The Ryan budget: A start, but not an end

Reuters

House Budget Committee Chairman Rep. Paul Ryan (R-WI) (R) holds a news conference to unveil the House Republicans' FY2014 budget resolution in Washington March 12, 2013.

Article Highlights

  • Mr. Ryan proved again that he is one of the few genuine leaders in the entitlement reform arena.

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  • The Ryan budget can be an opening offer for bipartisan talks.

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  • The Ryan budget is a start, but it is not an end.

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The president and Senate Democrats have consistently refused to confront the entitlement growth that is the real driver of our long-term budget imbalance. House Budget Committee Chairman Paul Ryan displayed political courage by taking on runaway entitlement spending in the budget plan that he introduced on Tuesday. Mr. Ryan proved again that he is one of the few genuine leaders in the entitlement reform arena. But his plan is far from perfect. It seeks to balance the budget more quickly than needed and it does not reflect the shared-sacrifice approach that represents the best way to solve our long-term debt problem.

Mr. Ryan's budget calls for a fundamental reform of Medicare by establishing a premium-support model, a bold approach that offers the real hope of restraining the program's explosive long-run growth while ensuring seniors receive the care they need. Mr. Ryan also calls for premium hikes on better-off Medicare beneficiaries. And he takes on a longstanding sacred cow by advocating cuts to farm subsidies. Mr. Ryan should be applauded for having the courage to offer real solutions to our serious fiscal problems.

But his budget is not all good news.

For one thing, Mr. Ryan over-reaches on the cuts he seeks in the near term. He writes that "we still have time to avert" a debt crisis, "but we need to get serious about spending - now. That's why this budget achieves balance within the next ten years." Mr. Ryan is right that we need to get serious about spending, and now is the best time to get started. It's essential that we stabilize the debt burden, as a share of the economy, below today's high level, but that doesn't require balancing the budget, certainly not in the next decade. The deficits that the Congressional Budget Office projects for the next ten years, 2.4 to 3.8 percent of GDP, should be reduced as the economy recovers, but they don't need to be eliminated. We need to focus our efforts on the longer term by restraining the growth of entitlement benefits, especially health-related spending.

The harsh cuts to some of the key programs in the social safety net for the poorest Americans are problematic. The plan turns Medicaid into a block grant and sharply limits its growth, a policy that many analysts believe will result in millions of low-income people losing timely access to quality healthcare. The plan block-grants food stamps as well, after employment has recovered. Overall, the proposal cuts nearly $1 trillion - about 20 percent of the total deficit reduction - from entitlement programs other than health and Social Security, most of which aid the poor.

While Mr. Ryan proposes big and rapid changes to programs for the poor, his treatment of programs for the middle-class elderly is far more lenient. He doesn't propose any specific changes to Social Security, although he calls for both the president and Congress to present reform proposals. And his premium-support plan for Medicare would not start until 2024 and, even then, would apply only to new recipients. The plan's much-needed Medicare reforms should be phased in sooner.

The young and the poor should not be asked to sacrifice while today's middle-income and upper-income elderly are not.

Hard choices will have to be made to put our long-term fiscal house in order. We won't be able to solve our fiscal problems by gutting the safety net for the poorest Americans or by raising taxes on only the richest two percent. The broad middle class will have to accept fewer government benefits and higher taxes, measures that will come about only through a bipartisan compromise. The Ryan budget is obviously not a viable blueprint for bipartisan agreement. President Obama will not agree to a plan that includes no tax increases and that obtains nearly 40 percent of its deficit reduction from de-funding the ACA. The hard bargaining still lies ahead.

But, the Ryan budget can be an opening offer for bipartisan talks. With Democrats eager to push for a fiscal solution that relies heavily on tax increases, Republicans must make the case for entitlement benefit cuts. Despite the plan's shortcomings, it offers a clarion call to focus on the spending side of the budget.

"The fact is," argues Mr. Ryan, "we owe the American people a balanced budget." No, we don't. We owe the American people a sound budget that reflects shared sacrifice for all Americans. The Ryan budget is a start, but it is not an end.

Michael R. Strain is a research fellow, and Alan D. Viard is a resident scholar, at the American Enterprise Institute.

 

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About the Author

 

Alan D.
Viard
  • Alan D. Viard is a resident scholar at the American Enterprise Institute (AEI), where he studies federal tax and budget policy.

    Prior to joining AEI, Viard was a senior economist at the Federal Reserve Bank of Dallas and an assistant professor of economics at Ohio State University. He has also been a visiting scholar at the US Department of the Treasury's Office of Tax Analysis, a senior economist at the White House's Council of Economic Advisers, and a staff economist at the Joint Committee on Taxation of the US Congress. While at AEI, Viard has also taught public finance at Georgetown University’s Public Policy Institute. Earlier in his career, Viard spent time in Japan as a visiting scholar at Osaka University’s Institute of Social and Economic Research.

    A prolific writer, Viard is a frequent contributor to AEI’s “On the Margin” column in Tax Notes and was nominated for Tax Notes’s 2009 Tax Person of the Year. He has also testified before Congress, and his work has been featured in a wide range of publications, including Room for Debate in The New York Times, TheAtlantic.com, Bloomberg, NPR’s Planet Money, and The Hill. Viard is the coauthor of “Progressive Consumption Taxation: The X Tax Revisited” (2012) and “The Real Tax Burden: Beyond Dollars and Cents” (2011), and the editor of “Tax Policy Lessons from the 2000s” (2009).

    Viard received his Ph.D. in economics from Harvard University and a B.A. in economics from Yale University. He also completed the first year of the J.D. program at the University of Chicago Law School, where he qualified for law review and was awarded the Joseph Henry Beale prize for legal research and writing.
  • Phone: 202-419-5202
    Email: aviard@aei.org
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Michael R.
Strain
  • Michael R. Strain is a resident scholar at the American Enterprise Institute, where he studies labor economics, public finance, and applied microeconomics. His research has been published in peer-reviewed academic journals and in the policy journals Tax Notes and National Affairs. Dr. Strain also writes frequently for popular audiences on topics including labor market policy, jobs, minimum wages, federal tax and budget policy, and the Affordable Care Act, among others.  His essays and op-eds have been published by National Review, The New York Times, The Weekly Standard, The Atlantic, Forbes, Bloomberg View, and a variety of other outlets. He is frequently interviewed by major media outlets, and speaks often on college campuses. Before joining AEI he worked on the research team of the Longitudinal Employer-Household Dynamics program and was the manager of the New York Census Research Data Center, both at the U.S. Census Bureau.  Dr. Strain began his career in the macroeconomics research group of the Federal Reserve Bank of New York.  He is a graduate of Marquette University, and holds an M.A. from New York University and a Ph.D. from Cornell.


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  • Phone: 202-862-4884
    Email: michael.strain@aei.org
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    Name: Regan Kuchan
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    Email: regan.kuchan@aei.org

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