Posted on 05/17/2011 4:49:48 AM PDT by iowamark
Runaway spending and deficits continue to grow unabated in part because any attempts to rein them in are relentlessly demagogued by defenders of big government. The latest example is the budget recently authored by House Budget Committee chairman Paul Ryan (R–WI) and passed by the House of Representatives.
Most critics have failed to provide any credible alternative to the House budget. Yet that has not stopped them from relentlessly misrepresenting the House budget with the following myths.
Myth #1: The House budget recklessly cuts taxes by $4 trillion.
Fact: It cancels a future tax increase.
Critics charge that the House budget is not serious about deficit reduction because it includes a $4 trillion tax cut. This is patently false. The budget would keep tax rates at current levels. What critics call a $4 trillion “tax cut” is actually the cancellation of a $4 trillion tax increase that is currently scheduled to go into effect in 2013. Only in Washington is keeping tax rates at current levels considered a reckless tax cut. The House budget would leave tax revenues slightly above their 18 percent of GDP historical average.
Myth #2: The House budget increases the deficit by giving tax cuts to the rich.
Fact: The proposed change is a revenue-neutral tax reform plan that simplifies the tax code.
The House tax plan proposes reducing the top individual and corporate tax rates from 35 percent to 25 percent—and this is fully paid for by eliminating extraneous tax deductions, exemptions, and loopholes that currently allow some wealthy individuals and businesses to escape their fair share of taxes. Because this plan raises the same amount of revenue year by year as does current policy, it is not a net tax cut. The President’s fiscal commission endorsed similar tax reforms because these reforms would make the tax code more efficient, fair, and pro-growth.
Myth #3: The House budget represents only minor deficit reduction.
Fact: It substantially reduces both short- and long-term budget deficits.
Critics claim that the House budget cuts just $1.7 trillion out of the 10-year deficit. As stated above, this measures the House budget against a baseline that already assumes $4 trillion in tax increases—which even President Obama largely opposes. Since the House budget is relatively revenue-neutral compared to current tax policies, the main deficit reduction consists of $5.8 trillion in spending reductions over the next decade. The savings include $1 trillion from phasing down overseas contingency operations, $1.6 trillion from non-defense discretionary spending, $2.2 trillion from repealing Obamacare and block-granting Medicaid, and $1 trillion from other entitlement and net interest savings.
Overall, the House budget would run $5.1 trillion in deficits over the next decade, compared to President Obama’s proposed $9.5 trillion in deficits.
And these savings grow immensely in future decades. The Congressional Budget Office’s (CBO) long-term baseline shows runaway spending driving the national debt to 95 percent of gross domestic product (GDP) within a decade and a staggering 344 percent by 2050.[1] By contrast, the House budget would quickly stabilize the debt around 70 percent of GDP before reducing it to just 10 percent by 2050.
Myth #4: The House budget exaggerates the long-term spending challenge.
Fact: The challenge is real and potentially calamitous.
Some suggest there is no long-term fiscal crisis. This is demonstrably false. The coming retirement of 77 million baby boomers is not a theoretical projection. Social Security is already in deficit, and the trust fund represents IOUs that must be redeemed by immediately raising taxes, cutting spending, or running additional deficits. Obamacare is projected to increase federal spending by trillions of dollars over the next few decades. Small reforms like eliminating corporate welfare, ending foreign aid, or repealing the 2001 and 2003 tax cuts for upper-income families would close merely a small fraction of the long-term debt.
In reality, the CBO estimates that the absence of fundamental entitlement reform would push the debt to levels that would create an economic catastrophe.[2]
Myth #5: The House budget balances the budget on the backs of seniors.
Fact: Current and near-retirees are exempt from reforms.
Much of the attention given to the House budget has focused on the effects on retirees. However, virtually none of the $5.8 trillion in spending reductions in the first decade would affect Social Security and Medicare. In fact, seniors would benefit from averting the large tax increases planned in current law and from tax reforms that lower their rates while closing unneeded loopholes. Those currently older than age 55 would be exempt from any future changes to their Social Security and Medicare benefits.
Myth #6: The House budget would privatize Medicare and hand seniors vouchers.
Fact: Seniors would receive government support to purchase health insurance coverage on a tightly regulated government exchange system.
A “voucher” is usually a certificate of specified cash value that is redeemable for the purchase of goods or services. Under Ryan’s House budget plan, seniors would instead choose health plans and the government would make direct and adequate contributions to the premium cost of the plans of their choice. This “premium support” would go to Medicare-certified and -regulated plans that would compete in a Medicare “exchange,” which Ryan himself has described as “tightly regulated.”
In effect, this premium support system is broadly similar to the kind of system that Members of Congress and federal employees and retirees enjoy today in the widely popular and successful Federal Employees Health Benefits Program (FEHBP). As for “privatization,” virtually all participating Medicare doctors and hospitals (except public hospitals) are private, a quarter of all seniors are enrolled in private plans in Medicare Advantage, and 60 percent of seniors already purchase drug benefits through private plans in Medicare Part D. So, in effect, the House budget proposal extends the successful Part D financing model to the coverage of benefits under Parts A and B.[3]
Myth #7: Medicare is more efficient than private health insurance.
Fact: Medicare’s administrative burdens are hidden and they outweigh private-sector costs.
On paper, Medicare’s administrative costs compared to the private sector appear comparatively small: 2–3 percent of benefit expenditures. Even accounting for radically different patient profiles and functions of Medicare and private insurance, administrative costs per person under Medicare compared to private insurance plans shows that Medicare’s administrative costs exceed those of private health insurance.[4]
Furthermore, Medicare’s administrative costs do not include the enormous costs of provider compliance with massive Medicare red tape and paperwork. A 2001 PricewaterhouseCoopers study showed that for every hour spent treating a typical Medicare patient, hospital officials spent 30 minutes complying with Medicare paperwork.[5]
One administrative cost that is often overlooked is the tens of billions of dollars annually of Medicare waste, fraud, and abuse. In sheer volume, there is no comparable cost in the private sector or in the FEHBP. Private insurers have strong incentives to detect fraudulent claims, as undetected fraud hurts their bottom lines.
Myth #8: The House budget plan would end Medicare as we know it.
Fact: Obamacare ended Medicare as we know it.
Obamacare imposes record-breaking payment cuts for Medicare providers—plus an unprecedented hard cap on Medicare spending to be enforced by the newly created Independent Payments Advisory Board, an unelected board of bureaucrats empowered to lower provider payments to preordained levels indexed to inflation and economic growth. This will ensure rationing of care through provider payment cuts.[6]
Furthermore, under Section 3021 Congress tasks the new Center for Medicare and Medicaid Innovation with transitioning from the current fee-for-service reimbursement system toward capitated or salary-based reimbursements. This would literally be the end of traditional Medicare fee for service “as we know it.”
Both the House and Obama proposals impose external spending caps on Medicare. But the House proposal aims to control costs primarily through intense market competition—not just deeper payment cuts for Medicare providers—while preserving and enhancing the right of seniors to choose health care options.
Myth #9: The House budget plan would shift Medicaid costs to the states and hurt the poor.
Fact: Medicaid block grants would help states lower Medicaid costs and provide them with the flexibility to better serve the poor.
The House budget plan would remove the perverse incentives resulting from the open-ended federal reimbursement of state Medicaid spending. The block grant proposal would provide greater budget certainty at the federal and state levels. In addition, states would have greater flexibility and greater incentives to reduce costs. The proposal would also encourage states to spend their Medicaid dollars wisely and to consider innovative ways to deliver better care at lower costs.[7]
Myth #10: Most Medicare costs would continue to rise, and retirees would bear those costs with insufficient assistance.
Fact: Intense market competition would reduce costs and enable Medicare patients to secure value for their dollars.
Projecting far into the future, CBO predicts that under the House budget proposal the government’s share of retirees’ health care costs would decrease from currently about 70 percent to just 32 percent by 2030.[8] But that static analysis assumes that—despite a major change in economic incentives and intense market competition—health care costs will not be reduced. Behavioral responses to such powerful new economic incentives should not be ignored; experience with such changes proves otherwise.
Just What the Doctor Ordered
The House budget finally puts the brakes on soaring government spending.[9] It is just what the nation needs in order to avert a debt-induced economic calamity. Its critics would do well to read the plan and understand it—and put forward their alternative—before dismissing it.
Any budget proposal should include broadening the tax base. I am tired of hearing that 45-51% of all workers pay zero income tax. Everyone needs to have some skin in the game. Create a 5% tax bracket and tax all income even if it is a benefit check. Start with the first dollar. As it is half of America always favors tax increases and more spending because it doesn’t cost them a dime. Of course a Fair Tax would also solve this problem, but either way, the time has come for drastic change.
We already have a universal tax bracket, higher than that. It's called FICA.
well how about cutting all the crap congress tosses down a rat hole first. no one has mentioned cutting highways to nowhere or any of their slush fund projects..foreign aid, providing medical care to illegals. Any one of us could fix this mess in a day..without SS or Medicare..this is all bs
We already have a universal tax bracket, higher than that. It’s called FICA.
Which has absolutely nothing to do with income taxes.
So what? The same Men With Guns will eventually show up if you don’t pay it.
The problem is, the baby boomers who reached aged 62 in 2008, and age 65 in 2011, will live on average after reaching age 65, five years longer than the first recipients of Social Security who reached age 65 in 1940.
The only way to "solve" the Social Security/Medicare disaster was to raise the retirement age of baby boomers to age 70 and eliminate early retirement at age 62 (or raise it to age 67).
Since the Social Security reform in the 1980s intentionally protected the baby boomers, we sealed our fate. Social Security has been running in the red for over a year now, due to lower payroll taxes collected (due unemployment and underemployment), and baby boomers taking early Social Security due to unemployment.
But in 2011, the main wave of baby boomers will really hit, and that wave will last about 15 years.
Protecting those over 55 will ensure we have the vast majority of the baby boomers in the legacy Social Security system.
Thanks. Well thought out ideas I always appreciate.
The single 55 threshold is just political gimmick that is easily seen through. It makes no practical sense.
If you want a real reform it must me phased, for SS it is much easier : move retirement X years ahead for every Y years under 65 years old. That way you dont create a Berlin wall separating a clear group of winners and another of losers, except unfortunately those already on the public dole. Trying to take it away once they get it would cause a senior uprising like that South Park episode where they all armed themselves and attacked the town, revenge because the Town revoked their drivers licenses.
Will this sell to most voters? At this point it doesn't really matter, but least it makes some sense.
Understand. Regardless of what combo they use, the wave is going to be big. And if our economy does not recover on a very large grand scale, well, think Greece.
Did not see the movie, but of course can image up the scenes. Your analogy is more then adequate to describe the current state of sad affairs.
I think we agree that the GOP walked into an Obama trap by proposing Ryan's plan before Obama proposed any real plan. My personal opinion is that any proposal to reform entitlements would invite some kind of attack, but the 55-year-old threshold had a particularly obvious bullseye on it.
On the other hand, if the GOP never proposed a budget, they would have invited the charge of hypocrisy, because they repeated the charge that the Dems did not pass a budget. And obviously, proposing a budget which excluded entitlements would allow the debt to continue out of control.
The clip you might have seen with someone pushing granny over the cliff doesn’t tell you that it is Obama pushing granny over that cliff. OBAMAcare cut Medicare one-half TRILLION dollars, and that is for the seniors who are on it NOW!
On Fox News Sunday they played that clip while McConnell was on Fox, and I can’t understand why he didn’t strongly say the Ryan Plan does not affect Americans over 55.
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