Republicans embrace Rep. Ryan’s government budget plan for 2012

House Republicans announced a far-reaching vision for a leaner federal government on Tuesday, presenting a 2012 budget blueprint that would privatize Medicare for future retirees, cut spending on Medicaid and other domestic programs, and offer sharply lower tax rates to corporations and the wealthy.

The proposal represents the most comprehensive philosophical statement by resurgent Republicans since they claimed control of the House in last fall’s midterm elections. It promises to define the party heading into the 2012 presidential election and to shape the policy debate in Washington as both parties grapple with a soaring national debt.

Drafted by House Budget Chairman Paul Ryan (R-Wis.), the proposal aims to eventually shrink federal spending, measured against the economy, to its lowest level since 1949. Ryan said the plan would create jobs, promote growth, and rebuild an economy ravaged by recession and “relentless government spending, taxing and borrowing.”

“For too long, Washington has not been honest with the American people. Washington has been making empty promises to Americans from a government that is going broke,” Ryan told reporters. “We believe in this country that we ought to have a social safety net. . . . The problem is our social safety net is fraying at the seams.”

Congressional Democrats attacked the plan as an extreme attempt to balance the budget on the backs of the most vulnerable Americans. House Minority Leader Nancy Pelosi (Calif.) blasted it on Twitter as “a path to poverty for America’s seniors & children and a road to riches for big oil.”

Ryan’s budget, titled “The Path to Prosperity,” would spend about $40 trillion over the next decade — $6.2 trillion less than the budget President Obama proposed in February. The bulk of the savings would come from federal health-care programs, starting with a repeal of Obama’s ambitious new initiative to expand coverage for the uninsured.

Starting in 2022, Ryan also would end Medicare as an open-ended entitlement for new retirees and begin slowly raising the age of eligibility from 65 to 67. Instead of getting government-paid benefits, new retirees could choose a private policy on a newly established Medicare exchange. The government would pay “premium support” worth about $8,000 directly to the selected insurance provider, with the wealthiest retirees receiving about a third of that amount.

In an analysis of the budget plan issued Tuesday, the non­partisan Congressional Budget Office said that “most beneficiaries who receive premium support payments would pay more for their health care than if they participated in traditional Medicare,” with 65-year-olds covering an average of twice as much of their total health-care costs.

Medicaid would come in for even sharper cuts, exceeding $700 billion over the next decade. The GOP plan would end the financing partnership between the federal government and the states, replacing it with block grants that give states less money but free them to manage the program as they wish. Federal distributions would be reduced by more than a third by the end of the decade.

Ryan would not touch Social Security, the single largest federal program, which provides income support to nearly 60 million seniors and disabled workers. But his plan praises a proposal by Obama’s fiscal commission to raise the retirement age to reflect longer life spans and slow the growth in benefits for higher-income workers.

Ryan would not seek to cut military budgets below Obama’s request. But his plan calls for deep reductions in domestic agencies, holding programs for public education, transportation, justice, food safety and veterans’ services, among others, to growth well below the rate of inflation.

The move is aimed at making good on a Republican campaign pledge to restore domestic spending to levels in effect in 2008, before George W. Bush and Obama began pumping federal money into the economy to blunt the effects of a recession.

Ryan also proposes to overhaul the tax code, lowering the top rate for individuals and corporations from 35 percent to 25 percent, while eliminating an array of loopholes and deductions that his budget does not identify. GOP aides said they would leave the details to the tax-writing House Ways and Means Committee, which is crafting a tax reform plan. But that effort is not intended to help reduce the deficit.

The Republican plan underscores how difficult it will be to mop up the enormous tide of red ink. For fiscal 2012, Ryan would authorize $3.5 trillion in total spending, leaving a budget deficit of just under $1 trillion next year. That is slightly lower than the deficit that is currently projected, but still a significant gap between spending and revenue.

Annual deficits would dwindle to less than $400 billion by the end of the decade, a dramatic improvement over Obama’s budget proposal. But Ryan’s plan would take nearly 30 years to wipe out deficits completely.

Because more deficits mean more borrowing, the national debt would keep rising, to $16 trillion next year and to more than $23 trillion by 2021. A growing economy would mean that the debt would diminish as a percentage of the economy, an important measure of financial stability that could help the nation avert a debt crisis. But Ryan’s plan would not begin to make good on his promise to “pay down” the debt until nearly 2040.

Budget analysts from both parties say that ultimately, bringing down the debt would require a major overhaul of the biggest drivers of future borrowing: Medicare, Medicaid and Social Security, the entitlement programs for the elderly and the poor. Obama declined to propose major changes to those programs in the spending plan he announced in February. Despite an array of deficit-reduction measures, including higher taxes for businesses and the wealthy, the CBO said Obama’s budget blueprint would add about $9.5 trillion to the debt over the next decade.

Republicans in the House and the Senate enthusiastically embraced Ryan’s proposal.

“We recognize the fear out there and the threat to the future of the American dream, and this is exactly what we were elected to do,” said freshman Rep. Tim Huelskamp (R-Kan.), a member of the House Tea Party Caucus. “This is what we came for. Not to talk about small things, but big issues and the future of our country.”

The only immediate sign of dissent came from the conservative Republican Study Committee, whose leaders vowed to draft an alternative spending plan that would cut spending even more deeply.

Democrats were quick to point out that, according to the CBO, the plan could reduce health coverage for millions of low-income people, while requiring most elderly people to pay more for health care. That could create a political opportunity, Democratic strategists said, for Obama to win back elderly voters who abandoned Democrats last fall.

In an impromptu news conference at the White House on Tuesday, Obama declined to criticize Ryan’s plan, saying he welcomes the opportunity to present “very sharply contrasting visions in terms of where we should move the country.”

White House press secretary Jay Carney later released a statement saying that administration officials agree with Ryan’s goals but “strongly disagree with his approach,” which “cuts taxes for millionaires and special interests while placing a greater burden on seniors who depend on Medicare or live in nursing homes, families struggling with a child who has serious disabilities, workers who have lost their health care coverage, and students and their families who rely on Pell grants.”

Ryan is set to present his proposal Wednesday to the House Budget Committee. If the full House approves it, Republican leaders could use it as a guide to begin framing specific tax and health-care policies.

But the plan is unlikely to win approval in the Democratic-controlled Senate. There, Budget Committee Chairman Kent Conrad (N.D.) is at work on a bipartisan strategy that would reduce the national debt through higher taxes and more modest revisions to entitlement programs.

Lori Montgomery covers U.S. economic policy and the federal budget, focusing on efforts to tame the national debt.
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