April 5, 2011

Column #1,545a

“Debt & Deficits Are Like a Cancer”

By Mike McManus

            WASHINGTON  - We saw something rare this week in the nation’s capital: a proposal to cut $4.4 trillion from the deficit over the next decade, compared to the President’s budget.  And it was not a proposal by retired politicians or academics, but by Rep. Paul Ryan, Chairman of the House Budget Committee. 

            For the past few weeks, we have heard about the Republican House’s proposal to cut $61 billion from the current 2011 budget.  It would zero funding for Planned Parenthood, America’s largest abortion provider.  Public Broadcasting would suffer a similar whack.

            However, as Rep. Ryan said, “This morning the new House Republican majority will introduce a budget that moves the debate from billions in spending cuts to trillions.  America is facing a defining moment.  The threat posed by our monumental debt will damage our country in profound ways, unless we act.”

            He is right.  Erskine Bowles, former White House Chief of Staff under President Clinton, who negotiated the first balanced budget in a generation, and served as Co-Chair of President Obama’s Fiscal Commission, made some grim comments recently:

            “This debt and these deficits we are incurring are like a cancer, and they will truly destroy this country from within unless we have the common sense to do something about it.  Just stop and think what happens if (Asia) stops buying our debt.  What happens to interest rates?  And what happens to the U.S. economy? The markets will absolutely devastate  us.  The problem is real.  The solutions are painful, and we have to act.”

            Paul Ryan deserves commendation as the first political leader to put hard proposals on the table to reduce today’s $1.4 trillion deficit to $400 billion by 2017, with tough spending cuts:

·         Block grant Medicaid, giving the states a fixed amount, rather than an open-ended sum.

·         Repeal Obamacare spending and new taxes

·         Reform Medicare, so that when those under 55 retire, they will get a subsidy to buy private health care insurance, which gives incentives to hold down spending.

·         Cut farm subsidies, food stamps and the size of the federal bureaucracy by attrition

·         Consolidate all job training programs

“This is a bold budget, and Congressman Ryan should be congratulated for putting forward structural budget reforms to address our unsustainable debt path,” said Maya MacGuineas, President of the Committee for a Responsible Federal Budget.

By contrast, President Obama ignored his own Fiscal Commission’s proposals, which were far more balanced than Ryan’s. That failure is an ominous sign.  It signaled he will not lead, on an issue where leadership is crucial.  And he’s likely to demagogue Republicans, for “ending Medicare,” throwing granny into the snow, and “cutting health care to the poor.”

What’s wrong with Ryan’s proposals?

            First, while Ryan proposes closing some of the “tax expenditures,” such as mortgage interest deductions, he would use all of the savings to lower tax rates, rather than using some of it to reduce the deficit.  For example, if just 20% of the major deductions were used to reduce the deficit, it would fall by $428 billion in just the year 2025.

            Second, he proposes no changes in the age at which Social Security and Medicare are given to Americans, even though Americans are living four years longer now than in 1980.  Nor does he propose any significant cuts in Defense spending beyond modest ones in Obama’s budget.  A 15% cut would save $132 billion in 2025.  Do we really need 1,000 bases around the world?  Why do we have nearly 100,000 troops in Japan and Germany, for example?

            Finally, Ryan makes no proposals to raise taxes on upper income people.  An extra 5% tax on those earning over $! Million would raise $34 billion, and raising the tax rate on capital gains from its very low 15% to 20% raises $20 billion.

            There is a much greater likelihood of passing legislation to pare the deficit if all categories of spending are on the table, plus the raising of revenues. Two thirds of the Senate favors this more balanced approach.  However, even if the Ryan bill were passed in the House, and a more balanced version emerged from the Senate, what will Obama do?  Will he propose a serious alternative?

I hope so, but he appears inclined to do nothing, to increase his odds of being re-elected.