Battle of the Budget Bulge

Paul Ryan's latest fiscal plan draws the battle lines for the 2012 elections.

Yesterday, House Republicans offered Americans their vision for the nation's fiscal future, releasing a budget proposal that attempts to bring runaway deficits and the national debt under control. In a Wall Street Journal editorial, budget author Rep. Paul Ryan (R-WI) explained the that difference between Republicans and Democrats "revolves around the fundamental nature of American democracy and the social contract," further noting that "no two documents illustrate this choice of two futures better than the president's budget and the one put forward by House Republicans."

Mr. Ryan is correct. In February, President Barack Obama released his budget for FY2013, a $3.8 trillion compendium of higher taxes and more spending that did nothing to address America's ballooning national debt. The CBO's latest analysis noted that deficits added to the national debt between the years 2013 and 2022 would come to $6.4 trillion, if the budget were adopted. Yet they also revealed that if there were no changes to the current law, the national debt would only increase by $2.9 trillion. Republicans were quick to play up the $3.5 trillion difference, saying the CBO analysis shows that the president's budget "achieves virtually no real net deficit reduction and leaves unchanged our dangerously unsustainable debt path,” according to the Republican staff of the Senate Banking Committee.

It's moot point. Mr. Obama's budget is one hundred billion dollars higher than the one he sent to the Senate last year. Senate Minority Leader Mitch McConnell (R-KY) forced his colleagues to vote on the president's 2012 budget as it was presented. It was defeated by a vote of 97-0. This year, Senate Majority Leader Harry Reid (D-NV) is not about to let history repeat itself. On February 3rd, he announced that the Senate will not vote on a budget at all this year. "We do not need to bring a budget to the floor this year--it's done, we don't need to do it," Reid  told reporters, contending the agreement reached by the Congressional Super Committee on August 2nd, as a result of the debt ceiling imbroglio, obviated the need for further legislation.

That argument is specious at best. It says essentially says that the $1.2 trillion in cuts over ten years--cuts that resulted from the Super Committee's failure to reach an agreement--is the same as crafting a budget. Furthermore, it attempts to obscure some inconvenient facts. First, the Democratically-controlled Senate didn't passed a budget at all in each of the two years prior to the agreement reached in August. Second, the "budget" passed on August 2nd was done to avoid a national default engendered by broaching the limit of the debt ceiling. That's the same debt ceiling Democrats sought to keep completely separate from the budget issue, insisting they were only interested in passing "clean" budget bills. And finally, the Super Committee's handiwork was so "well-received" by the financial ratings agencies, America's credit rating was downgraded for the first time in the nation's history.

Mr. Ryan is attempting to offer the nation a stark contrast to such recklessness. The big picture is straightforward. It calls for a combination of spending cuts and tax reform aimed at wiping out deficits, and balancing the budget by the year 2040. The national debt would continue to rise, but an expanding economy would put it on track to return to 18 percent of GDP, a long-term historic average abandoned by an Obama administration that has averaged more than 24 percent of GDP in its first three years. Ryan's budget also aims to slash federal spending by $5.3 trillion more over the next decade than the president's proposal. If that number sounds familiar, it's because president Obama will have added almost $5 trillion to the nation's deficit by the time he finishes his first term in office.

Like any budget however, the devil is in the details. Right out of the gate, Ryan grabs the revenue stream being generated by taxes over the next ten years to pay for the healthcare bill. Ergo, the bill must be repealed in order to get the money. The Congressional Joint Committee on Taxation estimated that amount would come to $409.2 billion, and Republicans plan to retain the healthcare law’s higher revenue stream. Yet Ryan insisted that his budget would not increase taxes, but generate the same amount of revenue by overhauling the tax system. Toward that end he proposes two individual tax brackets, 10 percent and 25 percent, and a repeal of the alternative minimum tax. The corporate tax rate would also be reduced to 25 percent from 35 percent, and he would shift to what he calls a "territorial" tax system allowing businesses to invest profits earned abroad back into America without getting hit by an extra tax bite for doing so.

As for entitlements, Ryan's plan offers some welcome reform, coupled with hard truths. In his Journal editorial he explains why. "Absent reform, government programs designed in the middle of the 20th century cannot fulfill their promises in the 21st century," he writes. "It is a mathematical and demographic impossibility. And we said so." Thus, he proposes turning major social programs currently controlled by the federal government over to state control, and re-introduces a deadline for people getting off the dole.

And once again, Ryan wades into the Medicaid battle, where he takes his greatest risk in a nation grown quite accustomed to entitlement programs irrespective of fiscal reality. First, he is proposing no changes for anyone 55 years of age or older, but again has proposed a cap on spending for future retirees, who would get a set amount of money to purchase health insurance from health plans he envisions competing against each other "to achieve high-quality coverage at the lowest cost." Ryan also contends that introducing competitive bidding to government's financial contribution to Medicare will bring overall health costs down. And he answers his critics who claim he wants to end "Medicare as we know it" by retaining a "traditional fee-for-service Medicare option" in his new plan--but it would cost seniors more money to support it if private plans could be purchased more cheaply.

Naturally, Democrats were completely against it, and the class-warfare motif that has become an integral fallback position for the party was swiftly employed. “The House budget once again fails the test of balance, fairness, and shared responsibility,” said White House Communications Director Dan Pfeiffer in a statement. “It would shower the wealthiest few Americans with an average tax cut of at least $150,000, while preserving taxpayer giveaways to oil companies and breaks for Wall Street hedge fund managers. What’s worse is that all of these tax breaks would be paid for by undermining Medicare.”

Former House Speaker Nancy Pelosi (D-CA) was equally predictable. “The Republican proposal would end the Medicare guarantee, shift costs to seniors, and let Medicare wither on the vine, while providing billions in tax breaks for Big Oil and special interests, and destroying American jobs,” said her released statement.

Yet Ryan has an unlikely (perhaps unwitting is more accurate) ally. After the president presented his budget back in February, Treasury Secretary Timothy Geithner appeared before the Senate and House budget committees. At the Senate hearing Mr. Geithner admitted that "even if Congress were to enact [the president's] budget, we would still be left with, in the outer decades as millions of Americans retire, what are still unsustainable commitments in Medicare and Medicaid." He did no better in the other chamber, telling a House Budget Committee on February 16th that president Obama's 2013 budget would "put the U.S. on an unsustainable course" if enacted. "We have millions of Americans retiring every day, and that will drive substantially the rate of growth of health care costs," offered Geithner. "You are right to say we're not coming before you today to say we have a definitive solution to that long-term problem."

Mr. Geithner then illuminated the current zeitgeist that dominates the Democrat party. "What we do know is, we don't like yours," he added, referring to Paul Ryan's previous attempt to steer the nation away from fiscal Armageddon. When Americans consider such intransigence, coupled with an utter lack of serious ideas for solving the nation's fiscal problems--as well as remembering the Senate's steadfast refusal to enact any budget whatsoever--they may be forced to reconsider who the real "Party of No" is in the ongoing budget standoff.

Mr. Ryan sums up the essential difference between the parties. "The president's budget gives more power to unelected bureaucrats, takes more from hard-working taxpayers to fuel the expansion of government, and commits our nation to a future of debt and decline," he writes. Absent a "definitive solution" for what are "unsustainable commitments in Medicare and Medicaid," according to the Treasury secretary.

Which party will prevail next November?  The answer to that question undoubtedly centers around entitlements. That reality engenders a far deeper question about the relationship between Americans and their government. Do they prefer being talked to like adults and dealing with the fact that the current system is completely unsustainable no matter how high they raise taxes, or will they continue to be seduced by the siren song of endless entitlements paid for by "somebody else"?

Such is the essence of the 2012 election.

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