postwar average at 18.3 percent of GDP. Even though federal revenue still nearly doubles over the next 10 years under Ryan's budget, President Obama proposes in his budget to raise taxes by more than $3 trillion above that over the next 10 years. See further differences on taxes below.

So that is the issue framed for the American people by Ryan's budget. Do we want to restore federal taxes and spending to their long-term, historical, postwar average over the last 70 years, under which America prospered to become the richest and mightiest nation in world history during that time? Or do we want to raise taxes to begin to finance exploding federal spending well above that long term, historical, postwar average, with government spending over the long run eventually reaching 100 percent of GDP?

The entire Republican Party can and should run on the Ryan budget this fall, framing the issue for the American people this way. I have no doubt how that will turn out, restoring the real, original, free and prosperous America, before it is too late.

Tax Reform and Entitlement Reform
The second thrilling fundamental for conservatives in Ryan's budget is that, unlike President Obama and the Democrats, indeed exactly the opposite of them, Ryan does provide the leadership for actually bipartisan tax reform and entitlement reform.

Ryan proposes to consolidate the current six individual income tax rates, ranging up to 35 percent, to just two rates of 10 percent and 25 percent. President Obama, by contrast, is already raising the top marginal tax rate at least to 45 percent under laws already enacted, even without any of the new tax increases he continues to propose in addition. Ryan has indicated the 10 percent rate would apply to families making less than $100,000 per year, with the 25 percent rate applying to families making over that, with sharply increased personal exemptions ensuring no tax increase for anyone from current law. But the actual parameters would be finalized based on what is necessary to make the reform revenue neutral. Ryan also proposes to reduce America's corporate tax rate, now virtually the highest in the world, to 25 percent, which is roughly the international average. That is the minimum to restore international competitiveness for American businesses, and traditional American prosperity.

Ruth Marcus and E.J. Dionne separately attack Ryan in the Democrat party-controlled Washington Post for not specifying what deductions, credits, and loopholes he would close to make the reforms revenue neutral. Marcus, who is the most confused and uninformed writer on budget policy in America, writes, "If Ryan and his colleagues have a workable proposal to cut tax rates that dramatically without losing badly needed revenue, let's see it. If not, they should stop dangling glittery, expensive promises without showing how they plan to deliver."

That is an unworthy cheap shot, especially in the context of Democrat abdications. What Ryan has proposed is a budget resolution, not legislation. Marcus will get her details when the House Ways and Means Committee marks up and passes legislation, followed by passage by the entire Republican-controlled House.

Marcus may have forgotten how budget resolutions are supposed to work, because the Democrat-controlled Senate has failed to produce one for three years now, in violation of the law. She says "Ryan's plan fails the basic test of responsibility," but what has she or the Post said about the Democrat Senate's gross irresponsibility in lawlessly failing to even consider let alone pass a budget? Moreover, neither President Obama nor any other Democrat has exhibited the leadership to even propose much needed tax reform to keep America internationally competitive, let alone specify what loopholes they would close.

Ryan begins entitlement reform by first proposing to repeal Obamacare, saving $1.6 trillion over the first 10 years alone. Fortunately, the Supreme Court is well on its way to taking care of that for him, as I predicted in this column months ago. More controversial are Ryan's proposed Medicare reforms. DNC Chairwoman Debbie Wasserman Schultz described those as "literally a death trap for seniors." White House spokesman Jay Carney told reporters that Ryan's reforms would "change Medicare as we know it."

But it was Obamacare that already changed Medicare as we know it, transforming it literally into a death trap for seniors. Obamacare cut Medicare payments to doctors and hospitals by $500 billion in the first six years alone, adding up to trillions over the long run. Obamacare also established the Independent Payment Advisory Board (IPAB), an unelected, appointed body with the power to adopt still more Medicare cuts as it deems necessary. Those cuts would become effective without further congressional action.

Such draconian Medicare cuts would create havoc and chaos in health care for seniors. Doctors, hospitals, surgeons and specialists providing critical care to the elderly such as surgery for hip and knee replacements, sophisticated diagnostics through MRIs and CT scans, and even treatment for cancer and heart disease will shut down and disappear in much of the country, and others would stop serving Medicare patients. If the government is not going to pay, then seniors are not going to get the health services, treatment, and care they expect.

Indeed, Medicare's Office of the Actuary reports that even before these cuts already two-thirds of hospitals were losing money on Medicare patients. Health providers will either have to withdraw from serving Medicare patients, or eventually go into bankruptcy.

Contrary to the childish silliness of Wasserman Schulz and Carney, Ryan's Medicare reforms would simply extend the popular and successful policies of Medicare Parts D and C to Medicare Parts B and A.

Medicare Part D is the prescription drug program. Just like Ryan's proposed Medicare reforms, Part D provides premium support payments to seniors, which they use to purchase the private prescription drug coverage of their choice. Because of the private market competition, and incentives for seniors to choose lower cost plans, Part D costs have run 41 percent below projections. Compare that to Parts A and B, which by 1990 cost 10 times the original projections for that year when the program was adopted.

Medicare Part C is Medicare Advantage, under which nearly 25 percent of seniors have already chosen private insurance to provide all of their Medicare coverage. Seniors believe they get a better deal through this highly popular program due to choice and competition.

Seniors would be far better off under the Ryan reforms extending these policies to all of Medicare than they would be under Obamacare's Medicare. First, Obamacare's Medicare changes apply to seniors already retired today, while today's seniors are exempt from any change under Ryan's reforms.

Ryan would empower workers under age 55 today when they retire in the future with the choice of a private plan competing alongside traditional Medicare. Medicare would provide these seniors with a premium support payment they could use to pay for or offset the premium of the private plan they chose. Ryan includes extra assistance for lower income seniors to protect them from any added costs, while means testing the assistance for higher income seniors like Medicare Parts B and D today. Moreover, private insurers competing for seniors under this reform would be required to take all that chose them, at standard market rates, regardless of age or health condition, with no exclusions for pre-existing conditions. Indeed, the Ryan plan provides for higher payments to the insurers for sicker seniors. It would also assess a fine on insurers covering more low-risk seniors, and pay incentive payments to insurers covering more high-risk seniors. This would create special competition in the private market focused on serving the sickest most in need of first rate health care.

These are the reasons why Ryan's careful, thoughtful Medicare reforms enjoy bipartisan support, including from ultraliberal Oregon Sen. Ron Wyden, and from longtime liberal academic Alice Rivlin, the Godmother of the CBO, serving as its first director. These reforms are better for seniors than Obamacare's Medicare, most of all because they free seniors from the cuts and government health care rationing involved in Obamacare's mangling of Medicare, by allowing them to choose private insurance paying market rates instead. Indeed, Obamacare's transparent plan is to force seniors out of Medicare into Medicaid, the health program for the poor.

But Ryan benefits the poor as well through his Medicaid reforms, proposing to extend the enormously successful welfare reforms of 1996 to Medicaid and food stamps. Under those 1996 reforms, the taxpayers saved 50 percent on the costs of the old AFDC program as compared to prior trends, while incomes of the poor formerly on that program rose by 25 percent, and poverty among them plummeted.

Under Ryan's reforms, the poor would be freed to escape the low-quality coverage and care of the current Medicaid ghetto, which underpays doctors and hospitals so severely for the services they provide to the poor that the poor are often unable to find essential, timely health care. States would be free under this reform to provide financing to the poor to purchase private health insurance, empowering the poor to enjoy the same health care as the middle class, because they would enjoy the same health insurance as the middle class.

Dana Milbank describes this reform in the Washington Post as "Ryan would cut $770 billion over 10 years from Medicaid and other health programs for the poor." Indeed, would it be accurate to describe the 1996 AFDC reforms as slashing assistance to the poor by one half? Would that give readers an accurate idea of the results of those reforms? Or can the Democrat party-controlled media even accurately report or comment on the real world anymore?

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About the Author
Peter Ferrara is Director of Entitlement and Budget Policy at the Heartland Institute, General Counsel of the American Civil Rights Union, Senior Fellow at the National Center for Policy Analysis, and Senior Policy Advisor on Entitlements and Budget Policy at the National Tax Limitation Foundation. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.