The Flaws in Paul Ryan's Budget Plan


Here's what the CBO says about the GOP budget proposal drafted by Rep. Paul Ryan:

The resulting budget deficits under the proposal would be around 2 percent of GDP in the 2020s and would decline during the 2030s. The budget would be in surplus by 2040 and show growing surpluses in the following decade. Federal debt would equal about 48 percent of GDP by 2040 and 10 percent by 2050.

CBO's analysis is rough. The Congressional budget wonks didn't look at detailed legislative language. Instead, they put together a very loose assessment of "the board, long-term budgetary impacts of the proposal." It's useful to compare these broad estimates to the far more grim scenarios currently projected. Under the current baseline scenario, in which federal law goes unchanged, federal debt is projected to equal 90 percent of gross domestic product in 2050. Under the alternative fiscal scenario—a more likely projection based on expected changes in the law—debt is projected to skyrocket to hit 344 percent of GDP that same year. There's a reason the CBO describes the debt picture as "daunting."

Looking at these numbers, it's easy to conclude that Ryan's plan is far better than the status quo. But can Ryan's proposed savings really be achieved?

I'd like to think so. But I also think there's a good chance they're overly optimistic. For one thing, Ryan has backed away from the details of his earlier plan to voucherize Medicare. He's replaced it with a premium support model and paired it with significantly more regulated health insurance exchanges like those found in ObamaCare. As the Reason Foundation's Shikha Dalmia wrote yesterday, that will undermine cost containment. 

On the one hand, medical providers will lobby for rules that require their services to be covered in the government-run insurance exchange. That will drive premium prices up. Higher premium prices will mean that seniors lobby for more expensive vouchers.

There's political uncertainty to any government-driven health coverage scheme. But the details Ryan's opted for this time around increase the inherent risk that the political system will undermine cost control efforts. 

Overall, the savings targets Ryan sets will be quite difficult to meet. As The Manhattan Institute's Josh Barro writes, Ryan fails to substantially address the tax benefit bestowed upon employer sponsored health insurance. He also calls for the repeal of the Independent Payment Advisory Board (IPAB), a panel of bureaucrats tasked by the president with holding down the growth of Medicare costs.

I've been quite critical of IPAB in the past, and for both political and policy reasons, I still don't think it's a plausible vehicle for the sort of cuts that President Obama hopes to get from it. But that doesn't necessarily mean it's utterly useless. It may be a second-best mechanism for managing costs, at least in the context of a long transition out of the current single-payer Medicare system.

Like it or not, we're already stuck with that single-payer system. And even Ryan's "radical" plan takes 40 years to phase out the old system entirely. "While it's still around," Barro argues, "it's hard to see why we shouldn't protect the taxpayers' interests by making sure that its expenditures are cost-effective." A centralized, bureaucratic system with some sort of independent cost-oversight is probably better than one without.

Ryan's plan also preserves ObamaCare's Medicare cuts—cuts that many Republicans criticized as implausible during the health care debate. Ryan's plan is preferable because it doesn't use those uncertain cuts to pay for the guaranteed cost of a new entitlement. But they're still dubious.

And yet I think Ryan's plan is a good start anyway, for reasons best expressed by Richard Posner:

The significance of the plan lies not in its details, or indeed in any of its proposals, but rather in the willingness of a major politician to challenge entitlements spending. This is only part of the plan but it has great symbolic significance, displays political courage, may open a productive dialogue, and challenges President Obama to propose his own plan for limiting such spending, which he has thus far been too timid.

Posner says this despite saying that the specific details render the plan "economically very questionable." The specific details, though, can be worked out over time. Despite Ryan's efforts to make the plan politically palatable to wary seniors, it's not going to become law this year—not with Democratic opposition in the Senate and the White House, not with polls showing that a large majority of the public is against any sort of restructuring of the entitlement system. This is an opening statement in a negotiation between the public and the political class—a negotiation that, as CBO's debt projections make clear, should have started years ago. Ryan may have offered a plan that's flawed, but he nonetheless deserves credit for finally getting that long-past-due conversation started.