By Robert J. Samuelson, Published The Straits Times, 20 Aug 2012
JUDGING by the political reaction, you'd think that Mr Paul Ryan's budget takes a meat axe to Medicare and threatens economic havoc for the elderly. Just the opposite is true: The Ryan budget spares older people from almost any change or sacrifice - and that's the problem. We have (and, to be fair, this is mainly the doing of Democrats and their intellectual apologists) made those 65 and over into a politically protected class, of which nothing is expected and everything is given.
It is impossible to have an honest debate about the budget - and government's size and role - unless this changes, because aiding the elderly is now the main thing the federal government does. If you remove that, fearing a backlash from the 50 million or so Social Security and Medicare recipients, you condemn yourself to bad choices: (a) you can't deal with deficits, which may crowd out productive investment and risk a financial crisis; (b) you must dramatically squeeze the rest of government, including the social safety net, defence and research; or (c) you must raise taxes sharply, which may further slow the economy.
Even now the magnitude of the problem isn't fully appreciated. Here's one indicator: Under plausible assumptions - including "full employment" and cutting defence and non-defence discretionary spending by a third - the Congressional Budget Office (CBO) projects a deficit in 2023 equal to 6.75 per cent of the economy (gross domestic product). To cover that, in today's dollars, would require US$1 trillion (S$1.25 trillion) in higher taxes; that's a tax increase of a third over the 1970-2011 average.
Let me now assert the customary caveats: At 66, I am not against older Americans; I don't want to dismantle Social Security and Medicare, which are vital parts of the social fabric; but I do want these programmes modernised - to reflect longer life expectancy and the elderly's greater wealth; to lighten the burden on the young (whose taxes support these programmes, because almost nothing has been "saved" to pay for them); and to protect government's other functions. Finally, it should be possible to discuss these issues candidly, without being accused of "throwing Grandma under the bus".
It isn't now. Democrats' relentless campaigns against Republicans as threatening to "destroy" Social Security and Medicare have succeeded at intimidation - and, curiously, Mr Paul Ryan is proof.
There are two Ryans: what I call the good Ryan and the bad Ryan. The good Ryan has highlighted long-term deficits' potential harm to our children and grandchildren. The bad Ryan has fashioned an unrealistic and undesirable budget by trying to accommodate both liberal dogma (don't cut Social Security and Medicare benefits) and conservative dogma (don't raise taxes). Any sensible plan must do both.
Governed by these constraints, his budget would:
- Impose no cuts in Social Security - that's 20 per cent of federal spending off the table.
- Delay any major change in Medicare until 2023, when recipients could choose either a voucher plan or "traditional" Medicare - that's another 16 per cent of spending unaddressed for a decade.
- Convert the federal share of Medicaid (federal-state health insurance for the poor) into a block grant to states, and then increase the grant annually at a lower rate than at present.
- Increase most other federal spending, including defence, only by inflation after 2023 - a formula that makes no allowance for population growth and could lead to "real" cuts because wages and compensation typically outpace inflation.
- Hold taxes at 19 per cent of GDP after 2025, just above the 18 per cent average of the past 40 years.
- Reduce deficits but not balance the budget until 2040.
This budget would have devastating consequences. Increasing non-Social Security and health spending only at the rate of inflation would gradually shrink most other federal programmes. (From 2011 to 2030, these other programmes would decline by more than half, from 12.5 per cent of GDP to 5.75 per cent, projects the CBO.) Defence cuts could verge on unilateral disarmament. States and localities would suffer, as the value of federal grants, including Medicaid, shrivelled.
By contrast, the elderly would be mainly spared. Spending on them in 2030 would drop only slightly, estimates the CBO. Despite this, President Barack Obama warns that Republicans "would end Medicare as we know it". Liberal pundits say Republicans would "kill" Medicare. It is this cynical fear-mongering that poisons debate.
One reason Democrats won't change Social Security and Medicare is that defending them is so politically rewarding. This, as much as Republican tax intransigence, underlies the stalemate.
The cliche is true: There are no painless cures to budget deficits. But all cures are unnecessarily hard and harsh because we maintain a protected class excluded from any solution.
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