Questions and Observations

Problem:  As a nation we’re in dangerous debt territory.  If we don’t do something quickly and dramatically, we’re headed for some very rough and painful times.

But while it seems the American public senses this on the whole, polls seem to indicate that all the “free” stuff handed out by government is popular with a large percentage of the population.  Or said another way, they understand that we have a debt problem, they understand the implications of that problem and they don’t mind spending cuts – just so the spending cuts don’t effect programs they like.

The problem is further compounded by an irresponsible administration which gives the debt problem lip service but submits budgets that exponentially increase the problem:

The president’s recent budget proposal would accelerate America’s descent into a debt crisis. It doubles debt held by the public by the end of his first term and triples it by 2021. It imposes $1.5 trillion in new taxes, with spending that never falls below 23% of the economy. His budget permanently enlarges the size of government. It offers no reforms to save government health and retirement programs, and no leadership.

Both of these facts make it hard for those who would actually like to address the problem of debt before it overwhelms us.  That’s because they’ll really get no support politically from the administration, no call to arms and leadership, and the American people are proving to be fickle about the whole process sending very mixed signals.

Solution?

Well the obvious solution is to find some means of cutting spending to at least the level of revenue and to begin working to pay the debt down in an earnest and timely manner.  What isn’t a solution is business as usual but on steroids as proposed by the President.  So today, Rep. Paul Ryan (R-WI) introduced the GOP plan to address the problem.  Or at least part of the problem.  That of out-of-control spending and addressing the debt.  How it will play with the American people remains to be seen, but it is both an earnest and timely proposal.  It also makes some pretty dramatic cuts which is where you can expect to see the pushback.

For starters, it cuts $6.2 trillion in spending from the president’s budget over the next 10 years, reduces the debt as a percentage of the economy, and puts the nation on a path to actually pay off our national debt. Our proposal brings federal spending to below 20% of gross domestic product (GDP), consistent with the postwar average, and reduces deficits by $4.4 trillion.

But there’s pain in them thar words.  And it means things are going to have to be quite different in some areas than they are now.  Government is going to have to be rolled back.  That is unless we’re partial to a complete collapse of our economy and our currency, hyper inflation and all the good times those developments would bring.

So to specifics in Ryan’s proposal.  Addressing welfare in general, he says:

This budget will build upon the historic welfare reforms of the late 1990s by converting the federal share of Medicaid spending into a block grant that lets states create a range of options and gives Medicaid patients access to better care. It proposes similar reforms to the food-stamp program, ending the flawed incentive structure that rewards states for adding to the rolls. Finally, this budget recognizes that the best welfare program is one that ends with a job—it consolidates dozens of duplicative job-training programs into more accessible, accountable career scholarships that will better serve people looking for work.

As we strengthen and improve welfare programs for those who need them, we eliminate welfare for those who don’t. Our budget targets corporate welfare, starting by ending the conservatorship of Fannie Mae and Freddie Mac that is costing taxpayers hundreds of billions of dollars. It gets rid of the permanent Wall Street bailout authority that Congress created last year. And it rolls back expensive handouts for uncompetitive sources of energy, calling instead for a free and open marketplace for energy development, innovation and exploration.

I am quite pleased to see the second paragraph.  It is indeed time to eliminate “corporate welfare” and subsidies for favored industries.  It also takes on what we would call traditional welfare.  And make no mistake about it Medicaid and food stamps are welfare.    As for the “perverse incentives” Ryan points too, here’s what they’ve yielded recently:

I’m sure some of that comes with the economic downturn, but it also indicates the effect of the incentives to sign people up for the welfare program.

We can’t afford the level of welfare we’re paying out now – and that included corporate welfare and subsidies.  We are a compassionate people, but I end up shaking my head when I hear government officials claiming that people at “4 times the poverty level” need help?  Really?  So what’s the purpose of the poverty level as a measure and why are we now convinced we have to “help” people well above that level?

Then there are the twin third rails of politics, but areas where dramatic reforms are absolutely necessary to get us on the right fiscal track as a country.  And those are Medicare and Social Security.  The Ryan plan:

Health and retirement security: This budget’s reforms will protect health and retirement security. This starts with saving Medicare. The open-ended, blank-check nature of the Medicare subsidy threatens the solvency of this critical program and creates inexcusable levels of waste. This budget takes action where others have ducked. But because government should not force people to reorganize their lives, its reforms will not affect those in or near retirement in any way.

Starting in 2022, new Medicare beneficiaries will be enrolled in the same kind of health-care program that members of Congress enjoy. Future Medicare recipients will be able to choose a plan that works best for them from a list of guaranteed coverage options. This is not a voucher program but rather a premium-support model. A Medicare premium-support payment would be paid, by Medicare, to the plan chosen by the beneficiary, subsidizing its cost.

In addition, Medicare will provide increased assistance for lower- income beneficiaries and those with greater health risks. Reform that empowers individuals—with more help for the poor and the sick—will guarantee that Medicare can fulfill the promise of health security for America’s seniors.

I’ve already seen some on the left characterizing this as "privatizing" Medicare. And, of course, as we all know, that’s dangerous as government always does it better – look at the budgets for example. Look at the debt.

In fact, what Ryan is talking about is giving seniors a choice vs. automatically enrolling them in a government insurance program that averages about $60 billion a year in waste, fraud and abuse.  There will be a subsidy – probably means tested.  Is the the ideal libertarian answer?  No.  But as I’ve said before, freedom is choice and any legislation that expands that is at least a step in the right direction. 

We must also reform Social Security to prevent severe cuts to future benefits. This budget forces policy makers to work together to enact common-sense reforms. The goal of this proposal is to save Social Security for current retirees and strengthen it for future generations by building upon ideas offered by the president’s bipartisan fiscal commission.

Perhaps raise the caps (I gave a certain percentage to my 401k regardless of how much I earned, so doing the same with Social Security doesn’t really bother me.  And it will provide increased revenue for the fund.  Again, ideal?  No, but then I don’t consider either Medicare or Social Security to be “welfare” since most participants have paid into those systems for their entire working life.   But there are changes which will have to be made.  I don’t favor means testing if the cap is raised.  But I do think that a hard look at the retirement age is necessary.  My ideal outcome, obviously, would be getting government out of the retirement income business, but that’s not going to happen.  So Social Security has to be made self-supporting and not a drain on the budget – as does Medicare.

Budget enforcement: This budget recognizes that it is not enough to change how much government spends. We must also change how government spends. It proposes budget-process reforms—including real, enforceable caps on spending—to make sure government spends and taxes only as much as it needs to fulfill its constitutionally prescribed roles.

If we don’t get some restrictions on government spending, nothing is going to change.  Nothing.  We’ve watched Congress talk the talk for decades, ala Nancy PAYGO Pelosi.  But they ignore their own legislation and policy at will.   As Ryan says, there have to be “real, enforceable caps on spending”.  I interpret that as “you cannot and will not spend more than you take in”.  We’ll see how the Congress interprets that.

Tax reform: This budget would focus on growth by reforming the nation’s outdated tax code, consolidating brackets, lowering tax rates, and assuming top individual and corporate rates of 25%. It maintains a revenue-neutral approach by clearing out a burdensome tangle of deductions and loopholes that distort economic activity and leave some corporations paying no income taxes at all.

Here is something that is going to be as hard to do as entitlement reform.  Why?  Because the tax system provides Congress with another way to wield its power.  But the way it has wielded this power has done precisely what Rep. Ryan points too here – it has “distort[ed] economic activity.”  Make the system simple, remove the loopholes, broaden the base (get some more “skin” in the game from those who now don’t pay taxes) and my guess is you’ll not only see an increase in revenue, but a far greater increase in economic activity.

Bottom line:  We are in a “you can pay me now or you can pay me later” moment.  And if we wait, we’re going to be paying a price we’re just not willing to pay, all because we chose to avoid the pain now.   I’m sure the opponents of this proposal are going to call it “extreme” and something that will “hurt the children”.  Trust me, if you want to see extreme, put it off until this house of cards collapses.  And if you want to avoid “hurting the children”, man up and face the pain now to avoid it later when it really will “hurt the children”.

UPDATE: Chris Edwards at CATO gives his take on the Ryan budget.  I’m pretty much agreed with everything Edwards says:

• Ryan doesn’t provide specific Social Security cuts, instead proposing a budget mechanism to force Congress to take action on the program. It is disappointing that his plan doesn’t include common sense reforms such raising the retirement age.
• Ryan finds modest Medicare savings in the short term, but the big savings occur beyond 10 years when his “premium support” reform is fully implemented. I would rather see Ryan’s Medicare reforms kick in sooner, which after all are designed to improve quality and efficiency in the health care system.
• Ryan adopts Obama’s proposed defense (security) savings, but larger cuts are called for. After all, defense spending has doubled over the last decade, even excluding the costs of wars in Iraq and Afghanistan.
• Ryan includes modest cuts to nonsecurity discretionary spending. Larger cuts are needed, including termination of entire agencies. See DownsizingGovernment.org.
• Ryan makes substantial cuts to other entitlements, such as farm subsidies. Bravo!
• Ryan would turn Medicaid and food stamps into block grants. That is an excellent direction for reform, and it would allow Congress to steadily reduce spending and ultimately devolve these programs to the states.
• Ryan would repeal the costly 2010 health care law. Bravo!

Here’s a chart Edwards includes in his post:

I’m a huge supporter of military spending in order to maintain our national security and technological edge, but I find it hard to believe that there aren’t many places where savings could be accrued in “Security”.  And I’d also note under the broad “Security” umbrella fall many other programs that could be cut – like the entire TSA.  But, in any event, it is an area that should also be looked at with an eye for cutting spending.  It would get us to our goal of paying down the debt even sooner and it can be done without jeopardizing our security (cut costs not capability).

UPDATE II:  Geoff over at Ace of Spades gives a little context to the Ryan proposal:

Now, where I come from, the “extremes” are on either side of a situation, right?

~McQ