Is the new Republican budget proposal a "path to prosperity" as it's titled, or, as the Democrats label it, a "road to ruin"? So far, the answer to that question depends on which side of the ideological street you're walking.
The House is set to begin debate this week on the GOP's 2012 budget, rolled out last week by the party's vanguard deficit hawk, House Budget Committee Chairman Paul Ryan. Compared with the budget proposal President Obama unveiled in February, the chairman says his plan for next year would cut $6.2 trillion in spending and reduce deficits by $4.4 trillion over the next decade. But even in deficit-conscious Washington, the plan's upheaval of Medicare and Medicaid makes it a hard sell in Congress and the White House.
Ryan, who represents Wisconsin's First District, aims to drastically lower spending to start paying back the nation's public debt, which, according to the proposal, will reach 70 percent of the nation's entire economy this year and is expected to keep climbing. According to the Congressional Budget Office, his plan could lead the nation back to surplus by 2040. "America can still grow. America can still be prosperous. America can still be America. And that is what we are proposing with this path to prosperity," Ryan said in a committee meeting on the budget last Wednesday. [Check out a roundup of political cartoons about the budget and the deficit.]
Some of the plan's most controversial cuts come from reducing mandatory spending for government-run healthcare programs Medicare and Medicaid. The plan not only would repeal the entire 2010 healthcare reform law, it also would convert the Medicare program into a "premium-support payment" system, in which beneficiaries would get vouchers to pay for coverage through approved private insurers. He says the system is similar to the plan that now covers members of Congress and other federal employees. Ryan hopes that such a program would encourage seniors to think more carefully about how their Medicare dollars are spent. "What we're showing here is we can address the drivers of our debt—the entitlement programs—in a smart and gradual way right now," Ryan said.
Ryan says that his model for Medicare was built on a policy supported by founding director of the CBO Alice Rivlin, his co-chair on the healthcare task force of the president's fiscal commission. Yet Rivlin says that, while she supports the concept of premium support, the subsidy amount in Ryan's plan would not keep pace with the expected growth in healthcare costs over time. Also, Rivlin says she had only backed the premium-support model if it were offered as a secondary option to the current Medicare system. Ryan's plan will not offer a choice for new beneficiaries starting in 2022. "I don't think it is a viable plan at the growth rates he is proposing," Rivlin says. "It would be clearly shifting a lot of the risk to the elderly themselves."
Ryan insists that his version of Medicare reform is a way to "save" the soon-to-be-insolvent program, but Democrats frame it as an attempt to abolish Medicare altogether and place extra costs on seniors. The CBO confirms that the out-of-pocket costs for seniors will be greater under Ryan's proposal than under the current plan. "Privatizing Medicare and capping Medicaid won't reduce costs; it just shifts the burden to our seniors and our families," said Pennsylvania Democratic Rep. Allyson Schwartz at the markup of the legislation last week. "This budget is a blatant attack on seniors, children, and middle-class families, and our future economic growth as a nation."
Oklahoma Republican Rep. James Lankford argued that the reforms are only extreme in that they are "extremely overdue." And Ryan emphasized that the Medicare plan is "gradual," since the reforms will affect only those age 55 or younger when the budget is passed. "Nothing that's proposed affects anyone in or near retirement," New Hampshire Republican Rep. Frank Guinta says.
Ryan's proposal shies away from directly tackling Social Security and instead asks that the president and Congress find "bipartisan solutions" on the troubled program. However, for Medicaid, the central government healthcare plan for low-income individuals, Ryan endorses spending in the form of block grants given to states in fixed amounts based on population. The states would then have the flexibility to customize their Medicaid programs to suit their residents' needs, rather than follow federal rules. "There needs to be a safety net for people who cannot help themselves. There needs to be a safety net for people who are down on their luck," he said. "But we don't want to turn that safety net into a hammock that lulls people to lives of complacency and dependency. . . . Our safety net is tearing apart at the seams." [Vote now: Should Ryan's budget plan become law?]
Democrats last week criticized Ryan's budget proposal for ignoring the concept of "shared sacrifice" and for favoring the wealthy in the proposed tax reforms. Ryan's budget calls for simplifying the tax code by eliminating loopholes and some deductions. Also, the plan would lower the top tax rates for individuals and corporations from 35 percent to 25 percent, a measure that Ryan says should increase the nation's competitiveness and lead to growth. Scott Hodge, president of the Tax Foundation, a Washington-based nonpartisan tax research group, says that, disregarding the repeal of the tax increases included in the healthcare reform law, the changes to the tax code alone won't significantly alter the amount of revenue the government takes in. "At the end of the day, it's probably a pretty neutral plan," says Hodge. "It could actually increase the progressivity of the tax code by eliminating many of those deductions that are largely benefitting upper income people. . . . The overall balance of who bears the burden of tax will probably remain the same."
Ryan also received criticism for the plan's jobs numbers, calculated by the Heritage Center for Data Analysis, part of the Heritage Foundation, a right-leaning research institute in Washington. Some say the numbers were overly optimistic. Ryan says his plan would create nearly 1 million private sector jobs next year and as many as 2.5 million in the last year of the decade. The original calculation noted that the proposal would bring the unemployment rate down to 4 percent by 2015, but an updated version issued by Heritage the next day pointed out that the rate would be closer to 5.4 percent.
The plan is now up for consideration on the House floor, and Democrats are planning to introduce their budget this week. President Obama, coming off of last week's "historic" budget deal which barely averted a government shutdown, is scheduled to speak tomorrow on his own plans for deficit-reduction. No doubt this is just the start of the debate.
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