Economy / Fiscal policy / Healthcare / Politics / Tax

The Ryan budget vs. the Obama budget

By Will Portman

Winston Churchill once said, “Americans can always be counted on to do the right thing… after they have exhausted all other possibilities.”

House Budget Committee Chairman Paul Ryan (R-WI) cited the late British Prime Minister’s famous quote this week as he unveiled The Path to Prosperity, his budget for fiscal year 2013, arguing that the U.S. has run out of easy options, and that fundamental reforms are necessary to get the country’s finances in order.

Ryan makes a compelling case that the national debt is an existential threat — that no government can operate and no economy can function under the level of debt we’re projected to reach in the not-too-distant future. He recognizes the urgency of the country’s fiscal situation and has drafted a credible plan centered on tax and entitlement reform to combat our runaway deficits and mounting debt.

While The Path to Prosperity is not perfect or even complete (for example, it doesn’t list the specific tax deductions or credits that would be eliminated in order to maintain revenue neutrality if rates were to be lowered), it’s a heck of a lot better than the status quo in terms of avoiding a debt crisis in the coming years. It’s a legitimate, politically courageous attempt to tackle our country’s fiscal challenges.

Sadly, the same can’t be said about President Obama’s budget proposal, or that of the Senate Democrats, which is nonexistent. In defiance of the Budget and Impoundment Act of 1974, which mandates that Congress put forth a budget each year, the Democratic-controlled Senate hasn’t even attempted to do so for the past three years running, a self-serving political calculation and a disheartening abdication of responsibility in increasingly perilous times.

As for the President’s plan, he offers only two significant proposals to reduce the deficit: raise taxes on the wealthy, and cut defense spending. However, the President’s proposed tax hikes on the wealthy would only cover about 20% of his proposed deficit spending. And since 8 out of 10 small businesses file their tax returns as individuals, many of them would be hit by an increase in upper-bracket individual income tax rates, leading to lower economic growth and fewer jobs, and thus less revenue. The President’s proposed cuts in defense don’t even come close to making up the remaining 80% of the massive gap between federal expenditures and revenues.

President Obama’s 2013 budget runs a nearly $1 trillion deficit, following three consecutive years of deficits in excess of $1 trillion. It is an understatement to say that fiscal responsibility is not a priority for this administration.

The President’s 2013 budget doesn’t touch mandatory spending programs like Social Security, Medicare, and Medicaid, which account for between 55 and 60% of federal spending and are growing at a much faster rate than discretionary spending. Medicare is by far the biggest driver of debt in the years to come; Medicare spending as a percent of GDP is projected to more than double over the next two and a half decades as medical costs continue to soar and Baby Boomers reach retirement age.

Ryan, in his budget, proposes shifting Medicare from a pay-for-service model to a premium support model, introducing competition between insurance companies to drive down costs. The plan has attracted the support of several prominent Democrats, including Senator Ron Wyden (D-OR), former Senator Pete Domenici (D-NM), and former Clinton Administration OMB Director Alice Rivlin.

But not President Obama. As The Wall Street Journal noted this week, “the White House in its re-election bunker claims that all of this will ‘destroy Medicare as we know it,’ but in fact it is the only reform that will prevent Medicare from destroying itself. Mr. Obama’s demagoguery on this subject is his Presidency at its most cynical.”

It’s fine if President Obama disagrees with Ryan’s Medicare reforms, but if he does, he has a responsibility to put forth an alternate plan. At the rate Medicare is growing, over the next several decades, it will either go bankrupt, crowd out all non-mandatory federal spending, force massive tax increases, and/or contribute so much to the debt that there will be little hope of avoiding a debt crisis. None of these outcomes is acceptable.

Last fall, President Clinton’s former Chief of Staff Erskine Bowles, the Democratic co-chair of the Obama-appointed Bowles-Simpson Commission, said, “I think we face the most predictable economic crisis in history.  A lot of us sitting in this room didn’t see this last crisis as it came upon us.  But this one is really easy to see.  The fiscal path we are on today is simply not sustainable.”

President Obama has chosen to ignore this warning so far. It may be good politics in the short term to avoid laying out any sort of serious plan to cut deficits and begin to pay off debt, instead choosing to demagogue those who have, such as Chairman Ryan. But while avoiding hard choices now may improve the President’s reelection prospects in the fall, continuing to do so for much longer will result in devastating consequences for the country’s future.

Sources:

http://budget.house.gov/UploadedFiles/Pathtoprosperity2013.pdf

http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/budget.pdf

http://thehealthcareblog.com/blog/2011/12/15/the-wyden-ryan-plan/

http://online.wsj.com/article/SB10001424052702304636404577293810586077858.html

http://cnsnews.com/news/article/democrat-agrees-america-faces-most-predictable-economic-crisis-history-within-2-years

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