Margaret Thatcher had a rule, “First you win the argument. Then you win the vote.”
The budget deal forged by Speaker Boehner and the Democrats is evidence that conservatives have won the argument about the dire need to stop the out of control spending in Washington.
How else to explain the fact that President Obama, who just a few months ago was ferociously arguing that more federal spending was necessary to promote job growth, praised the deal as “the largest annual spending cut in history.”
Winning the Argument and the Ryan Budget
In the spirit of a thrilling Masters Golf tournament this weekend, think of last week’s budget deal for the rest of fiscal year 2011 as a birdie on the opening hole. It’s a significant achievement that advances you toward victory, but there is much more work to be done.
While the nearly $40 billion reduction for the remainder of this year is a fairly small amount of money when compared to our $1.4 trillion projected deficit, the deal sets the stage for the much larger battles ahead over increasing the debt ceiling and the 2012 budget.
Now that the argument has been won about the need to reduce spending and get our deficit under control, the next argument to be won is about how to do it.
On this question of “how,” Paul Ryan’s budget proposal for 2012 is the most serious attempt by an elected official to rethink our public finances and the modern welfare state in a generation.
The plan reduces spending by over $6 trillion from President Obama’s proposed budgets for the next ten years. It will bring federal spending as a percentage of GDP, projected to be nearly 25% this year, back to the postwar norm of under 20%. By 2022, this budget will shave $4.4 trillion off the federal debt.
That’s because Ryan’s plan boldly tackles entitlement reform, which the president’s budget studiously avoided despite the fact that entitlement programs make up the largest share of the federal budget. It also fundamentally reshapes the tax code to make America more competitive in the world market.
Returning to the golf metaphor, you might think of the boldness of this plan as Ryan’s eagle building upon Boehner’s birdie. Now, the other players are forced to play more aggressively to catch up.
Obama Takes a Mulligan
Perhaps that is why President Obama has opted to deliver a speech today outlining his plan for long term deficit reduction.
It is hard not to see this speech, given a week after the release of the Ryan plan and more than a month after the president released his 2012 budget, as a tacit admission that the criticism of the president about being completely unserious about deficit reduction was correct.
So the president is taking a mulligan. After initially refusing to offer a plan to reduce entitlement spending, he is now doing what he should have done earlier.
It is not yet known whether the president will offer a detailed plan like Paul Ryan or just sketch out some broad principles. Given the president’s well documented allergy to leadership on tough issues history suggests few details but plenty of soaring rhetoric.
Still, there will be two key areas by which to judge the president’s plan.
Job Creation Must Be Job One
A narrow focus on reducing the deficit is self-defeating. In 2010, food stamp spending was $70.5 billion. Total unemployment insurance spending was $140 billion. Medicaid spending was over $350 billion in 2009 (the last year available). To be effective, any plan for reducing the deficit must incorporate a robust economic growth plan to get more Americans off unemployment, food stamps and Medicaid.
The Ryan budget meets that test by lowering the corporate tax rate and top marginal tax rates to 25 percent from 35 percent, making the United States much more competitive with our global economic competitors. This will create more jobs here at home instead of overseas, boosting tax revenues in the long run.
Will the president’s plan create jobs? Or kill jobs?
Early indications are not good. White House advisors have confirmed that the president, in his speech today, will reiterate his call for the 2001 and 2003 tax cuts to expire at the end of 2012.
Seventy five percent of small business owners file their tax returns as individuals, so increases in the marginal tax rates of those earning $250,000 or more hit small business owners especially hard. The extra money being taken by the government could have been used to hire new employees, buy new equipment, or otherwise invest in the productivity of their business.
The president’s agreement to a two year extension of the current tax rates helped lead to two straight months of solid private sector job growth in February and March. Why would the president want to put small businesses in precisely the same position as they were at the end of 2010 when they didn’t know if their taxes were going to rise or fall the next year?
The fact that the president is still sticking to this destructive course of action is further evidence of his commitment to a left-wing worldview. Republicans should pass a permanent extension of the 2001 and 2003 tax cuts and force President Obama to explain why he is willing to sacrifice prosperity for wealth redistribution.
Today, look for more job killing tax hikes and regulations in the president’s plan.
“Cuts” vs. “A Better Model”
The second area by which to judge the president’s plan is whether it offers higher taxes and fewer services under the current entitlement models or new models appropriate for the 21st century.
The boldness of Ryan’s plan is that it is not a simple cut in Medicare and Medicaid services to spend less money. It fundamentally transforms the structure of the programs so they deliver better results at lower costs.
Medicaid funding to states is transformed from a system of matching funds to block grants, eliminating a perverse incentive in the current system for states to keep people on Medicaid to receive more money instead of helping them be self-sufficient. The block grant program will also give states the freedom to customize health services for the poor in their state instead of the current one-size fits all model controlled from Washington.
Ryan’s Medicaid reform is modeled after the successful reform of welfare from the 1990s, which led to over two thirds of welfare recipients leaving the public dole, getting a job or going to school.
Medicare is fundamentally transformed from a bureaucratically controlled, Washington dominated system to a personalized program that empowers individuals to control costs through choice and competition. It does not change the program for anyone 55 or older. Starting in 2022, individuals will be given a credit that can be used to purchase competing plans in the private market. This model was used in the development of Medicare Part D, and thanks to the power of choice and competition, costs came in at 40% below projections.
Without fundamental structural reform of the kind Ryan is proposing, the only way to keep our entitlement programs solvent is through both higher taxes and fewer services. Wealth transfer programs from the young to the old are not sustainable in a time when there are only three workers for every retiree (this ratio will reach 2:1 by the middle of the century).
It is, therefore, ironic that White House advisor David Plouffe described the Ryan Budget as using a machete to cut entitlement spending while the president wants to use a scalpel, because without developing new models for our entitlements programs, drastic cuts and higher taxes are unavoidable.
In his speech today, will the president make the best use of his mulligan by offering fundamental reform of entitlements through new models appropriate for the realities of the 21st century?
Or will he remain ideologically wedded to the bureaucratically dominated, wealth redistribution models of the New Deal and Great Society, offering higher taxes, means testing, fewer services and rationing instead?
After the speech, let me know what you think on my facebook page.
P.S. Callista and I were thrilled to learn that Nine Days that Changed the World won the Special Jury Remi Award at the Worldfest-Houston Independent National Film Festival. You can learn more here.
This Week in American Exceptionalism
April 12, 1955 – The polio vaccine invented by American Jonas Salk is declared safe and effective. One of the reasons America is exceptional is because of the strong emphasis we place on the value of hard work and the importance of scientific innovation. Before the Salk vaccine, polio was the number one public health threat in the United States. Nearly 58,000 cases of polio were reported in 1952 and the disease killed more children than any other communicable disease. Salk worked on the vaccine for seven years. The announcement of the vaccine’s test results on April 12, 1955 – exactly ten years after the death of President Franklin Delano Roosevelt, who suffered from polio most of his adult life – was broadcast live on radio and on video to movie theatres across the nation. The news resulted in spontaneous celebration throughout the world. The polio vaccine is one of countless American inventions that have dramatically improved the lives of people throughout the planet and the day it was declared safe and effective is another great moment in American Exceptionalism.
Newt’s Quick Links
• In his article at Renewing American Leadership, Jonathan Fitzgerald asks, “Who are the poor?” Read the article here.
• The Americano reports about criticism of Obama on immigration from his liberal base. Click here.