The Republican Budget

Published April 5, 2011

National Review Online

There has been a lot of talk in the past year about the need to start an adult conversation about the collapse of our government’s finances. But too often calling for such a conversation has in practice been a means of avoiding actually having that conversation. That has certainly been President Obama’s approach. He has talked about talking, but offered no solutions and no sense of a real awareness of the problem—indeed, his budget would only increase projected deficits and debt. I think it is safe to say that House Republicans have today begun to put an end to that unconstructive pantomime and to force a meaningful debate into being. They have put a real solution on the table, and our domestic policy debates will never be the same.

The budget released this morning by House Budget Committee chairman Paul Ryan is nothing short of stunning. It is easily the most comprehensive and ambitious conservative policy program ever put forward by an actual officeholder. Nothing that Newt Gingrich or even Ronald Reagan ever proposed quite compares. Gingrich and Reagan also actually got legislation enacted, of course, and it remains to be seen what will come of this bold agenda in the coming years. But as an agenda, it is just what this difficult moment calls for.

The document offers not just tables of spending levels in various categories (which is all that is technically required of a budget resolution) but a vision of a transformed federal government and American welfare state: entitlement reform, tax reform, welfare reform, budget process reform, and cuts and reforms of many individual discretionary programs all aimed at making possible a thoroughgoing but gradual and palatable course correction from a path that leads to a catastrophic debt crisis toward a path to sustainable growth.

The top line numbers and the entitlement reforms have been getting the most attention, and rightly so of course. The savings achieved in both the short and long term are pretty extraordinary. This budget spends $6.2 trillion less than President Obama’s budget over just the next 10 years, and imposes $1.5 trillion less in taxes. It reduces the ten-year deficit by more than $4 trillion. It brings government spending below 20 percent of GDP again—roughly the postwar average. And it starts significantly reducing the size of the debt as a percentage of the economy very swiftly—while the president’s budget never does. Here is a quick comparison of the effect on the debt in just the next decade, which I put together using the CBO’s baseline and its assessments of the Obama and Ryan budgets.

The long-term effects on the debt are even more dramatic, bringing it down toward pre-WWII levels over the coming decades, while current law would send the debt skyrocketing. Below is what America’s debt trajectory would look like, compared with the historical pattern, under the Ryan budget and the course we are now on (the administration did not make these kinds of longer term projections available for their own budget, and who can blame them?) Again, a stark choice.

These dramatic improvements are achieved in part by addressing the biggest driver of our debt explosion: entitlement spending. The Ryan budget would transform the federal share of Medicaid into a block grant to the states—something governors have been yearning for since at least the early 90s, and will no doubt be welcomed by Democrats as well as Republicans in statehouses around the country. The budget also proposes a major reform of Medicare, to allow that program to avert fiscal ruin (and exercise some downward pressure on health-care costs).

The plan would not touch the Medicare benefits of people who are 55 and older today—so attempts by Democrats to get seniors riled up about losing the benefits they have, attempts that have already begun, are simply based on a lie. For anyone younger than 55, the existing structure of Medicare would be transformed into a so-called “premium support” system which, rather than directly paying for services in an open-ended way (encouraging cost inflation) would subsidize the purchase of private health insurance chosen from a broad range of options. This would introduce competition into the provision of Medicare coverage, to induce efficiency among providers and consumer pressure for better options at lower costs. That’s essentially how the federal employee health insurance system works today, and it’s how the Medicare prescription drug benefit works and how it has managed to come in under CBO’s cost projections—a feat almost unheard of in Washington. The subsidy would be greater for people who are poorer and for people who are sicker, thus also introducing an element of means testing into Medicare.

A key purpose of both of these reforms is, of course, to cap and cut spending on these programs. But they aim to do that in ways that protect the most vulnerable beneficiaries and that push down the cost of the product being purchased (by inducing efficiency and competition) even as they push down the amount of money directed toward purchasing it, rather than just imposing price controls. They aim to turn more Americans into consumers of health coverage, because the lack of consumer pressure has been a central cause of the cost explosion. This is a reorientation of our two most unwieldy welfare-state programs in the direction of allowing people to access the benefits of markets—precisely the kind of reorientation we will need more broadly.

But spending and entitlement reforms are only the beginning. This budget also includes (rather surprisingly) an ambitious outline for tax reform which would broaden the tax base by eliminating credits, deductions, and loopholes while consolidating and lowering rates. And it includes, among other things, an extension of the logic of the cash-welfare reform of the 90s (block granting programs to the states and imposing some time limits and work requirements) to other welfare programs including housing assistance and food stamps; the repeal of Obamacare and portions of last year’s financial-reform bill that almost guarantee future Wall Street bailouts; the privatization of Fannie and Freddie; cutbacks in farm subsidies, energy subsidies, and corporate welfare; and the consolidation of dozens of duplicative worker-training programs into a new adult scholarship program to help displaced workers more easily get the training they need for new jobs.

In all these ways, what we’ve got here is far more than a budget resolution. It is the heart of the conservative policy agenda for the coming years. It will surely be the agenda of the next Republican presidential candidate almost regardless of who the candidate is. And it is a conservative agenda not only in its ambition to restrain the welfare state but also in its gradualism and in its respect for people’s longstanding expectations and plans (for instance, allowing people over 55 who have planned their retirement around certain expectations to keep the benefits they have come to expect, despite the cost). That means it does take some time to balance—although the size of the debt relative to the economy declines steadily starting almost immediate, the budget’s gradualism means it doesn’t fully reach balance and start to build surpluses until the 2030s. But the structural reforms it undertakes mean that once achieved that balance would be lasting, and that the path to it would be smoother and more broadly appealing than sudden sharp cuts.

What is most plainly missing from the budget is a broader health-care reform—a real substitute for Oba
macare, which this budget would repeal. Evidently, Ryan could not get agreement among House Republicans for his preferred approach—converting the tax exclusion for employer-provided coverage to a credit for all, which would be a natural companion to the Medicare reform in this budget, and an immensely useful reform. Something like it (or perhaps something like the more gradual approach proposed by Ramesh in the latest NR) will surely need to be part of the 2012 Republican agenda. The budget also does not take up Social Security reform—it only requires the president to submit a plan for reform rather than laying out its own detailed agenda. This is no doubt done to avoid the political risks of Social Security reform, which after all involves far less of a fiscal payoff than Medicare reform and yet is more politically sensitive.

Of course, that doesn’t mean the politics of what is in the budget will be easy by any stretch. A budget like this stands no chance in a Democratic Senate, and the reforms it proposes will not be an easy sell with many voters. But by adopting this budget, House Republicans will be decisively asserting their commitment to take our daunting fiscal problems seriously and to change course. And by so doing, I think they will also compel the Democrats to move. There is no way that President Obama can take his party to the next election with the non-agenda he offers in the 2012 budget he proposed in February—no way that he can allow the graphs above to be the choice put before voters next year. He will be forced to make some kind of counteroffer.

In the process, very slowly and very painfully, he and his party will be forced to begin to confront the reality of the coming decades: the fact that the social-democratic dream that has driven the Left for a century is dead, and something else must now replace it; the fact that the American welfare state will need to look very different a generation from now. There is no avoiding that reality, and in the long run the most significant consequence of the House Republicans’ very consequential budget may well be that it finally starts that conversation that everyone has long only pretended to want.

Yuval Levin is Hertog Fellow at the Ethics and Public Policy Center and editor of National Affairs.

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