For decades, academics and think-tankers have been proposing plans to avert a fiscal catastrophe. The ensuing debates were always sedate, high-minded affairs. Now Republican political leaders have come up with a bold proposal of their own and the atmosphere is totally different. Liberals are on the warpath. Republicans are aroused. This is great. It's democracy — how change begins.
The best thing about the long-term budget proposal from Paul Ryan, the Republican chairman of the House Budget Committee, is that it forces Americans to confront the implications of their choices. If voters want taxes that amount to roughly 18 percent of GDP, then they are going to have to accept a government that looks roughly like what Ryan is describing.
The Democrats are on defense because they are unwilling to ask voters to confront the implications of their choices. Democrats seem to believe that most Americans want to preserve the 20th-century welfare state programs. But they are unwilling to ask voters to pay for them, and they are unwilling to describe the tax increases that would be required to cover their exploding future costs.
Raising taxes on the rich will not do it. There aren't enough rich people to generate the tens of trillions of dollars required to pay for Medicare, let alone all the other programs. Democrats, thus, face a fundamental choice. They can either reverse President Obama's no-new-middle-class-taxes pledge or they can learn to live with Paul Ryan's version of government.
Until they find a way to pay for the programs they support, they will not be serious players in this game. They will have no credible plans and will be in an angry but permanent retreat.
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Because he had the courage to take the initiative, Ryan's budget plan will be the starting point for future discussions, at least as long as Republicans control at least one house of Congress. But it should be acknowledged that the Ryan plan has several grave weaknesses.
As presently configured, it is unacceptable to moderate voters and stands no chance of passage. Substantively, it does not address the structural problems plaguing the American economy: wage stagnation, inequality, declining growth rates. It doesn't have an answer to rising health care costs. Nor does it leave room for future policy creativity; there's no money to allow future generations to rise to unforeseen challenges. So, while acknowledging that Ryan has done the nation a great service by providing a starting point, we should expect his budget to evolve as the debate goes forward.
First, though Ryan is absolutely right to call for a fundamental reform of the tax code, we should probably aim to generate tax revenues equal to 20 percent of GDP, not the 18 percent he proposes. This would allow us to preserve some of the discretionary spending programs that Ryan cuts.
For example, Ryan would cut Pell grants to their 2008 levels. This is not the horrendous monstrosity some liberals are screaming about. But the economic challenge from China and India demands that we spend more on Pell grants, scientific research, early childhood education and other investments in human capital than Ryan proposes.
Second, we can't let the oldsters get off scot-free. As my colleague David Leonhardt reported in The New York Times, two 56-year-olds with average earnings will pay about $140,000 in dedicated Medicare taxes in their lifetimes. They will receive about $430,000 in benefits. This is an immoral imposition on future generations. The Ryan budget wouldn't touch this generation, but a bipartisan budget deal should ask middle-class and affluent boomers to make a sacrifice for their country. Slow the growth in health care benefits now and dedicate that money to paying down the debt and investing in the young.
Third, we still need a calm discussion about controlling health care costs. Just about every expert agrees with the following proposition: We can't afford to have Medicare pay for every new procedure that medical technologists devise. The president's health reform plan relies on a centralized board of technocrats to restrict choices. The Ryan plan relies on a premium support model that would allow individuals to exercise greater control over what sorts of procedures they would not be covered for. As the economist Tyler Cowen writes on his Marginal Revolution blog, we probably need a mixed system that takes advantage of both the technocratic and individual rationing models.
Ryan has moved us off Unreality Island. He is forcing Americans to confront the implications of their choices. With a few straightforward changes, his budget could be transformed into a politically plausible center-right package that would produce a fiscally sustainable welfare state while addressing the country's structural economic problems. I suspect the process Ryan has started will take us back toward the moderate framework the Simpson-Bowles deficit commission proposed a year ago.
Great journeys begin with one bold step.
