April 5, 2011

The first thing to praise about House Budget Committee Chairman Paul Ryan’s budget plan, unveiled Tuesday, is that it exists. The Wisconsin Republican has produced a plan to deal with the debt, which is more than his Democratic colleagues or President Obama can say.

The plan contains big blanks: Mr. Ryan proposes broadening the tax base by curbing deductions but doesn’t specify which ones. He doesn’t describe the Social Security reform he says is needed. Still, it is brave of Mr. Ryan to risk the inevitable — and, indeed, swiftly ensuing — condemnations of the plan as an assault on seniors and the poor.

The second point about the Ryan plan is that it taxes too little and cuts too much. Mr. Ryan proposes a long-overdue overhaul of the tax code. But he balks at the notion, underscored by, among others, the Simpson-Bowles commission, that additional revenue is needed to underwrite the needs of an aging society. He would keep tax revenue at its average of between 18 and 19 percent of the economy over the past several decades; by contrast, the Simpson-Bowles recommendations would bring revenue to 21 percent of the gross domestic product. Mr. Ryan’s ceiling is inadequate to the task of government as we, and we think most Americans, would like to see it operate. Mr. Ryan would bring federal spending by 2050 to under 15 percent of the economy, a level not seen since 1951 — before the adoption of Medicare, Medicaid and other strands of the social safety net.

Mr. Ryan would transform that safety net in ways both intriguing and dangerous, and about which we will have more to say in future editorials. We worry that too many of the cuts come from food stamps and other programs for the poor. Mr. Ryan would cut $735 billion from Medicaid over the next decade compared with what the president’s budget proposes, transforming it into a block grant to the states. The theory is that this would give states flexibility and reduce their incentives to spend more on the program because the federal government picks up, on average, 57 cents of every dollar. The reality is that taking that much out of the program would mean dropping beneficiaries, reducing services or, likely, both.

The more interesting part of Mr. Ryan’s approach involves Medicare. For those under 55, he would end the open-ended fee-for-service system and gradually raise the eligibility age to 67. Seniors and disabled people would shop for insurance on a Medicare exchange along the lines of the exchanges in the new health care plan (which Mr. Ryan would abolish); the plans would receive a set amount from the government and would have to agree to accept all beneficiaries to avoid cherry-picking the healthiest. Whether this approach is feasible depends in part on the amount of the federal subsidy, the rate at which it grows and the degree to which the program would help the poorest and sickest recipients. The Congressional Budget Office concluded that “most elderly people would pay more for their health care than they would pay under the current Medicare system.” But the current system is unsustainable. Would Mr. Ryan’s plan save money by relegating seniors to coverage with fewer services and lower quality care, or by requiring them to pay unduly higher costs? Or would it achieve savings by giving competing providers an incentive to deliver care more efficiently? That deserves debate.

In a statement Tuesday, White House press secretary Jay Carney said the president believes that long-term deficit reduction is “essential” but “strongly disagree[s]” with Ryan’s approach. “The President believes there is a more balanced way to put America on a path to prosperity.” What would that path be, Mr. President?