April 10, 2011

Three Cheers For Paul Ryan…On Second Thought, Make It Four

by Hal Gershowitz

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Paul Ryan’s 2012 budget proposal is not a panacea for the nation’s debt and deficit woes. The Ryan proposal is, however, a bold, brave, and, we think, an extraordinary step forward by the House Budget Committee, which Mr. Ryan chairs, in what is certain to be a lengthy give and take between the Republican-controlled House (where budget bills must originate) and the White House.  It is a “grown-up” proposal that President Obama professes to want.   At last, at long, long, last we finally have an elected representative in Mr. Ryan from Wisconsin willing to address the issues that one congress after another (both Democratic and Republican) and the White House (the current one and those that have preceded it) have ducked, dodged and deflected to the serious detriment of the nation.

President Obama, at his February 15th press conference following the unveiling of the White House 2012 budget proposal said, “This is going to be a process in which each side in both chambers of Congress go back and forth and start trying to whittle their differences down until we reach something that has an actual chance of passage.” Well, now we have two opposing proposals.  Let the whittling process begin.  At last, budget and entitlement reform is going to be addressed for real.

The White House proposal, essentially, locks in spending at the outrageously inflated 2010 level and attacks deficit reduction only at the margins. For anyone seriously concerned about the economic health of the nation it should be a non-starter. Left untouched are virtually all of the nation’s entitlement programs that nearly all economists, budget analysts, debt-rating agencies, the Congressional Budget Office and the immediate past chief accountant of the United States have acknowledged are unsustainable and crippling burdens.

David Walker, the former Comptroller General of the United States during the Bush Administration warned “that irresponsible fiscal policies and practices of a succession of congresses and administrations, have put the country on a path that, if not fundamentally changed, will lead the nation to bankruptcy.”  This reality defines the difference between the Ryan budget plan and the Obama budget plan.  Rep. Ryan has tackled the fundamental changes that most everyone acknowledges are needed. President Obama has ducked them.  Ryan is guided by the reality of the nation’s economic plight — Obama, by the reality of his party’s political posturing.

At the well-staged Blair-House “summit” between the President and the congressional leaders of both parties, shortly after the President’s inauguration, President Obama acknowledged that there were differences in the economic positions of the two parties, but dismissively reminded the opposition that “we won the election.”  Well, the shoe is somewhat on the other foot now.  The House of Representatives is the body to which the Constitution relegates responsibility for advancing budget legislation, and the nation’s electorate fired over sixty House Democrats and replaced them with Republicans, virtually all of whom ran on a pledge to reign in the deficit and substantially slash the budget.   While representative Ryan is too polite to say it, we can just imagine him thinking, “but we won this election.”

Mr. Ryan is very bright and he has to be keenly aware of the risks he has taken by being the first politician in decades to resolutely take hold of the proverbial third rail of American politics.  The hammering began almost immediately.  It is very difficult to diminish or take away from voters something to which they feel entitled because of legislation or government policy, no matter how ill advised that legislation or policy might have been.  The Bush Administration’s totally unfunded prescription drug benefit for seniors was just such an entitlement.   The concept certainly had merit, but there were no provisions for funding either through reductions in spending (which we would have preferred) or new taxes to pay for this largess.

We watched this week to two talking heads, one Democrat and one Republican, debating the Ryan proposal.  The Democrat gleefully chided the Republican, “Ryan just lost Florida.”  And, indeed, he may have.  That’s what is so refreshing about the young Congressman from Wisconsin.  Tackling the problem of entitlements was more important to him than staking out safe political positions.  Ryan has made a bold, serious proposal that grapples with the fiscal monster irresponsible elected officials have been feeding for years.  The Democratic talking head’s predictable response: “hah, Ryan just lost Florida.”

Rep. Ryan had worked extensively with the well-respected former Democratic Director of the Congressional Budget Office under President Clinton, Alice Rivlin, and has been hammered all week by Democrats (including Ms. Rivlin) and the media for those aspects of his budget proposal that deviate from the original concept they developed together, known as Ryan-Rivlin.  The Ryan plan, for instance, tackles Medicare problems by converting the current system to a voucher system whereby seniors would receive a substantial subsidy to pay for private health insurance premiums.  Rivlin now says she wants seniors to have the option of staying in traditional Medicare if they so choose.    Under the new Ryan plan Medicare, as we currently subsidize it, would no longer be available after 2022.

The original Ryan-Rivlin plan increased the premium support level beyond the beginning level (of up to $15,000 a year) at GDP plus 1.0%. This was intended to increase premium support by inflation plus productivity plus an additional percentage point.

The newly released Ryan plan increases the annual premium support by whatever is the actual rate of inflation.  He’s taken quite a hammering for these deviations between his plan and the original Ryan-Rivlin Plan.  But if the President can take refuge in his statement that “This is going to be a process in which each side…goes back and forth and starts trying to whittle,” so can Representative Ryan.  As the whittling begins, Ryan says his plan produces a reduction in spending of about $6 trillion and a $4.4 trillion reduction in deficits greater than the White House plan over the next ten years.

The Ryan Plan is designed to produce real economic growth instead of the artificial economic growth produced by QE1 and QE2. Ryan reduces taxes rates for everyone (10% and 25% for individuals and 15% and 25% for corporations). The rationale is exquisitely simple.  More money in the hands of the people (as compared to government) will produce greater demand-driven consumption which in turn produces economic growth, which in turn produces more (not less) tax revenue.

President Obama prefers the European, or the class warfare model, that transfers payments to some who often pay no taxes by taxing at higher rates the income of others (“others” being defined by the Obama definition of millionaire or billionaire — that is, any individual making over $200,000 or any family making over $250,000.  Keep in mind that in America, nearly half of all tax filers currently pay zero federal income tax .  Ryan presents the country with a real, easy to understand difference in governing philosophy.  His plan assumes the country will be better off if the government leaves as much money in the hands of all the people who earn it as possible.  The President’s plan embraces the philosophy of government extracting as much money as possible.  Even the CBO scoring system recognizes that the Ryan plan will stimulate real economic growth from which common sense suggests the government would derive greater tax revenue.   The economists at the conservative Heritage Foundation say the Ryan Plan will produce roughly 1.3 million new jobs and that household wealth will average a half $trillion more over ten years.

The Ryan Plan, through block grants to the states for Medicaid, gives the states much greater responsibility and much greater flexibility in providing health care for lower income citizens.   States that are run efficiently should welcome the Ryan Plan.  Those that manage their finances poorly would be under tremendous pressure to clean up their act.

When asked at a recent press conference whether he may have given the Democrats a great campaign issue to demagogue, Ryan replied,  “You know, you look at these people (the freshman Republican congressmen and women), these new people who just got here. None of them came here for a political career. They came here for a cause. This is not a budget, this is a cause.  And, look, we can all go do something else with our lives. We’re just not here so we can get this lapel pin that says we’re a member of Congress.  We’re here to try and fix this country’s problems. If that means we have to go first and offer solutions, fine. It that means we’re giving our political adversaries a political weapon to use against us, which by the way, they will have to distort, demagogue and lie to use, shame on them. We owe it to the country to give them an honest debate.”

We listened in disbelief this week as the President decided to act presidential and demand that Congress “begin acting like adults” and produce a budget, and announced that no further Continuing Resolutions would be tolerated.  This from a President whose party controlled both houses of Congress and would not even propose a budget for the 2011 fiscal year that is now half over, and  has had the country running on one Continuing Resolution after another.

Some of our readers have, on numerous occasions, commented that Republicans talk about reducing spending, but are never willing to be specific “they just talk in generalities,” they say.  Well, not any more.  The Ryan Plan, given the need to honestly and boldly address the structural domestic problems the nation faces, is an extraordinary step in the right direction. With respect to the nation’s entitlement mess, it  is, we believe, a far more serious, and grown up proposal than that which the White House has advanced.

Last fall the American people spoke very clearly that they wanted their concerns about the deficits and debts of the nation to be taken seriously.   Mr. Ryan has taken that mandate beyond an abstract concept and presented, in his 2012 budget proposal, honest and what everyone understands are required areas of reform if we are to reverse the consequences of years of Congressional profligacy.  The eleventh-hour deal between the Democratic and Republican leadership to substantially reduce government spending in order to avoid a government shutdown makes clear that both sides understand that things are diffrent now; that the people and the Chairman of the House Budget Committee are serious.

Three cheers, no, make it four, for Paul Ryan.

 

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3 responses to “Three Cheers For Paul Ryan…On Second Thought, Make It Four”

  1. Iyablans says:

    To paraphrase the last President”Let’s get it on”
    Debate is healthy and shedding light on the specifics will be enlightening for the citizenry who get lost in the slogans and cliches of these issues

  2. mark j. levick says:

    The Ryan Plan would eliminate deductions and reduce rates. The Democrats have seized upon rate reductions as a sop to the rich. I suspect that the rich will pay more taxes at reduced rates and that all those folks who recieve Government services but currentlypay no taxes will begin paying taxes without their deductions especially if they lose their exemptions and tax credits. It was also interesting to hear the Presidents flack rail against the plan to kill Obamacare along with its one trillion dollar deficit reduction contribution. If Obama or anyone of his minions truly believe that Obamacare will reduce the deficit or even be revenue neutral they are dwelling in the land of make believe.

  3. John Fairfield says:

    I join in 4 cheers for Ryan. Hopefully, his tax plan will eliminate the situation where fewer than half of Americans pay any income tax. Everyone needs at least a little skin in the game. Having said that, I am concerned that Ryan’s 25% top rate will permit Obama to succeed in his diatribe about diverting money to the already “rich”. It troubles even me that someone with taxable income north of $300,000 pays a top marginal rate of 35%, the same marginal rate as someone with taxable income of $47 million.

    Why not propose a deal that starts with Ryan’s social security, medicare and medicaid changes as well as returning all spending levels back to 2008 levels. In return for that concede graduated rates starting at 36% above $500,000 and increasing at intervals to a maximum of 45% for someone in the mega miliions? Keeping 55 cents of every dollar should keep Larry Ellison. et al working as hard as ever and would take Obama’s most effective campaign slogan away from him. The dollars and rates I suggest are illustrative, but the strategy advantage would be real in my opinion.

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