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House Budget Committee Chairman Rep. Paul Ryan (R.-Wis.) on Tuesday released the first budget by the newly Republican-controlled House. Ryan’s budget calls for deep spending cuts and entitlement reforms in order to reduce deficits by $4.4 trillion over 10 years, compared with President Obama’s budget. The budget also repeals the costly health care law known as ObamaCare.
The Republican budget for Fiscal Year (FY) 2012, which starts on Oct. 1, will need to be negotiated to pass the Democrat-controlled Senate in order to be enacted.
“This Path to Prosperity applies America’s timeless principles to today’s greatest challenges by committing to three key goals: lifting the crushing burden of debt, fulfilling the mission of health and retirement security for all Americans, and strengthening the foundations of economic growth and job creation,” Ryan wrote in the introduction to the budget.
Ryan’s budget achieves the deficit reduction by cutting spending in discretionary and mandatory spending, including reforms in spending for Social Security, Medicare, and Medicaid. He anticipates that these measures will grow the economy, thus creating jobs and increasing revenue.
The Republican-proposed budget would cut deficits and start paying off the national debt. When Obama sent his budget to Congress in February, Ryan called it “DOA: debt on arrival,” because it would have increased the national debt by $13 trillion over 10 years. The U.S. is currently $14.1 trillion in debt and will hit the statutory debt ceiling in the next two months.
The Republicans’ $4.4 trillion deficit reduction, compared with Obama’s budget, more than exceeds the goals set by the President’s bipartisan National Commission on Fiscal Responsibility and Reform. Obama commissioned the bipartisan group to recommend a solution to the debt crisis, but he did not follow up on any of the commission’s recommendations.
Most significantly, Obama ignored all of the commission’s recommendations to reform entitlements to deal with the debt and keep the programs solvent. Now, the Ryan budget tackles entitlement reform by cutting costs and also works to sustain the programs for future generations.
Cutting Spending
President Obama’s budget for FY 12 had no cuts in spending, but only froze discretionary spending at the current bloated levels for the next five years. Ryan’s budget would cut spending by $5.8 trillion over 10 years, relative to the current policy baseline from the nonpartisan Congressional Budget Office (CBO). Of this, $1.4 trillion in savings would come from repealing ObamaCare.
Ryan sets a spending cap on discretionary spending as a percentage of the size of the economy, at 20% of the the gross domestic product (GDP). A statutory spending cap would prevent Congress from growing the size of government. Under the Democrats’ control of Congress and the White House, government spending has risen to almost 25% of the GDP. And under Obama’s proposed budget for FY 12, discretionary spending goes up to 25.3% of the GDP.
A spending cap as a percentage of the size of the economy has been embraced by House and Senate Republicans as a way to rein in government spending in anticipation of the vote to raise the debt ceiling.
Both chambers included a spending cap as a percentage of the GDP in their recent Balanced Budget Amendment (BBA) proposals. The Senate BBA, which has the support of all 47 Republicans, has a spending cap of 18%. A BBA in the House introduced by Rep. Bob Goodlatte (R.-Va.) has the support of 126 Republicans and the sets spending at 20%.
The Ryan budget would bring spending back to 2008 levels, which was part of the House Republicans’ “Pledge to America.” The lower spending levels would be kept intact for five years. Cuts in government spending would come from all areas of the government, and focus on eliminating duplicate programs and outdated programs, and cutting earmarks. The plan would include $78 billion in cuts to the huge Pentagon budget in areas where Defense Secretary Robert Gates has found inefficiencies.
Entitlement Reform
Republicans were outraged that Obama’s budget did not even attempt to address the need to reform mandatory entitlement programs to deal with the debt crisis.
In contrast, Ryan’s budget takes entitlement programs head-on, which is a risky move, leaving the Republicans open to Democrats using the hot-button issue for political gain. Ryan made it clear that his plan would not affect anyone under 55 years old, and that the entitlement programs will still increase every year under his budget. His goal, however, is to cut the huge spending on these programs while reforming them so that they do not go bankrupt.
For Medicare, Ryan has the most drastic reform, shifting the program in 2012 from one run by the government to putting seniors on private insurance plans. The plan would change Medicare into what he calls a “premium support system,” in which seniors pick among the private insurance plans offered, and the government subsidizes the plans directly. His plan, though, would give increased assistance to the poor or very sick.
Ryan’s budget would reform Medicaid to save $771 billion over 10 years, compared to the CBO baseline. His plan is to give the states block grants for their federal matching dollars in order to give them more flexibility in running the mandated program.
The ObamaCare law has increased the number of people on Medicare rolls and the costs to the states, which are already struggling to balance their budgets in the down economy. Governors have asked Congress to give them the 50/50 match in Medicaid funding without the regulations of the mandates.
The food stamp program would also get similar reforms, so that states do not get increased funding for adding more people to the rolls.
For Social Security, Ryan’s budget lacks specifics, except to say that the budget forces action by the House, Senate, and President to ensure solvency of the program. Although the budget is clear that Social Security for anyone under 55 years old would not be affected by this, it is such a hot-button issue for seniors that the GOP seemingly is looking for bipartisan political cover before getting into specific reforms.
Tax Reform
The Republican budget would not raise taxes nor create new taxes (as Obama’s budget does), but instead lowers taxes and reforms the tax code to encourage economic growth.
Ryan’s plan would lower the top income and corporate tax rates from 35% to 25%. The budget would also simplify the tax code, consolidate brackets, and close loopholes.
By repealing ObamaCare, the budget prevents approximately $800 billion in tax increases.
The Budget Process and the Current Mess
By law, the President must send a proposed budget to Congress every year for the following fiscal year to set government spending levels and his priorities. The House and Senate then confer on their own budgets to finalize a budget that sets the top-line spending levels for each government department. The budget top-line number is then used by the Appropriations Committee to determine cuts or increases in funding for specific government programs.
Last year, the Democrat-controlled Congress did not pass any budget for the first time since the budget process was established in 1974. Because the Democrats did not pass a budget, they also did not pass any appropriations bills to set spending for Fiscal Year 2010.
As a result of the Democrats’ inaction, the U.S. government is currently being funded by a series of Continuing Resolutions (CR). The original three-month CR, which was negotiated by Senate Minority Leader Mitch McConnell (R.-Ky.) and Obama in December, froze spending at 2010 levels. In February, the House Republicans passed a CR that cut spending by $61 billion and funded the government through Sept. 30. However, the Republican CR failed to pass the Senate, and the Senate Democrats did not pass their own spending bill.
While the two parties have negotiated the spending for the current fiscal year, they have relied on short-term CRs to keep the government funded. The Republicans demanded that each short-term CR cut spending by $2 billion a week, which now totals $10 billion in cuts.
Obama, Senate Majority Leader Harry Reid (D.-Nev.), and Speaker of the House John Boehner (R.-Ohio) have been negotiating for weeks over how much spending to cut in a CR for the next six months, and must resolve it by April 8 to avoid a government shutdown.
The negotiations are going on behind closed doors, but Republican leaders have said that the stalemate is over Senate Democrats’ refusal to make real spending cuts this year.
“If the government shuts down, it will be because Senate Democrats failed to do their job. The Senate hasn’t passed a single bill to keep the government running or offered a credible plan to make real spending cuts. The House has,” Boehner said on Monday evening.
