Balancing the U.S. Budget: Jumpstarting the Bipartisan Discussion

The budget plan Rep. Paul Ryan unveiled on Tuesday stands no chance of enactment. Given how few of Ryan’s Republican colleagues were willing to endorse the “Roadmap” on which his plan is based, it’s by no means certain that it will even clear the House in its current form. Nonetheless, it may succeed in jumpstarting the “adult conversation” for which President Obama has called.

Let’s review where we stand right now. The Congressional Budget Office recently released its preliminary analysis of the administration’s FY 2012 budget proposal. It found that over the next decade, the proposal wouldn’t reduce the annual deficit below 4 percent of GDP and that the debt held by the public would double from $10.4 trillion to $20.8 trillion, nearly 90 percent of our GDP. That’s an outcome almost no one wants. But to avoid it, we need to change course. The question is how.

Ryan’s budget illuminates the draconian consequences of a course correction that excludes net tax increases and holds federal government spending to its historic post-war average. As Ryan himself describes his plan in a recent Wall Street Journal op-ed, discretionary domestic spending would be reduced to below its 2008 level and then frozen for five years. Medicaid would be converted into a block grant program, Medicare would become a fixed subsidy for private insurance plans, and Social Security would be subjected to unspecified “common-sense reforms.” Spending would be cut by $6.2 trillion over the next decade, while the deficit would be cut by $4.4 trillion. Tax revenues would be reduced by nearly 1 percent of GDP over the next decade.. By around 2050, the national debt would be entirely paid off.

Much of this is unnecessary as well as unwise. Bipartisan commissions have converged on the objective of holding public debt to around 60 percent of GDP in 2020 through a balanced menu of spending cuts and revenue increases. While there are compelling economic reasons for not allowing the debt to rise as far as our current course would take it, only ideology requires it to disappear altogether. Nor is it necessary to hold federal spending to its historical level: all other things equal, the aging of the population and the steady rise in medical costs would suggest a somewhat higher level. A plan that Maya McGuineas, the head of the Committee for a Responsible Federal Budget, and I put out a few months ago would hold spending to about 22 percent of GDP, somewhat higher than the average but much lower than what the status quo would produce. Other bipartisan plans have ended up in roughly the same place.

But that’s the point: the Ryan plan is not bipartisan (it remains to be seen whether it’s even mono-partisan). Yes, it can be a conversation-starter. But if it’s the GOP’s best and final offer, it will be a conversation-stopper.

The plan does have one incontestable virtue: it recognizes, as do many non-conservatives, that health care costs lie at the heart of our fiscal problems. The question is what to do about them. Turning Medicaid into a block grant is a genuinely bad idea, because it will lead inevitably to cutbacks in care for low-income people who have nowhere else to turn, contradicting Ryan’s own pledge of a “secure safety net.”

Converting Medicare into a system of “premium support” is another matter altogether. In the past, serious analysts such as Robert Reischauer, a former CBO director now president of the Urban Institute, and Brookings’ Henry Aaron have endorsed a version of this approach. Alice Rivlin, another former CBO director, worked with Ryan on a previous premium support proposal. And it is true, as Ryan says, that federal employees, including members of Congress, now participate in a premium support-based program, which seems to be quite popular. (As a former participant myself, I can vouch for its merits.)

Critics have pointed out that Medicare recipients differ from the overall population in important respects: they are frailer and sicker, on average, and most of them rely on fixed incomes. Ryan claims that his plan would “provide increased assistance for lower-income beneficiaries and those with greater health risks.” If so, there’s at least a basis for discussion. If not, it’s back to the drawing board.

The question now is how congressional Democrats and the Obama administration will respond. There are two basic approaches: demonizing the Ryan plan as a “war on seniors and the poor” or treating it as a deeply flawed beginning to a conversation we can no longer defer. The first is a play that Democrats have run for decades, often to their political advantage. Choosing it would guarantee no progress on basic fiscal issues until after the 2012 election, and maybe much longer. The second is much riskier, with uncertain outcomes for all participants. But if it leads to progress, it would move the country toward a more sustainable future. And who knows: it might even begin to restore the public’s trust in their governing institutions, which now stands near its record low.