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.

This article appears in May 2 2011.