This time it will be different. That was the essence of the Republicans’ midterm campaign pitch to voters concerned about the breakneck growth of government. The chronic deficits the GOP had exacerbated by spending money on everything from earmarks to entitlements, free prescription drugs for seniors to free elections for Iraqis would be a thing of the past. The new Republican House majority is, like a second marriage, the triumph of hope over experience.
Much of that hope is invested in one man, representing a district that went narrowly for Barack Obama in 2008. Paul Ryan, the Wisconsin Republican who chairs the House Budget Committee, is a major reason informed conservatives believe this will be the Congress that finally gets the nation’s fiscal house in order.
At 40, Ryan is relatively young and telegenic—considerable assets in a party whose chief spokesmen in recent years have been the likes of Bob Dole and John McCain. But it is his command of the federal budget that has surprisingly attracted the most attention. Ryan’s “Roadmap for America’s Future” is a comprehensive fiscal plan of attack that reforms the nation’s tax code, healthcare system, and the major entitlement programs that are now teetering on the brink of insolvency. The Congressional Budget Office
(CBO), while still under Democratic management, certified that Ryan’s proposal ultimately reduces the national debt to a sustainable amount without any broad-based tax increases.
Ryan is a rare Republican who can go toe-to-toe with Barack Obama in a public forum and make the normally sure-footed president stumble. At a meeting between Obama and the House Republicans last year, Ryan challenged the White House’s proposal to freeze non-defense discretionary spending—after having engaged in a massive spending spree. Rather than imposing budgetary discipline, Ryan pointed out, this would merely lock the new, higher spending levels in place.
Obama objected that he hadn’t increased any spending. “The fact of the matter is that most of the increases in this year’s budget, this past year’s budget, were not as a consequence of policies that we initiated,” the president countered, “but instead were built in as a consequence of the automatic stabilizers that kick in because of this enormous recession.” Seeing an opportunity to correct Obama, Ryan pounced. “I would simply say that automatic stabilizer spending is mandatory spending,” he explained. “The discretionary spending, the bills that Congress passes that you sign into law, that has increased 84 percent.”
The typically loquacious president had little to say in response. He later told the New York Times Magazine that Ryan was one of just two Republicans he could deal with on overhauling the budget. The other, Sen. Judd Gregg of New Hampshire, retired rather than run for reelection in November. Ryan says Obama hasn’t exactly been burning up the phone lines soliciting his advice.
As the House’s leading fiscal-policy wonk, the Miami University economics graduate is reminiscent of two congressional Republicans who came before him: Jack Kemp, co-founder of Empower America, the conservative think tank at which Ryan cut his teeth as a speechwriter in the 1990s, and John Kasich, Ryan’s Gingrich-era predecessor as chairman of the House Budget Committee. But Kemp focused almost exclusively on slashing marginal tax rates, now a defining characteristic of the modern GOP. He dismissed large reductions in federal spending—especially cuts to programs benefiting the middle class—as “root-canal politics.”
Ryan calls himself “a second-generation supply-sider”: he shares Kemp’s sunny belief in economic growth and the influence tax rates have on incentives to work, save, and invest, but he rejects the idea that the country can grow its way out of the impending entitlements crisis. Like Kasich, Ryan is a deficit hawk. But aside from an unsuccessful 1995 plan to restrain the growth of Medicare spending, Kasich preferred to swing his budget axe at numerous discretionary programs. Ryan’s Roadmap grabs the “third rails” of Social Security, Medicare, and Medicaid with reckless abandon.
Kasich was trying to balance the budget within seven years, by 2002. (He helped negotiate a budget deal with Bill Clinton that got the job done five years early, albeit with the assistance of Social Security surpluses and the dot-com boom.) Ryan’s plan—originally unveiled in 2008 but updated last year—doesn’t balance the budget until 2063. Then again, the annual deficit isn’t Ryan’s main target. The number he focuses on is the total unfunded liabilities of the federal government, a figure that is rising dramatically because the Baby Boomers who were in their peak earning years during the 1990s are now starting to retire.
“Our long-term unfunded liability is growing very fast,” Ryan says. “Last year, it was $79 trillion. The year before, it was $62.9 trillion.” The latest projection is $88.6 trillion. Ryan argues these desperate times call for drastic measures. He would essentially voucher out Medicare by transforming it from a defined benefit program to a fixed contribution, capping the contribution’s annual growth at GDP per capita plus one percentage point. Medicaid would be turned into a block-grant program, indexed to grow at the size of the recipient population and per capita growth plus 1 percent.
Medicare’s projected share of the economy would fall from 14.3 percent in 2080 to just 4 percent. Nobody over the age of 55—current retirees or people nearing retirement age who won’t have time to alter their financial planning—would be see any changes. Yet even that is not a long enough lead time for the plan’s liberal critics, who contend it shows Republicans have plans to gut the welfare state as we know it.
As the closest thing to a specific Republican entitlement reform proposal they could find, Democrats ran against the Roadmap last year. The results were mixed. On the one hand, they succeeded in scaring most Republican candidates away from endorsing the plan, which at the time only had 13 co-sponsors. But the president’s bipartisan deficit-reduction commission, chaired by Republican Alan Simpson and Democrat Erskine Bowles, incorporated elements of the Roadmap into its own recommendations. Former Clinton budget director Alice Rivlin has endorsed Ryan’s reforms of Medicare and Medicaid.
Ryan still voted against the deficit-reduction commission’s final proposals. “It accepted Obamacare as a given,” says Ryan. “I’m not willing to do that.” By contrast, Sen. Tom Coburn, the Oklahoma Republican some have dubbed the upper chamber’s “Dr. No,”voted for the commission’s recommendations. Coburn and Ryan also split over the tax-cut deal passed by the lame-duck session of Congress. Coburn wanted to offset the additional spending. Ryan said that spending cuts could come after the tax cuts were safe, the conventional Republican position.
If there is a complaint about Ryan among fiscal conservatives, it is that he will vote for big government when that is what conventional Republicans do. He not only voted for the Medicare prescription-drug benefit, which added trillions to the program’s unfunded liabilities, but he also brought along other reluctant Republicans. “He even enrolled people in Medicare Part D at townhall meetings in his district,” says a former House colleague.
Ryan also voted for both the $700 billion Troubled Assets Relief Program (TARP), which bailed out Wall Street, and the auto-industry bailout. In all three cases, he argues the alternative would have been worse. “I believe we were on the verge of a deflationary spiral that would have caused a depression,” Ryan says of his TARP vote. “If we had allowed that to happen, we would have seen an expansion of government like we did during the New Deal.” He doesn’t regret his vote.
On the prescription-drug benefit, he argues it was a choice between a Democratic plan that was merely a subsidy and a Republican one that contained the more free-market Medicare Advantage accounts. George W. Bush would have signed whatever version reached his desk. (The Obama administration has promptly targeted Medicare Advantage for elimination.)
During the Bush administration, there was no corresponding reduction in domestic spending to pay for the post-9/11 war on terror. This included the unfunded wars in Afghanistan and Iraq. Ryan remains reluctant to cut defense spending. “I don’t see where the world is any safer,” he says. He argues that any waste found in the Pentagon budget should be reinvested in other military expenditures rather than used for deficit reduction.
Even the Roadmap has some conservative and libertarian detractors. Most criticisms focus on the 8.5 percent business consumption tax with which Ryan would replace the corporate income tax. “The concern is that this 8.5 percent tax looks an awful lot like a VAT,” Ryan Ellis of Americans for Tax Reform says in an e-mail. He adds that the organization is “otherwise 100 percent happy” with Ryan’s proposals. Value-added taxes have started low in Europe only to become significant cash cows. The Cato Institute’s Dan Mitchell lists possible Republican acquiescence to a VAT among his “five things we should worry about in 2011.”
Libertarian Sheldon Richman has argued that Ryan’s healthcare plan is replete with “such Obama-lite ideas as expansion of Medicaid and Medicare and a ‘refundable tax credit’ insurance subsidy.” Liberal Washington Post blogger Ezra Klein has also drawn parallels between the Ryan-Rivlin Medicare reforms and Obamacare. The American Spectator’s Philip Klein worried about Ryan’s reliance on federal-state partnerships to create health insurance exchanges: “however well intentioned, as long as the government-run exchange architecture is created, there’s a danger that future lawmakers would simply add regulations and expand the exchanges beyond their original purpose.” Ryan has also faced criticism for his plan being too timid. Peter Suderman complained in Reason that limited-government advocates “can’t help but notice that the best hope for fiscal responsibility and free market reform is a plan to balance the budget 50 years from now that will never, ever pass.”
Ryan would counter that these criticisms miss the mark. If you want America to remain a substantially free-market country—a “limited-government, pro-growth opportunity society with a safety net,” as he puts it, rather than a “cradle-to-grave society”—a plan for comprehensive reform is needed. And if you prefer to avoid imposing pain on current retirees, the reforms have to start as soon as possible but be phased in gradually. “How much time we have left before we have bitter European austerity fixes is anybody’s guess,” Ryan told Politico. “But we know that is coming sooner rather than later.”
Some of these conflicts come from mainstream conservatism’s insistence on advocating limited government while eschewing strict constitutionalism. If not the Constitution, then government limited by what? The symbolism of the new House majority reading the Constitution aloud and attaching constitutional authority statements to new legislation is a beginning. But without the practical substance, it ends up being an abstract-sounding debate over whether the federal government should consume 20 percent of the economy versus 24 percent.
Of course, if present trends continue that 24 percent figure will be a floor rather than a ceiling on Washington’s share of GDP. Even if Obamacare had failed, the federal government growing on autopilot plus projected demographic changes would have led to either unsustainable debt levels or economy-suffocating tax increases. The CBO, no hotbed of supply-siders, acknowledges that the long-term budget cannot be balanced solely through tax increases. “Such tax rates would significantly reduce economic activity and would create serious problems with tax avoidance and tax evasion,” CBO analysts have written. “Revenues would probably fall significantly short of the amount needed to finance the growth of spending; therefore, tax rates at such levels would not be feasible.”
Paul Ryan is going to introduce a third version of the Roadmap later this year. In the meantime, he’ll also be at work on a shorter-term project: the House Republicans’ official budget. He will have to collaborate with appropriators in his own party and address the fact that there are always temptations even for budget reformers to vote for big government. Perhaps that’s another reason people are holding out hope for him: if Ryan and his colleagues fail, this time the consequences could be greater than heartbreak among jilted conservative voters.
W. James Antle III is associate editor of The American Spectator.