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Economic Destiny Comes Down To Obama Vs. Ryan

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May 19, 2011 | comments
By Jeffrey H. Anderson

President Obama talks a lot about "winning the future." But to a large degree, America's future will be determined by the ongoing budget debate between him and House Budget Committee Chairman Paul Ryan, with the American people deciding the outcome.

The budget debate can sometimes seem a bit complex, but there are really two key numbers to remember: 18 and 24.  No matter when you start the clock — at the end of World War II, in 1970, or in 1990 — the average percentage of the gross domestic product that Americans have paid in taxes is 18%. And whether you look at the first or the last year of President Obama's 10-year budget, the percentage of GDP that he wants the government to spend is 24%.

If this model of $3 in and $4 out doesn't seem sustainable, it's not. And if you can't believe that our elected leaders in Washington would really let things get so out of control, consider this:

According to President Obama's own budgetary estimates, for every $4 that comes in this year, $7 will go out, and mandatory spending alone will surpass all federal revenues. In other words, if we didn't spend a dime this year on national parks, interstate highways or even national defense, we would still have a deficit.

Moreover, we face a colossal $14 trillion in national debt that we have already accrued.

So, facing such daunting fiscal challenges, what should we do? The Congressional Budget Office has provided scoring for three possible paths forward from here.

Simpler Tax Code

The first of these paths is the CBO's "extended-baseline scenario," the scenario under current law. In this scenario, the tax cuts of 2001 and 2003 would be allowed to expire, and spending would continue on schedule.

The second path is the CBO's "alternative fiscal scenario." This scenario incorporates changes to current law that are "widely expected to occur." In this scenario, the 2001 and 2003 tax cuts would be extended, politically infeasible efforts to limit health care spending would be reversed, and so on.

The third path is laid out in the Paul Ryan-authored House Republican budget. The Ryan budget would repeal ObamaCare, reduce non-security discretionary spending to pre-2008 levels and block-grant Medicaid payments to the states. It would simplify the tax code. It would seek to end corporate welfare and financial bailouts.

Contrary to some assertions, it would not cut taxes — except for the corporate tax rate, which it would reduce to the more internationally competitive rate of 25% (from 35% today).

Perhaps most significantly, it would reform Medicare from a program in which the government pays doctors and hospitals directly, to one in which the government provides premium support to seniors to help them purchase private health insurance of their choice.

Seniors' level of premium support would vary based on their income and health status, and would rise with inflation. Lower-income seniors would also have thousands of dollars deposited annually into medical savings accounts on their behalf, to cover additional expenses. And health plans that choose to compete for seniors' business would be required to insure any and all beneficiaries, regardless of health status.

Never Before

Those who are currently at least 55 years old would not be affected by these reforms, unless they freely choose to switch into the newly reformed Medicare program, once it's up and running in 2022.

Here's what the CBO says the future would look like, as of 2050, under each of these three scenarios:

Under the extended-baseline scenario, taxes would rise to the levels of a European social democratic state, reaching 26% of GDP. Across the past six decades, the highest level of taxation Americans have ever faced was just under 21% of GDP, at the height of World War II. But even with such massive tax increases, the national debt held by the public, currently about 70% of GDP, would rise to 90% of GDP, as spending would proceed unchecked.

Under the alternative fiscal scenario, taxes would rise only moderately from their historical norms, reaching 19.25% of GDP. But with Medicare, Medicaid and ObamaCare costs exploding, spending would eclipse 45% of GDP. Federal health programs alone would eat up more than three-quarters of our historic levels of taxation.

As a result, the amount of national debt held by the public "would skyrocket to levels unprecedented in the United States," hitting 344% of GDP — the equivalent of more than three years of the nation's entire economic output.

President Obama's approach, both in his budget and in his recent deficit-reduction speech, is a blend of these first two scenarios.

No Debt

Last, under the scenario proposed by Ryan, the CBO says that taxes would rise a bit but would stay within range of their historical norms, reaching 19% of GDP.  Spending would be held in check, gradually falling from 24% to 15% of GDP. In the process, the amount of national debt held by the public would fall to just 10% of GDP. Less than a decade later, we would be debt-free.

So, that's the choice facing all Americans: unprecedented levels of taxation, unprecedented levels of debt or getting our spending under control. On Nov. 6, 2012, Americans will have the chance to choose their course.

• Anderson was the senior speechwriter for Secretary Mike Leavitt at the U.S. Department of Health and Human Services.


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