Special Report

Now That’s Leadership!

Paul Ryan's courageous budget is a challenge not only to Democrats to get our collapsing fiscal house in order but also to nervous Republicans.

By 3.21.12

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In the first moments of reading House Budget Committee's Fiscal Year 2013 Budget Resolution, entitled "The Path to Prosperity" (and subtitled "A Blueprint for American Renewal"), you realize that this is no business-as-usual document.

The first page of text is a "Statement of Constitutional and Legal Authority," which states that Committee's budget "is committed to the timeless principles enshrined in the U.S. Constitution -- liberty, limited government, and equality under the rule of law" and that it "seeks to guide the nation's policies by those principles, freeing it from the crushing burden of debt now threatening its future."

The House Republican budget contrasts mightily, in approach and in the numbers, with President Obama's recent budget, which could be entitled "The Path to Bankruptcy and Dependency," and with the Democrat-controlled U.S. Senate's budget which, as Rep. Ryan subtly reminds us, does not exist. But it also throws down a gauntlet to Republican presidential candidates, pressing them to emphasize pro-growth economic policies more clearly and more aggressively.

The focus on foundational principles is neither idle talk nor only of academic interest to Committee Chairman Paul Ryan (R-WI) whose "expression of…principles, vision, and philosophy of governing" is captured in the budget document. It is a philosophy and a budget that aim to put the U.S. back on track toward fiscal sanity and toward the uniquely American vision of limited government at limited cost. As Rep. Ryan's introduction notes, "Effective government is impossible without limits. It is no surprise that trust in government has reached all-time lows as the size of government has reached all-time highs."

Of course, this isn't just about philosophy or approval rates. It is about a nation that should function and thrive, and a federal government that currently threatens our ability to do both. Paul Ryan again: "[W]hen taxation is carried to injurious excess to fund activities outside the proper sphere of government, it not only harms the general welfare, but also suppresses revenue itself. As Alexander Hamilton -- whose fiscal plan brought national prosperity while eliminating America's first federal debt -- once observed, 'the most productive system of finance will always be the least burdensome.'" Ryan's words are as wise and compelling as those of our most financially astute Founding Father.

For contrast, consider the comment of Senate "We Don't Have a" Budget Committee Chairman Kent Conrad (D-ND), who believes that the Ryan budget represents a "breach of faith that will make it more difficult to negotiate future agreements" -- because Ryan plans to spend less than the budget caps agreed to in 2011. Who but a Democrat could confuse a spending ceiling with a spending floor? In response, Speaker of the House John Boehner (R-OH) responded on Twitter, noting the definition of "cap" as "an upper limit (as on expenditures)."

The Republican budget addresses specific "core areas," including national defense, the free enterprise system, the social safety net, health and retirement programs, the tax code, and government spending (including the budget process).

Highlights of each area include:

• National Defense: Eliminates $55 billion in "indiscriminate" cuts to the defense budget currently slated to hit in January, 2013 while implementing targeted spending reductions, because "the nation has no higher priority than safeguarding the safety and liberty of its citizens from threats at home and abroad."

• Free Enterprise: Ends corporate welfare, "stop[ping] Washington from picking winners and losers," rolling back energy company subsidies, ending bailouts of financial institutions, and repealing Obamacare. Also implements a range of policies to increase domestic energy production, lower fuel costs, and create energy-related jobs while reducing dependence on foreign oil.

• Social Safety Net: Block grants Medicaid to the states, changing the welfare system so that it "does not entrap able-bodied citizens into lives of complacency and dependency." Simplifies federal education and job-training programs to create accountability and minimize government-caused tuition inflation.

• Health and Retirement Programs: Adds a range of Medicare coverage options, including "traditional Medicare fee-for service," creates competition between health plans, offers tort reform, and implements a premium-support model to keep the system from bankrupting the nation. Provides "increased assistance for lower-income beneficiaries and those with greater health risks" while not reducing benefits for anyone in or near retirement. Like the prior House budget, this plan makes no specific recommendations regarding Social Security, but "calls on the President and both chambers of Congress to ensure the solvency of this critical program."

• Tax Code: Reforms the individual income tax code so there are just two tax brackets, 10 percent and 25 percent, "while clearing out the burdensome tangle of loopholes that distort economic activity." Cuts the corporate tax rate from 35 percent to 25 percent while "shifting to a territorial system" so that U.S. corporate tax only applies to profits earned in the U.S. Repeals the Alternative Minimum Tax. Broadens the tax base and reduces federal spending to below 20 percent of GDP. Simplifies the tax code in order to reduce the cost of compliance, currently estimated at "over $160 billion per year, or 14 percent of all income tax receipts collected."

• Government spending and budgeting: Implements enforceable spending caps, gives Congress more oversight over "wasteful Washington spending," and increases spending transparency.

The comparison between the Ryan budget and President Obama's recently proposed "Path toward Bankruptcy and Dependency" is stark. Including all the new taxes slated to hit Americans due to Obamacare and in the Obama budget plan, the top tax rate on income would increase from 35 percent to 44.8 percent, and that's without a "millionaire's surtax" proposed by Senate Democrats. The tax on dividends would more than triple from 15 percent to over 45 percent, and the tax on capital gains would jump from 15 percent to 23.8 percent.

These massive tax hikes, if allowed to take effect, would decimate the economy and capital markets -- as even many Democrats recognize. It is no surprise that congressional Democrats have been nearly silent in reaction to the Obama budget, reminiscent of the Senate's 97-0 rejection of the president's last budget proposal.

The goal of the Ryan budget is to put the nation on a path to reducing our federal deficit and national debt. Over the next decade, it cuts spending by more than $5 trillion compared to Obama's budget, and offers more than $3 trillion in lower aggregate deficits.

CBO scoring of the Ryan budget "estimates that this budget will balance and begin to produce annual surpluses by 2040, and will start paying down the national debt after that." It also reduces the share of GDP spent on Medicare, Medicaid, and discretionary spending versus current law. Since the CBO uses "static modeling," which ignores the pro-growth aspects of reducing taxes and regulation as well as the growth-stifling impact of Obama's many tax hikes, the beneficial impact of the Ryan budget will likely be greater -- and sooner -- than CBO estimates.

According to the House Budget Committee, the Obama budget is a "path to a debt-fueled economic crisis and permanent decline," with our massive debt (now 100% of GDP) "having real effects today" including injecting uncertainty about "the government's unsustainable future" into the economy. The Committee also notes "clear evidence that stimulus spending did not achieve its promised results" because "it contributed to deficits soaring above $1 trillion a year."

On our current path and under its extension in the Obama budget, it is a matter of when, not if, we have a financial crisis in the country. This would harm households, business, and government revenue, leading to "painful fiscal adjustments" as we've recently seen implemented of Greece, with more to come across Europe's social welfare states.

Paul Ryan's "Path to Prosperity" is a bold challenge to the Obama administration, a team that has fewer good economic ideas than any bunch since Herbert Hoover and Messrs. Smoot and Hawley abandoned free-markets and tipped the nation into a Great Depression. When Treasury Secretary Tim Geithner was challenged on the administration's failure to make even small strides towards dealing with the nation's fiscal woes, his response was, "We're not coming before you to say we have a definitive solution to our long-term problem. What we do know is we don't like yours." It's not just in foreign policy that the Obama administration "leads from behind."

In an interview on CNBC on Tuesday, Gene Sperling, director of the Obama administration's National Economic Council, went to the usual Democrat well, blaming deficits on the Bush tax cuts (despite data disproving this claim), calling for "shared sacrifice" (because the top 1 percent paying more federal income tax than the bottom 90 percent is not "fair" enough), and suggesting that the Ryan plan would offer "extremely harsh cuts in Medicaid." (Cue next commercial of Paul Ryan pushing a wheel chair bound grandma off a cliff.) With this sort of thinking, the Obama economic team will, in less than one full term, have presided over a stunning 47 percent increase in the national debt with no end in sight.

In addition to being a bold challenge to President Obama and Senate Democrats, and a solid starting point for national fiscal sanity, the House budget accomplishes other equally valuable tasks: Harking back to James Carville's "It's the economy, stupid," Ryan returns the national political discussion to the key issue of the size, scope, and cost of the government -- and how by any measure the nation cannot afford another four years of Barack Obama.

It simultaneously pushes Republican politicians candidates toward solid pro-growth economic plans while giving them political cover to do just that. No longer will Republican candidates be able to look courageous with plans that tinker around the edges, that keep an overly complicated system in place, or that add distortions to favor interest groups.

In that sense, Republican candidates and members of Congress might not like the Ryan budget showing them to be less aggressively pro-growth than they should be. Their reaction to the Ryan plan will be more interesting and instructive than Democrats' predictable "sky is falling" paroxysms. Initial reactions from some Republicans already show a desperate need for vertebral transplants.

But perhaps the most valuable contribution of Paul Ryan's budget is to show the nation what leadership looks like. Targeting "political cowardice," which Ryan names as a key factor in our entitlement programs' descent into bankruptcy, is too rare an occurrence among congressional leaders, as is stating specific principles on which policy proposals are based and making a moral argument to support them.

The contrast between Paul Ryan's vision and political courage not only highlights the failures, cynicism, and cowardice of the Obama administration, but also serves as a cautionary reminder that "every country has the government it deserves." Entitlement thinking has saddled our children with over $15.5 trillion in national debt and $118 trillion in unfunded liabilities. So in addition to forcing politicians into a serious economic discussion, Paul Ryan's bold proposal compels angry and fearful American voters to take a long hard look in the mirror.

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About the Author
Ross Kaminsky is a self-employed trader and investor and is a senior fellow of the Heartland Institute. He is the host of The Ross Kaminsky Show on Denver's NewsRadio 850 KOA on Saturday mornings from 6 AM to 9 AM. You can reach Ross by e-mail at rossputin(at)rossputin(dot)com.