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A budget to reshape the nation

Rep. Paul Ryan's fiscal vision is a dream for conservatives. Democrats hope it will work against him.

August 14, 2012|David Lauter and Lisa Mascaro

WASHINGTON — Rep. Paul D. Ryan's proposed federal budget -- now starring as the centerpiece of the presidential campaign as he joins the Republican ticket -- would reshape American government, achieving long-sought conservative goals and reversing an 80-year path of larger, more expensive federal programs.

Under Ryan's plan, which has passed the Republican-controlled House twice in slightly different versions, the Internal Revenue Service would tax the wealthiest Americans less, but many of the poorest ones more; Medicare would be transformed; Medicaid would be cut by about a third; and all functions of government other than those health programs, Social Security and the military would shrink to levels not seen since the 1930s.

Mitt Romney has made a point of saying that he's running on his own budget, not Ryan's, but even before choosing him as a running mate, he had adopted much of Ryan's plan. Romney's tax plan would reduce tax rates by less, but closely resembles Ryan's, and so do his plans for Medicare, Medicaid and other safety-net programs.

The Ryan plan would not balance the federal budget for another 28 years at least, according to an analysis by the nonpartisan Congressional Budget Office. That means the federal debt would continue to rise. That's partly because the tax cuts take effect right away while the Medicare cuts kick in later, as people now 55 hit retirement age. It's also partly because Ryan's proposed tax cuts considerably outweigh even his ambitious spending reductions.

Ryan himself concedes that his plan would not balance the budget this decade, predicting it could be balanced by the "mid-to-early 2020s" because his plan would ignite rapid economic growth. Like his onetime mentor, Jack Kemp, the 1996 Republican vice presidential nominee, Ryan argues that the key to economic growth is not balancing the budget but lowering tax rates.

"Growth is the key to fiscal sustainability -- and low rates are the key to growth," he said.

But even if low tax rates spur the economy -- a debatable point among economists -- a balanced budget will depend on wiping enough tax breaks off the books to offset the new tax cuts.

In the more than two years since his budget was unveiled, Ryan has not specified any tax breaks he would eliminate. Independent analyses have shown that offsetting the tax cuts would require changing things such as the mortgage interest deduction, the tax exclusion for employer-financed health insurance or other popular tax preferences widely used by middle-income households.

For any of these changes to take place, of course, Romney and Ryan would have to win the election and probably carry a Republican Senate with them.

Republicans hope the Ryan budget will propel their campaign forward, grabbing the mantle of "change" away from President Obama. Democrats fervently believe Ryan's plan will become a major weapon for their side.

Medicare

Ryan would shift Medicare from a system in which everyone gets the same set of benefits, paid for by tax funds, to one in which the government would give each senior citizen a fixed amount of money.

When people now 55 or younger reach retirement, they would be given the option of using that "premium support" payment, or voucher, to buy private insurance policies or enroll in Medicare.

The amount of the payment would vary from one region of the country to another, depending on the cost of private insurance plans. In some places, at least in the early years, the premium-support payment might cover the full cost of Medicare, but there's no guarantee of that.

Ryan would also gradually lift the Medicare eligibility age from 65 to 67 by 2034.

Supporters say the premium-support approach would hold down the federal government's spending on healthcare, since seniors would have an incentive to shop for the cheapest plans, and competition among private health plans would push costs down. But critics argue that elderly sick people aren't likely to be good comparison shoppers and could easily be misled by complicated insurance programs.

Detractors also say health insurers would have a huge incentive to create low-cost plans for younger, healthier seniors, leaving Medicare with the oldest, sickest patients and driving up its costs.

Medicare beneficiaries have average incomes of $20,000 a year. Last year, the federal government spent $5,500 for each beneficiary, according to the Congressional Budget Office,which projects that cost will rise to between $8,600 and $9,600 by 2030. Ryan would cap the spending at $7,400 per senior. So unless costs grow much more slowly than expected, the average retiree on Medicare would have to pay between $1,200 and $2,400 a year. The amount would rise over time and would probably be higher for those with chronic health problems.

Taxes

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