There’s an honest debate that needs to happen in the United States about reducing a large and growing national debt. Instead, we have major confusion at the moment, and most of the seeds have been sown by Representative Paul Ryan of Wisconsin. Ryan’s plan to cut the deficit by (what he claims to be) $5.8 trillion over ten years is not only a total shell game, it is also one of the most regressive and least balanced proposals to emerge in recent months. It represents the single largest retrenchment of social programs in the history of the American welfare state, and makes the more centrist Simpson-Bowles proposal of last year looks positively socialist by comparison.
In spite of this, there is very little good analysis out there right now. The Center for Budget and Policy Priorities has done some fabulous work, and I’ll just sum up some of their points below.
While plenty of pundits have taken the $5.8 trillion number on its face, CBPP reveals that there are two major gimmicks built into the figure. First, Ryan counts $1.6 trillion of savings that are not really attributable to his plan, but are part of existing budgetary scenarios. This counts $1.3 trillion that will be saved from not fighting wars in Iraq and Afghanistan – savings that go into effect under the baseline, and are therefore completely divorced from any new policies. On top of this there is an accounting error that overstates interest on savings by an additional $229 billion (relative to the method used by the non-partisan Congressional Budget Office). The true cost cuts are actually closer to $4.3 trillion.
But it gets worse. Built into the Ryan plan are major offsetting tax cuts totaling $4.2 trillion over ten years. Much of these tax cuts go to people in the top income brackets, including a reduction of the top marginal tax rate by ten percentage points (!). Netting out these tax cuts, the true deficit reduction is $160 billion dollars.
Poor People’s Programs
Robert Greenstein writes on the CBPP blog that $2.9 trillion, or roughly two-thirds, of the $4.3 trillion in true cost cuts from the Ryan plan come from programs that serve poor people. Far and away, the largest projected cut is in Medicaid spending ($2.17) and cuts to other program expansions for low-income people under the new health reform law. An additional $715 billion comes from cutting spending on mandatory programs (programs that are not appropriated on an annual basis), but since about half of that spending is specifically on low-income people, CBPP estimates that roughly $350 billion will be funding that serves low-income people including education, unemployment, social services. Finally, an additional $1.6 trillion in savings is squeezed out of non-discretionary programs, although the plan mentions no specifics about which programs. A conservative estimate is that at least $400 billion of this would come from programs that help low-income people such as college education grants.
Built into the Ryan plan are some sweeping cost savings proposals that have long been the darlings of rightwing idealogues, but have no support from objective policy analysis. One of the signature proposals is to convert Medicare, the program for elderly and disabled, away from a defined package of benefits into a defined contribution (in essence a voucher to purchase health care on the market). Henry Aaron, a respected policy analyst, who actually supported a voucher-like proposal in the 1990s, provides an excellent analysis in the New England Journal of Medicine of why the Ryan proposal not only will shift more cost risk on to the elderly, but also end up generating lots of inefficiencies in the health care market. Among his observations are that the Ryan vouchers do not adequately adjust the vouchers for expected changes in the cost of health care, nor does it adequately adjust for differences in health status across enrollees. In essence, the plan takes away the price bargaining power of Medicare, while foisting more out-of-pocket costs on the sick. As Aaron states:
“Only systemic health care reform holds out real promise of slowing the growth of Medicare spending. Predicted savings from vouchers or premium support are speculative. Cost shifting to the elderly, disabled, and poor and to states is not. Medicare’s size confers power, so far largely untapped, that no private plan can match to promote the systemic change that can improve quality and reduce cost.”
It’s possible to have a real conversation about how to change the Medicare benefit package, or indeed, how to modernize different domestic programs, but on virtually every measure of balance and reasonableness the Ryan plan fails.