Wall Street Journal editorial: The Ryan Resolution
The most serious attempt to reform government in a generation.
Well, so much for dodging entitlements. This year's trendy complaint, shared by the left and the tea party, that Republicans hadn't tackled the toughest budget issues was blown away yesterday with the release of House Budget Chairman Paul Ryan's budget for 2012. We'll now separate the real reformers from the fiscal chickenhawks.
Mr. Ryan's budget rollout is an important political and policy moment because it is the most serious attempt to reform government in at least a generation. The plan offers what voters have been saying they want—a blueprint to address the roots of Washington's fiscal disorder. It does so not by the usual posturing ("paygo") and symbolism (balanced budget amendment) but by going to the heart of the spending problem, especially on the vast and rapidly growing health-care entitlements of Medicaid and Medicare. The Wisconsin Republican's plan is a generational choice, not the usual Beltway echo.
Some House conservatives are grousing that Mr. Ryan's proposal doesn't cut spending enough to balance the budget in 10 years. This is a foolish complaint. Mr. Obama will be happy to balance the budget too—at 24% of GDP, which means far higher taxes. Republicans should keep their eye on what Milton Friedman understood was the real burden of government, which is spending.
The Ryan plan would chop $179 billion from the 2012 White House budget and another $241 billion in 2013. This would be the largest two-year savings since the demobilization of the military after World War II. Mr. Ryan would cut funding for corporate welfare and hundreds of ineffective programs, reform agriculture subsidies, reduce the federal work force by 10% and repeal ObamaCare, among other good ideas.
Mr. Ryan's budget would reduce federal borrowing to 2% of GDP by 2017, which is a manageable level of new debt and a huge improvement from the roughly 10% of GDP the Treasury is borrowing now. Given the epic hole we are in, this would be a historic achievement.
As for entitlements, the House GOP wants to let the states run Medicaid in return for an annual fixed payment or "block grant," letting Governors experiment with ways to save money and provide better care. This is the way welfare was successfully reformed in the 1990s, and it would give states more control over their fastest-growing budget item.
On Medicare, the Wisconsin Republican would phase in reforms for Americans under 55 years old. Medicare currently pays doctors and hospitals directly on a fee-for-service model that is price-controlled and increasingly unaffordable. Fewer doctors want to see Medicare patients and, among other deficiencies, it lacks true catastrophic coverage.
Mr. Ryan would create a "premium support" system in which government would pay a subsidy of roughly $15,000 to private insurers chosen by seniors. This means at age 65 you would be able to keep your same insurer, with the feds paying for that insurance instead of your employer. That would slow the growth of spending over time through competition and senior choice, rather than continue on Medicare's current path of government-rationed care.
Tackling Medicare is the politically riskiest part of this budget, as Democrats are already returning to their old stand of denouncing any change as a "war on the elderly and poor" (as Illinois Democrat Jan Schakowsky put it). These are the same Democrats who oppose smaller spending cuts on grounds that entitlements are where the real money is. The truth is they want only token spending cuts of the kind that Mr. Obama's budget offers.
For that political reason, Mr. Ryan decided not to walk point on Social Security, though everyone knows that retirement entitlement is also unsustainable with $17 trillion in unfunded liabilities. As a policy matter, Social Security is also the easiest problem to solve—change the benefit formula, means test benefits, raise the retirement age, and more. But you can't blame Republicans for dodging at least one political buzzsaw if Mr. Obama is going to continue to dodge all fiscal responsibility.
Unlike many Republicans and some in the tea party, Mr. Ryan understands that the budget can't be balanced with spending cuts alone. Above all, we need faster economic growth to drive higher incomes and more revenues. So Mr. Ryan also proposes a tax reform that would cut the U.S. personal and corporate tax rate to 25%, in return for eliminating loopholes and credits that allow companies like Whirlpool and General Electric to pay little tax.
Chairman Dave Camp has been pushing a similar reform in the tax-writing House Ways and Means Committee, and he deserves credit for letting Mr. Ryan roll it out as part of the budget. Republicans will have a better chance of winning the fiscal argument if they keep explaining that their reforms are essential to reviving growth and raising middle class incomes.
The GOP political bet is that this debate won't be another replay of 1985, 1995 or 2005 because the political times have changed. Our fiscal problems are far deeper, and Mr. Ryan's hope is that the American people realize this and are willing to reward politicians who address those problems, rather than politicians who say we can keeping spending and borrowing ad infinitum.
Republicans in Congress will need to rise to Mr. Ryan's occasion, and in particular so will GOP Presidential candidates. The first voter test for those candidates should be which of them are missing in action from the debate that House Republicans are kicking off. If we fail to reform the entitlement state now, we will do it eventually. But the price and pain will be so much greater.