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Paul Ryan's budget plan would destroy the middle class

August 15, 2012|Michael Hiltzik
  • Paul Ryan's federal budget proposal would destroy the middle class, something that's been overlooked in the discussion of his plan.
Paul Ryan's federal budget proposal would destroy the middle class,… (J. Scott Applewhite, Associated…)

It certainly hasn't taken long for the blue-eyed, smiling visage to be scrubbed off Paul Ryan's putative policy masterwork, a federal budget proposal that supposedly would cut the government deficit to a shadow of its former self, as if by magic.

Within hours of the Wisconsin congressman's anointing as Mitt Romney's vice-presidential running mate, the budget plan's salient features were being widely publicized: It would deliver a handsome tax cut to the richest Americans while eviscerating the programs and services the rest of the country depends on. These include healthcare services, banking and clean water regulations, road repair and education assistance.

Yet all the discussion has overlooked the real damage the Ryan budget would do to an important segment of the American public. We're not talking about the very poor and the near poor. Their lives would be made immeasurably worse, to be sure, by a budget that would shrink Medicaid and force cutbacks in food stamp, educational and law enforcement services, among so many other things. Ryan at least pays lip service to maintaining the national safety net, ineffective as his proposals to do so may be.

But the middle class would be destroyed. The Ryan budget's impact on middle-income Americans comes in many forms, some of them exceedingly disingenuous. Let's look at a few.

Start with the revenue side. Here, as in other respects, the Ryan plan is silent on specifics, beyond asserting that "the key to pro-growth tax reform is lowering tax rates while broadening the tax base."

Ryan advocates cutting the top income tax rate to 25% (from 39.6%, the pre-Bush top marginal rate scheduled to take effect Jan. 1).

The only way to do so while keeping overall tax revenues at 19% of gross domestic product, Ryan's stated goal, is to eliminate a wide range of tax breaks. On the surface, this might look palatable to a middle-class taxpayer convinced that the fat cats get all the breaks anyway. In fact, the most popular breaks save billions for the middle class.

More than 70% of the mortgage interest payments claimed as deductions ($240 billion) appear on returns filed by people in the income range of $60,000 to $200,000, according to the IRS. Many of these middle-class homeowners base their annual financial planning on tax breaks such as the mortgage deduction. Only about 1.4% of the total is claimed by taxpayers earning $1 million or more.

This is among the reasons that, as the nonpartisan Tax Policy Center recently calculated, sharply lowering marginal rates while cutting out the most popular tax breaks results in net tax cuts for the wealthy and increases for everyone else. (This is what Ryan means by "broadening the tax base" — it means he's coming for you.)

The more insidious assault on the middle class comes from program cuts. Most of the commentary on Ryan's budget has focused on his master plan for Medicare and Medicaid, both of which he would gut. But it's a mistake to think the burden would be shouldered exclusively, or even chiefly, by the poor.

Ryan would replace the existing Medicare system of guaranteed treatment (with a nominal individual premium) with one providing vouchers for service through private commercial insurance plans. By design, the vouchers wouldn't cover all costs, and because their value would rise in accordance with a standard inflation measure, not with medical inflation, the gap would widen over time.

The Kaiser Family Foundation calculated that in 2022, the out-of-pocket medical expenses of the typical 65-year-old would come to half his or her Social Security income — double the level under traditional Medicare. There are two reasons. First, private insurers would deliver benefits at a higher administrative cost, and second, the vouchers would low-ball the retirees' real costs.

As a device to reduce the growth in healthcare costs, which is the principal component in government spending going forward, this is pure sleight of hand. Costs will keep rising, and at a faster rate than before (Ryan would also repeal the healthcare reform act, including its cost-reducing provisions). Less of the increase would show up on the government's ledgers only because more would show up in family budgets. The average American would be poorer for it.

Ryan contends that shifting the delivery of care from the Medicare bureaucracy to private insurers will wipe out waste. Everyone who has contact with Medicare, his plan states, "has stories about waste in the system — unnecessary tests, redundant treatments, and the cost ... of mistaken billings and misplaced records." Now, I've never come directly in contact with Medicare, but I've experienced all those things — at the hands of the private insurers Ryan thinks have the magic answer to rising medical costs.

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