Ryan’s Lost Hope
I’m feeling an increasing frustration with the inability of policymakers — and the voters who act as their enablers — to put forward a reasonable and fiscally responsible plan for digging this country out of the ditch we’re in.
The problem is pretty easy to grasp, even if the solutions escape us. As we’ve discussed elsewhere, the data are clear and unequivocal. The world economy is headed for the crapper.
There’s some good news to be had. It’s not too late for this nation to reverse its fiscal course and set the Ship of State on the right economic course. In my opinion — an opinion our readers are welcome to challenge in the comments section below — there will likely be a flight of capital from Europe to the United States as the Euro Zone slides deeper into the Slough of Despond. That potential for investment in our economy only exists if we seize the moment and develop the political will to act. So far in the current financial crisis, investors have indicated that they have more faith in the United States than in any other country to do the right thing. As a patriot, so do I.
Fiscal reform could be a major factor in filling the hole we’ve dug. We. Both political parties. Me and you. All Americans.
The problem is easily perceived in the graph below.
This graph (from the government’s annual General Accounting Office report, the Financial Report of the United States Government) begins in Fiscal Year 1980 (FY1980) and ends a century later. We are about a third of the way along the graph from left to right, with the black line showing government revenues at a historical minimum, about 15 percent of GDP. Spending (especially the TARP bailout and ARRA stimulus) is at a peak; this is the huge spike in the brick-red portion of the graph.
The projections in the graph represent a simple continuation of present-day policies into the future. Under present-day policies, government revenues will gradually recover, and even show a slight surplus toward the end of the decade. Then things get worse. Driven by increases in health care spending and Social Security outlays, the rising tide of red ink overwhelms the black line and the country faces a significant, persistent deficit.
Here’s a related graph, taken from the 2007 report.
This graph, it should be noted, was developed before the current world financial crisis. Even if the United States, Europe, and China (which is now struggling) all return to a healthy economy, the borrowed money begins to engulf the Federal budget. As spending on Medicare and Medicaid increase, and the United States is forced to borrow more money to keep revenues from taxation at a historical 20 percent of GDP level (shown by the dotted line), it doesn’t matter what we spend on defense and discretionary programs. We go broke.
It was therefore clear before the last Presidential election in 2008 what needed to be done.
- The tax code needs to be reformed so that the U.S. Government has a stable source of funding that maximizes economic output by minimizing needless regulation and paperwork.
- Health care spending, now at an estimated 18 percent of GDP, needs to be curbed. In particular, Federal health care spending must be reduced.
Since the late 2007 financial crisis, another imperative has arisen.
- The Federal Government needs to apply the correct sort of economic stimulus and a mixture of revenue enhancement and spending cuts to help stave off the crisis predicted by the above graphs. Most economists would recommend a mixture ranging from one part tax increases to seven parts spending cuts, to one part tax increases to three parts spending cuts. For example, former Clinton domestic policy advisor William Galston, quoted at teaparty.org, says,
There’s no alternative, and I don’t know of anybody who has seriously looked at this problem who thinks there is. You’re going to need to put together tough packages of programmatic cuts and revenue increases.
A majority of Americans agree. Fifty-six percent of Americans agree a mixture of tax increases and spending cuts is needed, while 37 percent support spending cuts alone.
What has each of the political parties done about it? Responded with a stream of demagoguery.
Let’s take them one at a time. President Obama, as leader of the Blue Team, had a promising start. He decided to work on reforming health care costs, as promised in the party platform. The fastest way to get a handle on health care spending would be to jump to a single payer system, which would allow the government to directly control health care spending costs by implementing some sort of rationing based on need rather than ability to pay. That didn’t fly, to say the least. The ugly sausage that emerged from Congress in early 2010 was the Patient Protection and Affordable Care Act, or “Obamacare”. It attempts to control health care spending by promoting healthy behaviors, streamlining medical record-keeping, and other wonkish provisions that will likely bend the cost curve but were not that easily explained to Americans. The most controversial part was the “individual mandate” (actually a non-binding tax penalty on those who can afford health insurance but choose not to carry it). This was needed to ensure increased coverage (reducing the estimated 50 million uninsured Americans) and, more cynically, to get buy-in from health insurance companies and Big Pharma, who agreed to hold Obama blameless and not run “Harry and Louise”-type ads.
The current Medicare system is in disarray. It depends on the annual ritual known as the “doc fix”, where Congress votes for an increase in Medicare reimbursement schedules. However, the “doc fix” applies equally to all types of medicine, from the most efficient to the least efficient, as seen in the graph at right, from a January 2012 article in the New England Journal of Medicine (NEJM). The authors of the NEJM report suggest that maybe Congress should be applying Medicare reimbursements in a more rational way, perhaps dividing reimbursements by specialty, to reduce costs.
Perhaps this fairly complicated scatterplot needs some explanation. This shows the excess expenditures by medical specialty for Medicare. Specialties plotted at the left (such as thoracic [chest] surgery, general surgery, psychiatry, and anesthesiology) actually cost less than Medicare projected. In an ideal world, we’d reward these specialties. Specialties plotted at the right (such as geriatric medicine, emergency medicine, and radiation oncology [using radioactivity to fight cancer]) spent more than three times the projection. In an ideal world, we’d take a serious look at the cost-benefit ratio in these specialties.
The closer a specialty is to the bottom, the less total money is spent there. The closer it is to the top of the graph, the more money is spent. Internal medicine, for example, is far and away the biggest spender but is also close to the projected spending increase. The greatest “bang for our buck” would be to look at specialties in the upper right portion of the graph.
For example, by expanding medical care to (almost) all Americans, we will greatly reduce emergency room visits. It is well-known that the poor and uninsured use the emergency room as their walk-in clinic and treatment for chronic conditions such as alcohol abuse and mental illness. If we can get these people into treatment programs, and emphasize prevention for all Americans, we can reduce emergency room visits. Even if we achieved 100 percent cost control, however, the total possible up-side benefit is 2 percent, because that’s how much of the Medicare budget we spend on emergency medicine.
Such is the promise of Obamacare.
However, the President badly flubbed Missions 1 (tax reform) and 3 (fiscal stimulus). Whether he had help from Congress or not is immaterial; it needed to get done, and it didn’t. His worst mistake, in my opinion, was stepping away from the recommendations of the “Simpson-Bowles Commission” (formally, the National Commission on Fiscal Responsibility and Reform). I’m not privy to his internal thoughts. Maybe he didn’t like what they proposed, or maybe he saw pushing the commission’s reforms as a political loser. He had just taken a drubbing in the 2010 midterms and he was focused on the budget battles with Congress. Whatever the reason, the eminently reasonable recommendations were left to starve in their cradle.
That left the field open for the Red Team to submit the Ryan Budget, two annual recommendations (for FY2012 and FY2013) formally called “The Path to Prosperity”, promulgated by Representative Paul Ryan (R-Janesville, WI) as chair of the House Budget Committee, passed by the Republican-controlled House, and rejected by the Democrat-controlled Senate. Ezra Klein of the Washington Post has an excellent analysis of what the Ryan Budget plans to cut: relative to the President’s budget, the Ryan Budget projects a $2.2 trillion decrease in taxes (over ten years) offset by $3.1 trillion less in health care spending and $2.2 trillion less in discretionary spending than the President’s budget. The current Medicare system is to stop taking new enrollees in 2022, when it will be replaced by a voucher system indexed to general inflation (not to medical inflation, which is much, much larger). Thus Americans over 55 will still get the same Medicare benefits as currently, while those under 55 will see radical changes in Medicare.
The National Review’s Yuval Levin pre-emptively accuses “the Left” of distorting the benefits of the Ryan plan for Medicare funding reform, which is strategically renamed “Wyden-Ryan” (including Sen. Ron Wyden, Democrat of Oregon) and is renamed from a “voucher” plan to a “premium support” plan. He touts the expected 9 percent decrease in costs expected in an analysis by Song, Cutler and Chernew published in the August 1, 2012 Journal of the American Medical Association (JAMA). Levin conveniently overlooks this closing paragraph from the JAMA article:
Premium support, based on competitive bidding,may offer a fiscal solution if ACA reforms fail, but at the cost of making Medicare beneficiaries responsible for solving Medicare’s fiscal crisis. Success of the ACA can make premium support less risky by lowering traditional Medicare costs and helping to monitor and improve quality in private plans. Without ACA improvements, beneficiaries must pay more for traditional Medicare or join a private plan. Given the current fiscal pressures, this may be acceptable, but it is a major shift from traditional Medicare that may have deleterious consequences.
Presumptive Republican nominee Mitt Romney is apparently distancing himself from the Ryan Budget.
I have my budget plan. And that’s the budget plan we’re going to run on.
Unfortunately, the Murdoch-controlled Wall Street Journal says in a recent Op-Ed by Rex Nutting that the Romney plan “doesn’t add up”.
Don’t ask the CBO or the Joint Tax Committee to evaluate Romney’s plan, because they refused to even try. It’s too fuzzy. But the Tax Policy Center, a respected non-partisan think tank, has scored Romney’s tax plan, at least the parts that weren’t completely opaque.
The Tax Policy Center found that Romney’s across-the-board 20% reduction in tax rates (plus other changes) would give the richest one-thousandth of us a tax cut of $725,000 every year while asking families earning under $30,000 to pay a little more. Folks in the middle would get $810 a year. And that’s assuming we all get to keep the benefits of the Bush tax cuts.
Logarchism is ready to discuss fiscal and economic policy. But the politicians have to give us something to work with.
My personal recommendation is this: President Obama, stand foursquare behind the Simpson-Bowles plan and demand that Congress tackle tax reform early in the 113th session.
Meanwhile, let’s compare and contrast the Ryan and Obama visions for the fiscal future. What do you think?
- Paul Ryan and the Triumph of Math (americanthinker.com)
- Internal Memo Reveals Mitt Romney Will Pursue His Own Budget Plan, Not Paul Ryan’s (mediaite.com)
- Paul Ryan Wants Your Children to Fix His Problems (businessweek.com)
- Paul Ryan Says Alice Rivlin Would Like His Medicare Plan. Alice Rivlin Disagrees (delong.typepad.com)
- Paul Ryan’s Budget Games (newyorker.com)
- Star Trek, Deficits and Why Cutting Government Hurts We, the People! (seeingtheforest.com)
- The Battle Begins: Ryan Vs LGBT Rights, Catholic Bishops, More (lezgetreal.com)