In offering concrete proposals on reducing Medicare and Medicaid spending, House budget chairman Paul Ryan, Republican of Wisconsin, performed a valuable service. Unfortunately, the rest of his budget plan perpetuated confusion and collective self-deception rather than providing clarity.
The Obama administration’s proposal has its own problems, which I’ll address in more detail in Sunday’s column. But it seems that by putting some specifics on the table, Ryan goaded Obama toward offering something similarly tangible. That’s a positive achievement, despite many fundamental problems with Ryan’s proposal.
My first beef with both Ryan and Obama is that both added to public confusion between annual budget deficits and the cumulative national debt. Ryan did this with references to “removing the anchor of debt” from our economy. The congressman must know his plan is only a start at reducing annual deficits. It may slow the growth of the debt, but that is all. It certainly won’t reduce the debt.
Obama’s new press secretary — who also should know better — made similar confusing references to lowering the debt a day later. Even the most optimistic budget proposals offered by the administration so far don’t do anything to lower the debt. Like Ryan’s, they just slow its growth.
If the American people were better aware of history, they would know how unlikely actual debt reduction is. Over the past 65 fiscal years, the gross federal debt has fallen in only 10, and neither party can take all the credit. Four of these were under President Harry S. Truman, the most debt-phobic president of the 20th century. Three were under Clinton, when Republicans controlled both houses of Congress.
The sad irony is that when we actually ran budget surpluses in fiscal years 1998, 1999 and 2001, the Republican majority in Congress did not support the achievement. Instead these very modest surpluses were brandished as evidence American were overtaxed and were the key argument for the 2001 tax cut once George W. Bush was inaugurated.
Nine months later we were committed to an expensive war on terror, yet taxes were cut again in 2003 and an expensive Medicare drug benefit became law in 2006. The recession, the TARP program and successive stimulus packages advanced by the Bush and Obama administrations added further fiscal injury.
Now, in the face of the largest deficits relative to Gross Domestic Product since World War II, Ryan proposes further tax cuts. Yes, he also talks about raising revenue by closing vaguely specified loopholes. But cutting rates right now is voodoo economics squared. His plan made laughable assertions about how economic growth would skyrocket and unemployment would drop to unprecedented levels.
(When greeted with derision, he quickly backed away from his projection of a 2.8 percent unemployment rate, as did the Heritage Foundation study on which much of his package is based — an indication of how unrealistic the underlying analysis is.)
This is the same old snake oil that supply-side politicians have peddled for 30 years. The problem is that a significant proportion of the electorate continues to slurp it down. Such talk helped turn the GOP from a minority into a majority party. It is extremely difficult for any party to give up a winning strategy even when it leads to economic harm. Witness the unwillingness of many Democrats to acknowledge the depth of problems with Medicare funding.
Putting our nation’s finances on a sustainable footing requires achieving a rough balance between taxes and spending in the Treasury’s general funds. At the same time, a similar balance is needed in Social Security and Medicare so that surpluses in one set of accounts are not used to mask deficits in another.
I know of no reputable economist from either party who contests that. And there are so few economists who believe that tax cuts will increase tax revenue that no Republican president has ever found one with the qualifications to head his Council of Economic Advisers.
Some Ryan supporters argue that his tax-rate reduction proposal is an initial bargaining chip and that he and his cohorts will accept some level of tax-rate increases in a final package. I hope so but am not convinced, particularly since tea party members apparently still believe there is some free lunch of lower taxes, lower deficits, a reduced national debt and no cuts to entitlement programs for seniors.
Stalemate in Washington does not stem from irresponsible elected officials, but rather from an electorate in which wishful thinking remains too powerful. I hope Ryan’s initiative at least forces some people to confront realities. But I am not optimistic.
© 2011 Edward Lotterman
Chanarambie Consulting, Inc.