Paul Ryan’s ill-fated plan to cut social spending

For most of the last half-century, federal spending has been kept at around 20% of GDP. However, the cost of existing liabilities is expected to increase this figure to 30% of GDP by 2050, mainly due to increased health and social security spending.

In 2008, Paul Ryan, the top Republican on the House Budget Committee, estimated that income tax rates should double to fund existing spending commitments. He offered a “roadmap for America’s future” to avoid the problem. This propelled him to the forefront of the GOP; he would become Mitt Romney’s running mate in 2012 and later Speaker of the House. But just three years into his presidency, Ryan retired from Congress, seemingly yesterday’s man at just 48, and his agenda faded into the mists.

In the years since, few have offered alternative paths to Ryan’s, although staying on the current course is not an option. The Congressional Budget Office estimated that the absence of sweeping reforms would cause GDP per capita to fall from 2050 and noted that “beyond 2058, projected deficits. . . become so large and unsustainable that the CBO model cannot calculate their effects.

Where did Ryan’s plan succeed? Where did it go wrong? And how to do better?

An the aging of the population means that more retirees live longer and fewer new workers. In 1960, there were five workers per Social Security beneficiary; by 2040, this ratio will have fallen to 2.1 workers per beneficiary, which will require higher social charges to finance equivalent benefits. Advances in medical science mean that the cost of health care entitlements is also steadily increasing as people live longer, into old age and illness.

The centerpiece of Ryan’s proposal was sweeping reform of Medicare, the main driver of rising benefit costs. It had several main elements: gradual increase in the age of eligibility for the program from 65 to 69.5; requiring enrollees to receive Medicare coverage from private insurers; reduce the annual increase rate of the seniors’ subsidy for the purchase of these plans; and further reduce the subsidy that the wealthiest seniors would receive. The CBO estimated that Ryan’s proposal would have kept the cost of Medicare at around 4% of GDP from 2020 to 2060, instead of rising to 11%, as expected.

Ryan’s roadmap in 2008 argued that Americans would be better off if they, rather than the government or their employers, controlled the purchase of health insurance. He proposed transforming Medicaid from matching assistance for states to a direct federal subsidy allowing households to purchase their own health coverage, with states contributing half the cost. Federal funds for long-term care would become a block grant. As a result, the CBO estimated that federal spending on Medicaid would drop from 1.4 percent of GDP in 2008 to 1.1 percent in 2060, rather than increasing to 3.8 percent as under current law. Ryan further proposed eliminating the complete exclusion of employer-sponsored health insurance from income and payroll taxes, while establishing a flat-rate refundable tax credit for the purchase of health insurance. illness, at a cost of 0.6% of GDP.

On Social Security, Ryan proposed allowing individuals to invest one-third of their FICA payroll tax funds in private accounts for the purchase of approved mutual funds, with the federal government guaranteeing a rate of return at the level of inflation. His reform also promised to slow the rate of growth of benefits for the wealthiest older people and would have gradually raised the retirement age from 67 in 2026 to 70 in 2098. Due to the cost of setting up accounts private funds fully funded for future generations while paying benefits under the pay-as-you-go system, Ryan’s proposal would have slightly increased federal social security spending from 2020 to 2060.

Although Ryan proposed keeping overall federal revenue at around 19% of GDP, his roadmap included sweeping changes to the structure of the tax code. He proposed eliminating all tax deductions, exclusions and special provisions, except for the new Medicare credit. After broadening the tax base, this reform would allow the establishment of a standard deduction of $12,000, the reduction of income tax at two marginal rates of 10% and 25% and the elimination of inheritance, capital gains, dividends and alternative minimum taxes, while replacing corporation tax with a lower corporate consumption tax.

Ryan fiercely resisted Donald Trump’s takeover of the Republican Party. Nonetheless, the 45th president eagerly signed the Tax Cuts and Jobs Act of 2017, significantly moving the tax code in the direction envisioned by Ryan’s roadmap. The administration’s “HRA rule” also succeeded in extending the tax exemption of employer-sponsored health insurance to plans that individuals purchased for themselves.

But the 2010 Affordable Care Act (ACA) had more than doubled premiums in the individual market, making this option unattractive without further insurance market reform. In 2016, the GOP’s attempt to “repeal and replace” the ACA failed as Republicans fell short of eight Senate majority seats in the filibuster test needed to restructure key market regulations. insurance.

Ryan’s proposal to cut federal funding for Medicaid to 50% of spending on individual benefits would have cut aid to the poorest states, which currently spend the least on the program, while doing little to limit the growth of state spending the most on- extended benefits. In a revised 2012 plan for policy reform, Ryan backed away from the idea of ​​turning Medicaid into an individual grant in favor of traditional Republican proposals to cap state allocations. Yet in 2017, Congress rejected even extremely modest proposals to cap the growth of funding for the highest-spending states. To control Medicaid costs while allaying concerns about cuts to basic services, it would be best for federal policymakers to take full responsibility for Medicaid.

Ryan’s health insurance proposals generated the most angst. Many Republicans, as well as Democrats, have sought to distance themselves from these ideas. Even Newt Gingrich, who campaigned for the presidency in 2011, called it “right-wing social engineering.” But Congress has come a long way toward Ryan’s position on Medicare over the years, largely because the growth in spending currently allocated to the program is so enormous that politicians on all sides would rather use it for other purposes. .

The Medicare Modernization Act of 2003 had already forced wealthy retirees to pay a higher share of Medicare Part B benefit costs in the form of premiums. The 2010 ACA did much the same for Part D. The 2015 MACRA legislation further increased the premiums paid by wealthier enrollees and slowed the growth of physician reimbursement. The ACA also included deep cuts to Medicare benefits, worth more than $70 billion a year. While in 2008 the CBO projected that the Ryan plan would reduce the estimated cost of Medicare in 2020 from 4.2% to 3.7% of GDP, in 2021 the actual cost of Medicare was only 3.1%. of GDP. Meanwhile, the majority of Medicare beneficiaries are expected to have voluntarily switched to private plans by the end of the decade. In 2030, Medicare will look more like the program outlined in Ryan’s roadmap than it did in 2008.

JThe problem with Paul Ryan’s vision was that it involved a misunderstanding about who bears the cost of inflated rights — and that misunderstanding misled the GOP. Ryan expressed concern that “America will increasingly resemble a European welfare state – a society in which the majority of the population pays little or no taxes but becomes dependent on government benefits; where cutting taxes is impossible because more people have a stake in the welfare state than in free enterprise. But there is a limit to the revenue the government can extract from any person’s income in the form of taxes. The richest 1% pay slightly more in Europe (35% of income) than in the United States (33%). Further increases in the cost of social programs therefore tend to increase the tax burden on poorer households. As a result, average tax rates for the poor in Europe (28% of income) are much higher than in the United States (16%). Mitt Romney shared this misconception, noting in his 2012 presidential campaign that “47% of Americans pay no income tax. So our low tax message doesn’t connect.

The costliest and most extensive entitlements are funded primarily by payroll taxes, to which poorer Americans pay a higher proportion of their income. To promote cuts in social spending while ignoring the burden of payroll taxes supporting these ever-increasing benefits is to consider only the political pain and ignore the potential gains.

Ryan’s roadmap struggled because it confused two opposing impulses. On the one hand, it was intended to recover expenses for the benefit of a needy grassroots group whose members cannot support themselves. On the other hand, it has tried to strengthen the relationship between contributions and benefits, in particular by adding pre-funded private accounts to social security. The second impulse undermined the first, making it harder for Republicans to communicate to ordinary voters how they would benefit from a package of rights, reforms and tax cuts. Voters might be inclined to support raising the retirement age if they perceived lower payroll taxes in return. Otherwise, they will pass.

Photo by Tom Williams/CQ Roll Call

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