The House GOP Budget: Lots of Change, and Many Questions

By :: April 5th, 2011

If you view a budget as a vision of government, the House GOP’s fiscal map unveiled today charts a profound course correction for Washington and its relationships with both its citizens and the states. In this new world, individuals and families would receive only limited assistance from government in times of stress, but they also might  pay much less in taxes than under the status quo.   

In stark contrast, President Obama’s February budget envisioned a government hardly different than the one we have had for decades.  

According to the fiscal plan drafted by House Budget Committee Chair Paul Ryan (R-WI), federal spending would be almost $1 trillion less in 2021 than if fiscal policy stays on its current track. That is a staggering 20 percent cut, even before the House Republicans biggest proposed change—the repeal of Medicare as we know it—would begin to kick in.

At the same time, tax revenues would be cut by about $600 billion from the Congressional Budget Office baseline for 2021. And the deficit that year would be about $400 billion, roughly $350 billion lower  than if government spending remained on  course.   

This is a big deal. But the budget document is a curious mix of the general targets normally set by a budget resolution and very specific policy proposals. As such, the House GOP leaves unanswered some very important questions.  As you think about what Ryan & Co. are doing, here are some to keep in mind:

What exactly is the tax plan? The budget sets only two targets:  The federal government should raise no more than 19 percent of Gross Domestic Product in taxes and other revenues. And the top tax rate for both individuals and corporations should be 25 percent. Beyond that, it is a black box. The fiscal plan says nothing about payroll taxes or estate taxes, and almost nothing about taxes on capital gains and dividends. It calls for repealing or scaling back tax preferences, but does not say which ones or by how much. Watch how the House Ways & Means Committee fills in these extremely controversial blanks.

Medicare would be replaced, but with what? The budget plan would dump Medicare for a voucher system where seniors would get an annual subsidy to buy health insurance in the private market. But today, it is not possible for most seniors, who likely have pre-existing conditions, to buy insurance as individuals. For many, premiums would simply be unaffordable even with a government voucher. They could purchase under the 2010 health law that creates insurance exchanges and requires carriers to sell coverage to all comers no matter their health. But the Republicans want to repeal that law and won't say how they'd replace it.

What will happen to health and long-term care services care for the poor? The GOP plan would turn Medicaid into a kind of voucher as well, except a limited annual subsidy would go to states, and not to individuals. In that environment, states would get increased flexibility, but they’d also have far less money to work with--hundreds of billions of dollars less. The probable result: significant cuts in a program that is already insuffficient in many states. What would happen to the sickest and poorest in that environment?  

Wither Social Security? The plan drops this hot potato onto Obama’s lap. It requires the President to come up with a plan to “restore balance” to the system but offers few specific ideas.

Is it really possible to cap federal spending at below 20 percent of GDP? Most economists doubt it, given a rapidly aging population and inevitable economic slumps and natural disasters.             

Make no mistake, this plan is a dramatic—some would say radical—change in the role of the federal government.  It is curious: Republicans spent two years blistering Obama for his supposedly extreme political agenda. Yet the president is very much a liberal incrementalist. Rhetoric aside, his health law fiddled around the edges of the same private insurance-based health system we have today.  His response to the economic crisis was little different from President George W. Bush’s. And despite the demands of the left, the White House recipe for reducing greenhouse gases has been modest at best.

Real change, like the direction or not, is alive and well in Washington. But it is thriving at the other end of Pennsylvania Avenue. I anxiously await Obama's response.

6Comments

  1. The House GOP Budget: Lots of Change, and Many Questions | Tax Information  ::  3:54 pm on April 5th, 2011:

    […] post: The House GOP Budget: Lots of Change, and Many Questions Posted in News Tags: budget, gross-domestic, health, house, individual taxes, means-committee, […]

  2. Michael Bindner  ::  4:35 pm on April 5th, 2011:

    This is the response to Obama’s budget. The hearings next week should be interesting, although I don’t think his committee will change any of these proposals.

    Of course, I could be totally wrong about that. Eventually, Harry Reid and John Boehner are likely to come up with a deal, either before or after a governmental shutdown. That deal will likely be for a total cut of $33 Billion – much of which has already been agreed to and if there is another one week extention with $12 billion in additional cuts, roughly $11 billion of cuts is all that will ever be made over and above that. The fact that the Appropriations Committee is fully funding Defense in their extension proposal augers for a desire by the Tea Party to shut the rest of the discretionary government down for some period of time. That will only make Reid and Obama’s hand stronger, however, as the GOP is misreading public sentiment, relying on a skewed Rassmussen poll which undersamples non-Republicans. The GOP members will hear it from the folks back home loud and clear. If Tea Party members either get or understand a different message, however, they will see the eventual deal as a betrayal. The only question is whether this leads to a palace coup. If Boehner does not go quietly, then there may be a different leadership team in Congress fairly soon, especially if Pelosi and/or Hoyer prefer to have him as speaker or majority leader rather than Cantor as Speaker and Pence as leader. Whether Ryan and his plan survive such an event depends on who he supports,however I doubt that his roadmap will remain unchanged in a new centrist majority.

    Of course, if Boehner falls on his sword, it will only goad the GOP into more extremism.

    This plan shows a totally unrealistic view of GOP electoral prospects in 2012, not the least of which because it is cost prohibitive to run two Medicare Plans based on age. If even the prospect of a change becomes possible, the Tea Party will cease to exist as a force backing the GOP.

    There are 23 Democratic seats up for reelection in 2012. While Virginia has an open seat, it would take having 13 seats in play with no GOP losses to disregard any need to compromise on the taxes. Even under reconciliation, the GOP needs to pick up three seats, the White House and hold all of its seats. Given likely Tea Party candidates in Nevada, Texas, Arizona, Maine and Massachussetts and the Tea Party predilication for red meat on immigration, the GOP could lose 7 seats (providing Collins and Murkowski jump to the Democrats with Snowe – which is likely). If the Tea Party primaries McConnell for cooperating with a deal, then the Democrats gain 8 seats rather than losing 13.

    They GOP should compromise on taxes now.

    The ACA, particularly the VAT-like tax increases on unearned income, will not be undone this year, nor should they be. What might happen is a judicial rejection of any mandate challenges at the appeallate level, leading Wall Street to examine whether mandates are adequate to support pre-existing condition reforms. If they decide that they are not, either private health insurance will crash or pre-existing condition protections will be repealed in favor of a public option – which will require broad based funding increases to subsidize these patients, at which time Medicare and Medicaid will also be fixed.

    That may not happen this session, but it is silly to craft a comprehensive reform to Medicare and Medicaid in absence of this scenario or some similar deal.

    At best, the Ryan plan is a bargaining chip and attempt to secure his conservative bona fides for one so young. At worst, it is a public relations stunt unworthy of adult governance.

  3. TG  ::  8:30 pm on April 5th, 2011:

    “Real change” ? More like a reinforcement of the corrupt plutocratic status quo. “Democracy” in America is a cruel joke.

    No matter what happens, I won’t vote a second time for Obama.

  4. Sid F  ::  9:21 pm on April 5th, 2011:

    My favorite sentence,

    “This budget builds upon the Commission’s work, forcing action to solve this pressing problem by requiring the President to put forward specific ideas on fixing Social Security.”

    Wow, what a bold and daring proposal. And everyone thought Ryan would cop out on SS.

    I suspect the extra $100 billion in defense spending over the Gates proposal is to buy guns, tanks and other weapons to force the President to do this.

    This is clearly in the same league as the brilliant and decisive proposal in the Deficit Commission’s report on reducing health care costs, which if you remember was that the President and the Congress should come up with some.

  5. Notes on the Ryan Budget – NYTimes.com  ::  5:05 pm on April 6th, 2011:

    […] tax proposal is a “black box.” That’s the apt phrase used by Howard Gleckman, who notes that the Ryan budget leaves it to the House Ways & Means Committee to fill in the […]

  6. My favorite reaction to Rep. Ryan’s budget | The Incidental Economist  ::  1:25 pm on February 13th, 2014:

    […] by Howard Gleckman. He asks some good questions. Anybody serious about this budget should be able to answer […]