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Ryan and the Right

Some conservatives risk falling into Obama's tax and deficit trap.

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March 27, 2012 | comments

It's no surprise that the White House has denounced Paul Ryan's new House budget as the end of welfare-state civilization. The puzzle is why some conservatives are taking shots at the best chance in decades for serious government reform.

A pair of freshman Republicans, Tim Huelskamp of Kansas and Justin Amash of Michigan, joined every Democrat in voting against the budget in committee last week, claiming it didn't balance the budget fast enough. The budget passed 19-18, but if the rebellion spreads it will play into the hands of Nancy Pelosi, who wants to show that Republicans can't govern.

Then there's Chris Chocola, the former Member of Congress who now runs the Club for Growth political donors' group, who groused that "on balance" Mr. Ryan's budget is "a disappointment for fiscal conservatives." Mr. Chocola says the proposal doesn't get to balance fast enough and waives the automatic defense cuts from last year's debt-limit deal with President Obama.

The GOP critics are wrong on the economics and politics. Mr. Ryan's plan may not balance the budget within 10 years, but that's the wrong policy guidepost. Mr. Obama can easily balance the budget faster—by raising taxes.

Mr. Ryan wants to avoid a tax increase and reform the tax code because he realizes that the budget will never balance over the long term without economic growth faster than today's 2% a year. By stressing budget balance over growth, Mr. Chocola and the tea-party critics are falling into Mr. Obama's deficit and tax trap.

They are also playing by the Beltway's big-government budget rules. The critics on the right are judging Mr. Ryan's budget according to Congressional Budget Office estimates that assume little or no economic benefit from better policy. Mr. Ryan's official budget proposal follows CBO scoring, but he is also trying to break out of that straitjacket.

He has also issued a second budget estimate based on evidence from the 1960s, 1980s and 2000s that tax reform and spending restraint will increase GDP by about 0.5 to one percentage point a year. This means the Ryan budget reduces the debt to GDP ratio to 50% in 10 years from 74.2% this year (and heading higher) and thus steers the U.S. away from the Greek fiscal rocks. Since when has the Club for Growth favored static Beltway revenue analysis?

Mr. Ryan is also proposing to cut spending to 19.8% of the economy in 2021 from 24.1% in 2011. That is hardly spendthrift. It will also be hard to pass given the resistance to change in Washington.

But what really matters on spending over the long term is entitlement reform, and on that score Mr. Ryan goes further than any Republican Congress or President since 1995. He understands that without converting Medicare into a market-based program with more choices for seniors, and without devolving Medicaid to the states and repealing ObamaCare, tax increases will soon become the political default option.

The entitlement state wasn't built in a year, and it can only be fixed with reforms that save money over time. Conservatives who really want to limit government should focus on major reform, not on hitting some unlikely balanced budget target in some future year.

As for automatic defense cuts—the so-called sequester—everyone knows those are too draconian to be sustained. That's why Mr. Obama insisted on them. He wants to use them as leverage to get Republicans to raise taxes. Defense is already scheduled to be cut by some $450 billion under the current 10-year budget caps. The sequester would cut an additional 10% from the national security budget in 2013 and roughly another 10% in 2014.

Mr. Ryan's budget would cancel the additional defense cuts of $55 billion a year under the sequester and replace them with savings in the entitlements that are the real drivers of long-term debt. His Medicare and Medicaid reforms would generate future savings many times greater than would be gained from gutting the defense budget. The tea partiers who want to hack away at defense as much as they do at earmarks are going to fracture the GOP coalition in Congress that still contains more than a few defense hawks.

Voters have every reason to be skeptical of Republican promises, but Mr. Ryan's budget is hardly a status quo document. It's light years better than the Tom DeLay budgets of the 2000s.

Mr. Ryan is thinking ahead of his critics by focusing on the two most important priorities: growth and reform. Without both, limited government will be nothing more than a tea party slogan and a balanced budget will be nothing more than a tax-increase trap.


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