This column by ACRU General Counsel and Senior Fellow for the Carleson Center for Public Policy (CCPP) Peter Ferrara was published March 22, 2012 on Forbes.com.
The budgets produced by House Budget Committee Chairman Paul Ryan, and the votes in the Republican controlled House adopting them, are reframing the 2012 elections. This year’s elections are now defined in one corner by the spending, entitlement, and tax reforms in Ryan’s budget, and in the other corner by the spending, deficits, and tax increases in President Obama’s budgets.
Through those budgets, and the votes taken in the House and the Senate in this Congress, Republicans are establishing a record of cutting spending and taxes, while Democrats are establishing a record of refusing to cut spending, and raising taxes.
Yes, Republicans lost control of spending under President Bush. But President Obama is increasing federal spending as a percent of GDP in four years by one third more than President Bush did in 8 years. (see www.omb.gov).
After the greatest runaway spending spree in world history, by far, in the first 3 years under President Obama, Obama’s budget released in February proposes to increase federal spending by another $1.5 trillion compared to current policies. And that is just compared to the current baseline. President Obama’s budget actually proposes to spend $47 trillion over the next 10 years. Ryan’s budget proposes to cut that by $6.8 trillion. By 2022, Ryan’s budget would consume nearly a trillion dollars less per year than President Obama’s.
Ryan’s budget proposes to cut total federal spending in actual nominal dollars for 2013 compared to 2012, and to cut it again in 2014. Total federal spending would not climb above 2012 levels in actual, nominal dollars until 2016.
By 2015, after just 3 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%. 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 an easily manageable 1.7% of GDP, compared to roughly 9% on average under President Obama.
By 2017, the federal deficit under Ryan’s plan would be reduced to $182 billion, less than 14% of the average deficit under Obama. And that is with CBO static scoring. Under dynamic scoring, with Ryan’s rate cuts, the budget would be balanced by then, if not sooner, because the rate cuts would not lose as much revenue as under static scoring.
Unlike President Obama, Paul Ryan in this budget shows the leadership to propose both sweeping tax reform and sweeping entitlement reform. Instead of raising tax rates as Obama has proposed, and indeed already enacted under current law, Ryan proposes to consolidate the current 6 individual income tax rates, ranging up to 35%, to just two rates of 10% and 25%.
President Obama, by contrast, is already raising the top marginal tax rate at least to 45%, even without any of the new tax increases he has proposed. Ryan has indicated the 10% rate would apply to families making less than $100,000 per year, with the 25% 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, currently the highest in the world (except for Sub-Saharan Africa’s one-party socialist state of Cameroon, as reported in Investor’s Business Daily on Wednesday), to 25%, which is roughly the international average. And Ryan would make the corporate tax “territorial,” which means corporate revenues are taxed by the country where they are earned. America currently taxes overseas earnings twice, once where they are earned, and then again here if the earnings are invested back in America. That double taxation greatly discourages investment of foreign earnings back in the U.S. Ryan’s plan also proposes to repeal the perverse and burdensome Alternative Minimum Tax.
Unlike President Obama’s counterproductive tax policies, these tax reforms enjoy wide bipartisan support. Indeed, Ryan rightly says there is a bipartisan consensus in favor of such tax reform.
Even with all of those tax reductions, federal revenues under Ryan’s budget would nearly double by 2022 compared to 2012. But federal taxes would still be $3.27 trillion less over the next 10 years than projected under President Obama’s budget. This reflects the basic truth that America suffers from soaring federal deficits and debt not because we are taxed too little, but rather because the government spends too much. Under the current tax code, federal revenues would return to their long term historical average since World War II at 18% to 19% of GDP. But without the spending reforms that Democrats ridicule, demagogue, and refuse to even consider, federal spending would rocket up consistently to 80% of GDP by 2087.
Ryan proposes immediate entitlement reform with the repeal of Obamacare, saving at least $1.6 trillion over the next 10 years. More controversial have been Ryan’s Medicare reforms. DNC Chairwoman Debbie Wasserman Schultz described them 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 6 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. These cuts would become effective without further Congressional action. The report of the Chief Actuary of Medicare from the Centers for Medicare and Medicaid Services states, “The Secretary of HHS is required to implement the Board’s recommendations unless the statutory process is overridden by new legislation.”
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. Medicare 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, costs of that program have come in 41% 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 in 1965.
Medicare Part C is Medicare Advantage, under which nearly 25% 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, the above Obamacare Medicare policies apply to seniors already retired today, while 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. These private plans would compete in an annual competitive bidding process along with Medicare determining the amount of the annual premium support payment. Ryan explains,
“The second-least expensive approved plan or [traditional] Medicare, whichever is less expensive, would establish the benchmark that determines the premium support amount….If a senior chose a costlier plan…he or she would be responsible for paying the difference….Conversely, if that senior chose a plan that cost less…he or she would be given a rebate for the difference.”
The growth in premium support over time would consequently be determined through this market competitive bidding process – with choice and competition forcing providers to reduce costs and improve quality for seniors. Ryan references Medicare Chief Actuary Rick Foster as citing “analysis and experience on the merits of competitive bidding as a promising means to improve quality and control costs in Medicare.”
Ryan would put a cap on the per capita growth of the premium support equal to nominal GDP growth plus 0.5%. But note that President Obama has proposed the same cap for Medicare growth, to be enforced by the democratically unaccountable IPAB rationing “death panel.” Seniors would be better off with market competition and their own choices than at the mercy of this Soviet style central government planning body.
Note as well that the Ryan plan 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.
This is why Ryan’s careful, thoughtful Medicare reforms enjoy bipartisan support, including from ultraliberal Oregon Sen. Ron Wyden, and from long time liberal academic Alice Rivlin, the Godmother of the CBO, serving as its first director.
Ryan also proposes to extend the enormously successful welfare reforms of 1996 to Medicaid and food stamps. Those 1996 reforms changed the federal financing for the old, New Deal era, Aid to Families with Dependent Children program (AFDC) from a matching federal funding formula, which paid a state more the more it spent on the program. That was effectively paying the states to run up the welfare rolls. The reforms provided instead for fixed, finite, block grants to the states, with broad state flexibility to adopt changes to get dependents out to work. If the states spent more, that had to be paid by each state itself. But if the state spent less by getting more out to work faster, the state could keep the savings.
Under those dramatically changed incentives, within a few years two thirds left the old AFDC rolls for work, or for marriage to a working husband. After 10 years, spending on the program was reduced by half as a result compared to prior trends. But the poor enjoyed a documented increase in income of 25% because of the increased work and earnings. As a result, Ron Haskins of the Brookings Institution reports in his book evaluating the 1996 welfare reforms, Work Over Welfare, nearly 4.2 million single mothers and children climbed out of poverty, reducing the poverty rate by one-third. He adds, “Between 1994 and 2000, child poverty fell every year and reached levels not seen since 1978. In addition, by 2000 the poverty rate of black children was the lowest it had ever been. The percentage of families in deep poverty, defined as half the poverty level…also declined until 2000, falling about 35% during the period.”
CBO estimates that extending those same reforms to Medicaid and other health programs for the poor like SCHIP would save $770 billion over 10 years. The poor would greatly benefit from this reform as well, 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 nationally one-third do not accept any Medicaid patients, and many of the rest limit the number they will treat. This leaves the poor on Medicaid often suffering disabling difficulties in obtaining essential, timely health care, with documented worse health outcomes as a result. 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.” But 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 any more?
Ryan’s budget provides a platform on which the entire Republican Party can campaign this fall. With reduced spending, deficits, debt and tax rates, the plan would help produce millions of new jobs, and the restoration of traditional American prosperity. That is why the GOP Presidential candidates have already endorsed it.