Accounting for Reality

Welcome to the warm-up for the coming 2012 political campaign-season clash over how to get America’s fiscal house ($14.2 trillion in national debt and counting) in order.

On April 5 Paul Ryan, the young Wisconsin Republican who heads the House Budget Committee, released “The Path to Prosperity,” a plan for cutting $4 trillion in federal spending over the next 10 years. On April 8 leaders of both parties exhaled when an 11th-hour budget compromise averted a federal government shutdown. On April 13, with a battle over raising the national debt ceiling before August at hand, President Obama issued “A Balanced Approach,” his plan for cutting $4 trillion in federal spending over the next dozen years.


Both Ryan’s plan and the president’s plan display political courage and deserve to be taken seriously—seriously enough, that is, to critique constructively.

On the positive side, certain ideas in Ryan’s plan boast a bipartisan pedigree and have decent scholarship behind them (like his spin on the old market-based idea for means-tested “premium support subsidies” for Medicare).

Still, while not quite as Scrooge-like as some have asserted, Ryan’s plan makes disproportionate cuts in programs for the poor. Moreover, it is light on public finance details, long on Pollyanna-like predictions about policy impacts and short on facts regarding how major federal programs work.

Ryan’s plan lowers top individual and corporate income-tax rates, for example, from 35 percent to 25 percent but is foggy on other tax reform particulars. If adopted wholesale soon, it predicts, unemployment will plummet by 2015 to below 5 percent. In political economy terms that prediction is fanciful.

Ryan’s plan would also revolutionize federal health care programs, first by rescinding the Patient Protection and Affordable Care Act of 2010 before its major provisions are implemented in 2014 and then by turning Medicare into a virtual voucher program and Medicaid into a block grant program.

Medicare’s total administrative overhead costs remain about 5 percent, well under the comparable rates for private insurers. All told, about 4,500 federal employees manage both Medicare and Medicaid (nearly 40 percent of the federal budget).

I have been bird-dogging Medicaid’s federal-state financing and administration since I co-edited a volume published by the Brookings Institution on the subject over a decade ago. Ryan’s plan promises that further devolving already highly devolved Medicaid to the states would make it work better and cost less while improving both children’s health and senior citizens’ long-term care. That would be wonderful, but how? The plan does not really say.

The president’s plan is kinder and gentler than Ryan’s plan, but unfortunately, it is also even lighter on finance details, equally fanciful in its assumptions about policy impacts and no less silent on relevant administrative facts. Its fail-safe feature, a requirement to make deeper cuts in 2014 if fiscal targets have been missed, is about as credible as the requirement to pass a budget resolution each year by a certain date (a “requirement” met six times in the last 35 years).

True, the president’s plan goes further than his February 2010 budget plan did in recommending long-term cuts. And it does draw somewhat on the report his own bipartisan Commission on Fiscal Responsibility and Reform issued on Dec. 1, 2010.

But the president, who politely deep-sixed the commission’s report, should take a serious second look at it. Aptly titled “The Moment of Truth,” it recommended several politically centrist, economically feasible paths to $4 trillion in deficit reduction by 2020.

True to all the unpleasant financial realities and tangled administrative facts and true to the moral imperative to reject fixes that unduly disadvantage the truly disadvantaged, can the president still lead on this issue?

Yes. He can and must, for without steadfast presidential leadership on this issue leading to bipartisan agreement in Congress and majority public support, the moment of truth will pass, and America’s fiscal house will crumble.

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Mike Evans
7 years 11 months ago
For the life of me, I cannot fathom why the central dispute seems to be about health care, who provides it and who pays for it, and how. Is there such opposition to keeping grandma alive and safely cared for? Is there such meanness that children and the unemployed and underemployed are to be refused any health care rights or coverage at all? Do the finest minds in our nation, its universities, it think tanks, its providers and insurers all so totally disagree on appropriate measures? The long term increases in health costs are probably inevitable. But what are the moralities of measures that might control cost increases? Is anyone really happy with HMO's? What about a single payer system (e.g. successful and affordable MediCare now)? We must quit the political posturing and the false accusations all around. We must first see to helping those who are sick and vulnerable. Perhaps one less aircraft carrier or high-tech fighter would be the cost, not the death and misery and bankruptcy that would have been preventable.
C Walter Mattingly
7 years 11 months ago
Here are some factors I find relevent that you might consider.
Single payer insurance, such as exists to a great extent in Canada, England, etc, will not necessarily keep grandma alive, but determine if the expenditure to keep grandma alive is worth it considering her age, the cost, and likely outcome of the medical procedure. For example, in England the bureaucratic health panel, A/K/A "Death Panels" by those who demagogue them, places a value on each year of expected "quality" life (they define quality) remaining vs the cost of the procedure and likelihood of outcome. Until a little over a decade ago, for instance, dialysis was routinely denied to those over 55 because it didn't meet the criteria. In Oregon's public health panel, a 54 year old whose cancer reoccured was denied an operation because the cost and the likelihood of survival was determined by the panel to be low, even though his doctor recommended the procedure. It didn't meet the formula of over 5% survival for over 5 years, even though it was likely to have improved the quality of life for the patient for a shorter period of time and provided some chance of long-term survival.
But the point is, the bureaucrat, not you, makes the decision about your life. I personally prefer to have control over such decisions. I might be satisfied to have a $5 million limit to my policy and take other benefits with the savings, but want the option to have such an operation if I haven't extended my limit. If you follow the Ryan voucher plan, the wealthy would receive the smaller voucher and the needy the larger one, and insurance companies would not be able to cherry pick the healthy. But you would be the control center of your health, not a bureaucrat.
Medicare may or may not be considered successful, depending on your viewpoint and experience, but one thing it is not successful at, and that's being affordable. All agree, Medicaid, Medicare, and to a lesser extent Soc Security,are the three-headed monser comprising the future deficit strangulation. 
And that is even the case when you address defense. The issue is not how many aircraft carriers we have, the issue is the almost 2/3 of the defense budget that is comprised of payroll and benefits. Bob Gates pointed out that military healthcare copays haven't increased in 15 years while costs have more than doubled and maintains it threatens the entire defense budget. Likewise how many men can you retire at 38 and make payments for 2/3 of their adult lives? That is where the defense money mostly goes, and that is where it where most of the cutting must come from.
Finally, for those such as myself, examining the history of the one area of the US economy that has been almost totally dominated by the government bureaucracy for many years, public education, gives one pause to extend such domination to health care. It has been very expensive, expenditures per student consistently in the top quintile, and the results have been disastrous, the bottom third. I am not anxious to extend that process to health care. I'm for vouchers there too.
I tend to agree, however, with John that the best compromise budget we have before us is perhaps the Obama panel's recommendations which the president unfortunately has ducked. It holds real promise to manage and contain the deficit, which in the past few years has progressed from a real problem to a real  nightmare.


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