The Ryan Roadmap: Assume a Can Opener II
I suspect he doesn’t want to hear this, but Representative Paul Ryan’s dramatic proposal to remake the federal budget is the best argument I’ve seen for why tax increases must be part of any serious effort to reduce the federal deficit.
My colleagues Rosanne Altshuler, Katie Lim, and Bob Williams have shown how it is impossible to address our flood of red ink on the revenue side alone, despite the fervent wishes of many Democrats. A CBO analysis of Ryan’s “Roadmap for America’s Future” is powerful evidence of why Washington can’t do this by only cutting spending, as Ryan and many of his GOP colleagues insist.
According to CBO, to reach his goal of balancing the budget and ultimately eliminating the national debt, Ryan would reduce federal spending to levels not seen since 1951. And that assumes the tax side of his proposal could generate revenues of 19 percent of Gross Domestic Product—a goal that appears wildly improbable. To see why, check out this post from last week. If his plan, as is likely, generates fewer tax dollars, he’d need even deeper spending cuts.
According to CBO, Ryan’s proposal would reduce federal spending from about 24 percent of GDP in the Obama budget to 19 percent by 2020, 16.1 percent of GDP by 2060 and a remarkably low 13.8 percent of GDP by 2080. The last time government was even close to that small was in 1951, when Washington spent 14.2 percent of GDP.
Ryan would get there by taking a series of extraordinary, and politically impossible, steps. He’d reduce promised Social Security benefits and create new private accounts—an idea similar to the plan offered in 2005 by George W. Bush and repudiated by a GOP-controlled Congress. He’d effectively abolish both Medicare and most of Medicaid—turning Medicare and the health care portion of Medicaid into subsidized private insurance. And he’d freeze all non-defense spending for 10 years (Obama would freeze it for three), and then cap future discretionary spending increases indefinitely.
Because Ryan would phase in his Social Security and health care changes very slowly, it would be decades before they’d significantly reduce federal spending. But once they began to bite, the effects would be profound. And ultimately, we’d end up with an essentially unrecognizable government. You might think this is a good thing or not, but make no mistake, it would be a government entirely unfamiliar to anyone younger than about 70.
Think about what government looked like back in 1951, the year we first got coast-to-coast dial telephone service. The Pentagon still acounted for half of all spending. Social Security represented only about 3 percent of total federal outlays. Medicare and Medicaid did not even exist. In 1951, we spent nearly four times as much for veterans benefits as we did for Social Security. Sixty years ago, there were only 15 million Americans 65 or older. Half lived in poverty.
Today, there are 40 million Americans 65 and older and we spend almost one-third of the budget on seniors. By mid-century, more than 70 million will be 65-plus. There is no doubt we need to slow the growth of spending for aging Baby Boomers. But freezing programs such as Medicare and Social Security at current levels while the population eligible for benefits nearly doubles seems unrealistic at best. Ryan is absolutely right to suggest that any long-term budget deal must address these entitlements. But his plan is also powerful evidence that it must include new revenues as well.
There are two kinds of people: Those who finish what they start and……..
good post man..
Ryan's game is a more cynical one. He wants to promote privatization schemes that maintain bulky government bureaucracies while steering hundreds of billions of federal dollars into the accounts of financial, insurance and health care corporations that will kick back some of the money in the form of campaign contributions.
Ryan's purpose is to make the rich dramatically richer — by cutting their taxes and making it easier for them to opt out of universal programs — while making it easier for for-profit companies to pocket federal money that is allocated to maintain Medicare, Social Security and other safety net programs.
Karen of ppc management company
The Swedish new pension system is a three tiered system.
1. Basic pension guaranteed everybody 2 base amounts roughly USD 1,000/month. Kicks in only if your income has been to low to earn vesting.
2. Supplemental pension based on a percentage of paid social security tax, a semi funded defined benefit pension giving the individual 50 % of his 40 year average salary. However the pension is reduced by one of the foremost inventions of social science, the so called Brake. If GDP growth is under 2 %, if the ration of workers to retirees goes below 2:1 an automatic adjustment to pensions kicks in.
3. A 401 k pension account on top. Each Swede can invest 25 % of his Social Security tax into individual mutual fund account.
Sweden is the first post-industrial country and was the first country to address the massive underfunding and imminent bankruptcy of PAYGO defined benefit pensions. (PAYGO is the ultimate Ponzi scheme).
So Sweden is secure and some people might complain but there is no anger from the people or any political will to change. It also requires a 80 % majority to change it since the center-rignt and center-left made a compromise. The SocialDemocrats had to allow full funding and private accounts and the center-right had to keep part of the defined benefit and guaranteed portion of the system.
Sweden has one problem left and that is Long Term Care for the Baby Boomers.
The US has both, underfunded Social Security in far worse shape than ever Sweden's was, far more underfunded and far greater benefits promised. To top that you have a far worser situation with Medicare and Long Term Care than Sweden has.
So the US is really up the creek and nobody wants to do anything. A compromise is needed or it will come to a Generational War betwwen the Y Generation and the Baby Boomers with the X and Millenals rooting for the Y Genration.
I hope Geezer Bashing will become a national pastime. The Baby Boomers are like Louie XVI and Marie Atoinette. “Apres mois la deluge” and “Why don't they eat cake oif they're hungry.” The most greedy and selfish generation to date.
If Medicare and Social Security is not reformed and drastically cut there will be nothing left for our children and future grandchildren.
A la Bastille!
I question how well Sweeden is doing now, especially with their Social Insurance system tied up in defined benefits. My guess is that there are people out for blood.
What did Sweden do in the 90's after its massive Keynesian program in 25 years between 1968-1993, its functional socialist years? In 1968 the Swedish tax increase from 35 % of GDP to over 50 %, top marginal taxation at 102 %. Small businesses eradicated, entrepreneurs and the wealthy run out of the country. Government spending tripled and public sector employees exploded. Sweden became as sclerotic as Greece today. Massive debt, a bankrupted social security system, massive power to public sector unions and wage increases way above underlying productivity levels.
As a result Sweden was on the brink of bankruptcy during the banking crisis of 1992.
So what did Sweden do?
• Public sector employee’s wages and benefits are only 80 % of private sector employees
•Cut marginal taxation by 50 %, abolished itemized deductions and broadened the tax base
• Cut all public subsidies and tax deductions for housing
•Cut corporate taxes from 54 % to 21 %
•Abandoned the inheritance tax, wealth tax and gift tax
•Partially privatized and made Social Security like a fully funded defined benefit 401k plan
• Sold most of public utilities and deregulated the rest
•School vouchers for every kid
•Massively deregulated the financial sector and closed all financial regulators but one
• Spending cap, no new entitlements allowed that were underfunded
• Deficit cap introduced, maximum deficit allowed 3%, maximum government surplus allowed 1%
In fact Swedish politicians today have no say on economic policies. It's all automated.
It's not ideal but if implemented the current deficit would as in Sweden in the 90's be gone in less than 5 years. By the end of 2000 Sweden had paid of all the bailouts and had large surpluses. The US might take more than 5 years but not much. The public sector was unable to grow. The entitlement systems as a consequence had to be privatized and trimmed.
Ryan’s plan is realistic but only if he accepts the level of government spending pre 2000.
The Republicans must accept massive cuts in Medicare spending i.e. spending caps and decreased benefits. The Democrats must accept privatization of Social Security and no new underfunded entitlements and no future increases in overall taxes.
However the Obama administration seems wants to take the turn Sweden took in the 70’s that lead to the crisis we now seen in Greece. Not applying the medicine that cured Sweden in the 90's.
I am not patting Ryan on the back for this. Any budget proposal that looks more then 10 years in the future should be laughed at. 2080? This has to be a joke.
Hell, anyone can write a deficit eliminating plan by letting the poor, old people die. You say that you are at least happy that someone is attacking entitlement spending, and I will be too, but I will wait till it is done realistically.
I agree, in principle, with AMTbuff. As long as we don't heed the warnings of Austrians, our monetary system will allow congress to tax the country through inflation — whether Ryan likes it or not.
There are reasons to want to privatize Social Security retirement, but they have more to do with shifting industrial policy from extreme diversification and welfare for stock traders to increasing employee ownership and control of most businesses. In other words, you can't take Social Security private unless you also want to shut down the banks and the stock markets as well in the long term. I doubt Ryan really wants to do that.
The other big problems are the size of the Pentagon budget and its desire to use Middle Eastern wars as a proxy for the Cold War to keep up its cadre of general officers and the lack of revenue pledged to pay for health care promises. That one is easy to solve once the economy bounces back – a nice subtraction VAT to fund senior Medicaid, Medicare and health care reform (or some form of single payer insurance) would do nicely.
I believe that a crash in the government bond market will leave no choice other than colossal reductions in government programs. Promises will be broken both explicitly and by high inflation with inadequate indexation.
The result might not look much different from 1951's level of spending. Progressives should dread this outcome, which to me appears almost inevitable even if politically difficult decisions are made now.