What world of fiscal policy is Michael Gerson inhabiting?
Michael Gerson’s recent op-ed in the Washington Post hailed Rep. Paul Ryan (R-Wis) as the champion of “Reform Conservatism,” largely out of admiration for Ryan’s budget. In doing so, Gerson displayed a remarkable misunderstanding of both Ryan’s budget and fiscal policy at large. This adulation of Ryan—totally divorced from the policy specifics supposedly legitimizing Ryan—is exactly the inside-the-Beltway nonsense driving Jonathan Chait apoplectic (see his New York Magazine piece on Ryan).
Gerson’s major offenses are twofold, but he manages to hit both in the same sentence: “[The Ryan budget] deals seriously with the fiscal crisis — which, driven by demographics and cost increases, is a health entitlement crisis.” Let’s take these one at a time.
First off, Ryan’s budget is not serious—it’s gimmicky above and beyond the point of credibility. The Ryan budget proposes $4.5 trillion in tax cuts financed with a giant asterisk that wouldn’t come close to raising that much revenue and then simply “assumes” its desired revenue level (and forces the Congressional Budget Office to do the same in their long-term analysis). Under more reasonable assumptions about feasible “base-broadening,” the Ryan budget would push public debt north of 74 percent of GDP by the end of the decade, and roughly 84 percent of GDP if the tax cuts were entirely deficit-financed. (Ryan claims to hit 62 percent—we’re not talking rounding errors.)
Secondly, our long-run fiscal challenges overwhelmingly stem from the dual problems of escalating national health care expenditure and an addiction to tax cuts. Demographic change and health care inflation will certainly drive up federal health expenditure, but these trends are a broader national economic challenge with ramifications for the federal budget, not vice versa. And demographic change can’t be reformed away—it compels more revenue, not less.
So how seriously does Ryan deal with these underlying economic challenges? Not at all: He offers an accounting solution for the federal government—turning Medicare into a voucher system and slashing Medicaid—that would exacerbate national health expenditure. Economists Dean Baker and David Rosnick estimated that Ryan’s FY2012 budget would increase national health expenditure by $30 trillion over 75 years if seniors purchased Medicare-equivalent plans on the private market; that’s because Medicare is 11 percent cheaper than an equivalent private plan and is projected to be 28 percent cheaper by 2022. (The more likely result is more health expenditure as well as worse coverage and care.) Forsaking the economies of scale and purchasing power of Medicare would shift costs from the federal balance sheet to businesses, households, and state governments, while worsening the economic challenges at hand. Incidentally, the Affordable Care Act took the opposite approach—using government’s market share to lower costs—and it’s showing early signs of working; as the New York Times reported last week, national health spending has slowed markedly over the last few years. While much more can be done on this front, the latter is a serious approach to an economic problem, unlike slashing health care for the impoverished and disabled as the Ryan budget proposes.
Furthermore, long anticipated demographic change is a reality that compels looking at both sides of the budget ledger and viewing historical benchmarks as poor guides for setting policy. Gerson even acknowledges that revenue must realistically rise above a post-war historical average of around 18 percent of GDP (versus 17.8 percent under current policy and 18.3 percent magically assumed in the Ryan budget, over the next decade); but he then turns a blind eye to the reality that, short of unspecified offsets, the Ryan budget would drop revenue to 15.5 percent of GDP over the next decade according to the Tax Policy Center. Deficit-financed tax cuts also increase spending on debt service, which—like Gerson argues of health care—threatens to crowd out other government functions (under current policies, net interest spending—swollen by deficit-financed tax cuts—will exceed nondefense discretionary spending by the end of the decade). Gutting health care spending to partially finance massive, regressive tax cuts in no way equates to “addressing the fiscal crisis,” as Gerson adamantly claims Ryan is doing.
Gerson wants to believe the Republican Party cares about deficits, but their diametrically opposed focus is reducing taxes—overwhelmingly for those at the top of the income distribution. Ryan’s budget would indeed deeply cut health care spending, but it is neither focused on deficits nor serious; it’s about doubling-down on the Bush-era tax cuts. And the only serious things about the Bush-era tax cuts were the hole they blew in the federal budget and their dismal economic legacy.
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