The Ryan budget: A start, but not an end

Michael Strain & Alan Viard American Enterprise Institute
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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 them on 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.