Is It Time to Listen to Rep. Paul Ryan’s Economic Prescription?
Brian Wingfield, 09.13.10, 12:00 AM ET
Paul Ryan, a professional policy wonk from Wisconsin, sees trouble ahead if the country stays on its present course. The cost of entitlement programs like Medicare and Social Security is racing ahead, at the same time that the federal government is ladling out dollars to fight the recession and collecting less in tax revenue because of the recession. Meanwhile, he argues, we are contending with chronically high unemployment, insurmountable debt payments and a crushing tax burden that could kill U.S. competitiveness. Maybe, just maybe, those entitlements have to be redesigned. He’s not quite saying, “Stop Social Security!,” but he is getting dangerously close to the thought.
Who is this guy? It would be no surprise if he turned out to be a wealthy financier who had taken up budget policy as a retirement hobby (like Peter G. Peterson) or a professional forecaster whose views on consumer spending are bearish (like Gary Shilling). The surprise is that Ryan is an elected official. He’s running for election to a seventh term in Congress, representing a district with a razor-thin Republican edge south of Milwaukee.
Mess with Social Security? Are voters ready for this? Maybe they are. Those trillion-dollar deficits can’t go on much longer.
“We have to give the country a very clear choice,” Ryan, 40, says as he’s campaigning in his home state on a mid-August afternoon. “Do you want the American idea, which is an opportunity society with a sturdy safety net, or do you want to have the cradle-to-grave, Western European-style social welfare state?”
Ryan’s choice is clear, and it’s not something many Americans of either party will easily swallow. His “Roadmap for America’s Future,” both a policy paper and a proposed bill, calls for reducing the federal deficit and debt in decades to come by partly privatizing and trimming Social Security and Medicare, freezing most government programs and instituting a simplified, optional two-tier tax system that would cut taxes for the rich.
Skeptics say his roadmap will run the country into a ditch. They say that, despite eviscerating Medicare, the plan won’t control spiraling health care costs. They say that it won’t cut the deficit drastically and could raise taxes on some people.
Yet Americans will need to take some version of this medicine, and Ryan has, as some detractors concede, at least started the conversation. President Obama called the roadmap (97 pages in the short version) “a serious proposal.” Ryan is seen as the GOP’s answer to its reputation as the “party of no” and as such has embarrassed Democrats for their lack of a comparable deficit-cutting plan. This backbencher from Janesville (pop. 63,000) and Ayn Rand admirer could be the future economic idea man for the Republican Party.
“People see that this debt crisis is real and right in front of us,” says Ryan. They are paying attention to him, he adds, “because, unfortunately, I’m the only person who’s put a plan out there.”
Ryan worked as a staffer for Senator Bob Kasten (R–Wis.) while attending Miami U. in Ohio and just after college. He hopscotched among political jobs in the mid-1990s, writing speeches for the late representative Jack Kemp (R–N.Y.) and directing legislation for Senator Sam Brownback (R–Kans.). He was elected to Congress at 28 in 1998. His private-sector experience includes a brief stint as a marketing consultant for Ryan Inc. Central (a site construction business owned by his cousins’ family) and part-time jobs waiting tables and occasionally driving the Wienermobile during a summer gig at Oscar Mayer.
How The Roadmap Would Work
Austerity plans surprisingly are cropping up in leftist locales, like Britain, Spain and Greece. Even Denmark, famous for its unfrayed safety net, is cutting the length of its unemployment benefits from four years to two to deal with its financial troubles. Washington will need to take action soon to keep the U.S. economy from sinking deeper. The Congressional Budget Office projects that federal debt would, by 2020, rise to nearly 100% of GDP–compared with 62% today and 36% only three years ago–if the Bush tax cuts are extended, the alternative minimum tax is indexed for inflation and current spending policies remain in place. According to the Social Security Board of Trustees, by 2037 the program’s trust funds will be depleted. In June Federal Reserve Chairman Ben S. Bernanke warned that unless action is taken, “We will have neither financial stability nor healthy economic growth.”
To keep that from happening, Ryan proposes to freeze nondefense discretionary spending–15% of the budget–for ten years and essentially move to more means-tested programs to cover retirees and sick people. His tax plan would eliminate itemized deductions and set rates at 10% for the first $50,000 of income on an individual return and 25% for income above that. He would replace the corporate income tax with an 8.5% business consumption tax.
Paul Van de Water of the nonpartisan Center on Budget & Policy Priorities points out that, by one analysis, the plan will slash by 50% the income tax liability of the richest 1% in 2014 while 75% of all Americans will see their tax burdens rise, partly due to the consumption tax being passed on to consumers.
Ryan counters that his tax system is progressive, even though it lowers tax rates on the rich, because it cuts out itemized deductions and loopholes frequently enjoyed by wealthy earners. Moreover, the idea behind lowering taxes isn’t to redistribute income, he says; it’s to encourage investment in the U.S. The business consumption tax would be levied on value added and inevitably would be passed along in the prices of goods and services.
Ryan admits his plan for Social Security could lead to lower benefits for people now under 55. “We don’t have a choice,” he says. These younger workers would have the option to put their Social Security money in an investment account managed by Uncle Sam but subject to market fluctuations.
He would wipe out ObamaCare and replace it with a voucher-based system in which adults get a $2,300 refundable tax credit to pay for health care. Similarly, Medicare recipients under 55 today would, on retirement, get vouchers to buy private insurance. He would raise the eligibility age for both Social Security and Medicare to 69 and 70, respectively, by the end of this century. How does this tame health care costs? By creating competition among doctors, price transparency and more “skin in the game” for consumers. “This requires some faith in the marketplace,” he says.
It also requires faith in which numbers to believe. According to the nonpartisan Tax Policy Center, the Ryan roadmap would decrease revenue by $4 trillion over the next ten years, compared to an extension of current spending and revenue policies. “Our numbers could be right, they could be right,” says Ryan.
Only 14 other GOP members in all of Congress have endorsed the plan. In other words, it has no chance of becoming law in its present form. “My goal was to get other plans launched, to ignite and start a debate,” Ryan says. The congressman blames the inability to put his ideas in motion on “the crowd that runs Washington now.” But even if Republicans win convincingly in November’s congressional elections, he’ll still have to face opposition from the other side of the aisle and the President. Ryan’s strategy, then, is to win over moderate Democrats and, if the GOP takes control of the House, to force change.
“I see dozens of reinforcements coming in the fall to help us take this fiscal situation seriously so we can get this thing fixed,” he says.
How The Roadmap Would Work
In August Nobel Prize-winning economist and New York Times columnist, Paul Krugman, predictably called Ryan a “flimflam man” and announced that the roadmap is a “fraud.”
But Ryan is still the only member of Congress with a plan. According to Ryan, that’s because other lawmakers are too interested in self-preservation. “We have more ‘be-ers’ up here than ‘doers,'” says Ryan of Washington. “People want to be a congressman rather than actually do something.”
Kotlikoff has already declared the U.S. bankrupt, and he says the U.S. must take swift action to prevent a run on its debt. Solution: Replace income tax with a progressive consumption tax and overhaul entitlement programs.
Peter G. Peterson
Peter G. Peterson Foundation
Blackstone Group cofounder has been preaching fiscal restraint for years. In 2008 gave foundation $1 billion to educate the public on the need for a simpler tax code, greater savings rate, entitlement reform and debt reduction.
A. Gary Shilling & Co.
Bearish FORBES columnist predicts slow growth and deflation as both governments and consumers tighten their belts. Commodity prices will slump. Investment advice: Sell cyclical stocks, buy long-term Treasuries and seek refuge in the U.S. dollar.
How The Roadmap Would Work