How Paul Ryan Would Erase Obama’s Social Contract
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Josh Boak,
The Fiscal Times
March 13, 2013

For House Budget Committee Chairman Paul Ryan, the ends justify the means.

On Tuesday, the Wisconsin Republican launched his new budget plan —which borrows heavily from his three previous endeavors—to put the government in the black by 2023, promising the kind of social transformation that borders on the utopian.

“Balancing the budget is not simply an act of arithmetic, it’s not just getting expenditures and revenues to add up,” Ryan told reporters. “Balancing the budget is a means to an end; it’s a means to a healthier economy, a pro-growth society, a pro-growth economy that delivers opportunity.”

But without studying how he achieves that balanced budget, it’s tough to assume that his happy ending is possible in an American economy still recovering from the excesses of Wall Street and the gravitational pull of a recession that technically ended almost three years ago.

Much has been made in the past couple of days of some of the most dramatic and controversial of Ryan’s means for achieving a balanced budget in ten years. This includes repealing much of President Obama’s 2010 signature health care reform law, overhauling Medicare and Medicaid, and slashing government spending by a total of $4.6 trillion over the coming decade.

That only scratches the surface. From the looks of Ryan’s new 91-page edition of the “Path to Prosperity,” it will take a demolition crew to execute his vision. His plan would also overhaul the food stamp program, cap Pell Grants for college students, wind down Fannie Mae and Freddie Mac, approve the Keystone XL Pipeline project, and much more.

Ryan didn’t just write a budget. He has sharply edited the Obama-era social contract. Almost 40 percent of his spending cuts come from gutting Obamacare, while keeping more than $1 trillion in tax hikes associated with the 2010 health care reform law.

“The President certainly believes that Congressman Ryan is sincere in what he believes his budget represents in terms of policy priorities, and he commends Congressman Ryan for the effort, but there is no question that the Ryan budget represents a series of policy choices that this President profoundly disagrees with,” White House Press Secretary Jay Carney said yesterday. 
 
Here is what the Ryan budget actually does:

Tax Reform
Ryan is not cutting taxes in an absolute sense. His budget keeps more than $600 billion in revenues from the New Year’s Day fiscal cliff deal’s rate hike and the $1 trillion in tax increases linked with Obamacare.

But Ryan would alter the tax code in a way that changes the composition of those revenues. Democrats claim this amounts to a de facto tax hike on the middle class and a tax break for wealthier Americans. Ryan counters that a simpler tax code will improve private investment. Other provisions of the budget would:

  • Remove loopholes and deductions. However, Ryan includes no specifics on what would get erased.
  • Substantially lower tax rates for individuals, with a goal of achieving two tax brackets: 10 percent and 25 percent. The current top rate is 39.6 percent on household incomes above $450,000.
  • Repeal the Alternative Minimum Tax.
  • Reduce the top marginal corporate tax rate from 35 percent to 25 percent. The average effective tax rate—what businesses actually pay after credits, deductions and other bits of financial engineering—has been around 25.6 percent, according to the Congressional Budget Office.

Social Safety Net
  • Repeals Obamacare’s expansion of Medicaid to millions of uninsured low-income Americans. All told, Ryan estimates that ending Obamacare related programs would save $1.84 trillion—about 40 percent of all the spending cuts in his budget.
  • Transforms the $432 billion-a-year Medicaid program for the poor from an open-ended entitlement into a block grant program for the states. This change would amount to a $756 billion cut over ten years.
  • Repeals Obamacare’s insurance exchange subsidies.
  • Repeals President Obama’s health care reform legislation, which according to CBO estimates will add more than $1.2 trillion of new spending to the federal balance sheet.
  • Turn the $80 billion a year food stamp program into a $25 billion program that states can customize to meet their respective needs.

Retirement Security

  • Declares that Medicare and Social Security are “in dire need of reform” to insure their long-term solvency as more and more Baby Boomers retire.
  • Preserves current Medicare system for those currently 55 and older. Beginning in 2014, people currently 54 or younger will be placed in a voucher-style, premium support Medicare Exchange and must choose among private health care plans. This cuts Medicare spending by $129 billion over 10 years, much less than the more than $300 billion in savings offered by Obama by cutting payments to drug companies.
  • Means-test Medicare premiums for higher-income seniors
  • Repeals the 15-member Independent Payment Advisory Board overseeing Medicare costs. Ryan assumes that competition rather than “bureaucratic fiat” will control health care costs.
  • Requires the President to submit a plan to shore up the Social Security Trust Fund and requires Congress to submit a plan of its own.
  • Overhauls civil-service pensions to force federal employees and members of Congress and their staffs to make greater contributions toward their own retirement.
  • Reforms the Pension Benefit Guaranty Corporation to address a $34.3 billion unfunded liability.

Defense

  • Gets rid of the automatic sequestration cuts for the Pentagon, so its budget would increase from $497 billion in 2014 to $560.2 billion. The Defense Department would receive $500 billion more over the next decade than the current projections.
  • Sets the  total funding level for Veterans Administration programs at  $145.7 billion – or $9 billion higher than the VA’s most recent budget request

Higher Education and Job Training

  • Maintain a maximum award level for Pell Grants at $5,645 for the next ten years. The notion here is that this will help control rising college tuition costs, but it could also limit how much financial aid is available and cause students to take on more loans.
  • Change the formula for calculating financial need, so that families cannot hide some of their assets.
  • Eliminate duplicative K-12 federal education programs, such as the 82 different ones that are designed to improve teacher quality.
  • Streamline job-training programs and improve their accountability by tracking career placements and costs per trainee.

Energy

  • Endorses approval of the Keystone XL Pipeline project between Canada and the U.S. Gulf coast that potentially could create 20,000 direct jobs and 118,00 indirect jobs while battling the high cost of gas.

Housing

  • Wind down Fannie Mae and Freddie Mac, the two mortgage giants under federal conservatorship since the end of 2008.
  • Revise the Federal Credit Reform Act to avoid potential risky behavior by the Federal Housing Authority’s Mutual Mortgage Insurance Fund.


 

Washington Editor and D.C. Bureau Chief Eric Pianin is a veteran journalist who has covered the federal government, congressional budget and tax issues, and national politics. He spent over 25 years at The Washington Post.