Mitt Romney’s selection of Rep. Paul Ryan of Wisconsin as his running-mate seems likely to simultaneously raise Americans’ awareness of Washington’s long-term budget challenge and show why the current debate can’t produce a sustainable solution.
By elevating Ryan, Romney has ensured an extended argument on the centerpiece of the fiscal plan that the personable but deeply ideological House Budget Committee chairman passed through his chamber both in 2011 and 2012: Ryan’s proposal to convert Medicare into a premium-support, or voucher, system.
In crafting his plan, Ryan got one big thing right: As the number of seniors literally doubles in the coming decades, Washington can’t maintain the existing social safety net without imposing unacceptable tax burdens on the working-age population or starving programs, such as education, that invest in the next generation.
That conclusion is driven by demography, not ideology. In 1950, seniors represented just 8 percent of Americans, and the taxpaying, working-age population outnumbered them by about 7-to-1. Today, as the baby boom ages, the nation’s 42 million seniors represent 13 percent of the population; the working-age population outnumbers them by only about 4.5-to-1.
This shift, compounded by rising health care costs, has already tilted federal spending heavily toward the elderly, squeezing future-oriented investments. Julia Isaacs of the Urban Institute has calculated that programs for seniors now consume four times as much of the federal budget as programs for children; per capita, the federal government now spends about $7 per senior for each $1 it spends on kids. (Ironically, the reductions in Medicare spending that President Obama used to help fund health coverage for the working-age uninsured--which the Romney campaign this week pledged to reverse--represent a rare effort to shift resources down the generational ladder; Ryan, who twice included the same cuts in his budget, was for them before he was against them.)
Over time, the demographic pressures will intensify. The Social Security trustees project that by 2040 there will be 80 million seniors (one-fifth of the total population) and only about two and a half working-age Americans for each one of them. Ryan is right to recognize that something’s got to give.
But while he has correctly diagnosed a major problem, his plan ignores another central element of the budget equation: The bitter experience of leaders from Ronald Reagan to Newt Gingrich to Barack Obama has demonstrated that it is virtually impossible to sell major changes in entitlement programs without bipartisan support. And Ryan’s blueprint seems almost designed to repel Democrats.
That’s because it is aimed more at retrenching Washington than balancing the budget. According to the Congressional Budget Office, Ryan’s plan would not produce a federal surplus until 2040. While converting Medicare into a premium-support system; ending the federal entitlement to Medicaid and other programs for the poor; repealing the health care law; and nearly asphyxiating all other domestic and defense spending, Ryan’s plan extends the George W. Bush tax cuts for all earners and then further reduces the top income-tax rate for the wealthiest to 25 percent, its lowest level since 1931. Ryan says he would offset that further revenue loss by curtailing tax breaks but hasn’t specified which ones. By 2050, his blueprint would shrink federal spending as a share of the economy to 16 percent, a level it last reached in 1951. That’s implausible in an aging society.
Virtually no Democrat would support converting Medicare into a premium-support system if it comes in that wrapping. “If Republicans are not going to let the Bush tax cuts for upper-income taxpayers expire, then any kind of serious entitlement reform is off the table for Democrats,” says the Bipartisan Policy Center’s Steve Bell, former Republican staff director for the Senate Budget Committee. (Disclosure: my wife is a vice president at the BPC.)
The BPC debt-reduction commission chaired by Democrat Alice Rivlin and Republican Pete Domenici in 2010 showed an alternative path. In that exercise, prominent Democrats such as Henry Cisneros and Marc Morial endorsed a plan that included a Medicare premium-support system--but within a package that obtained half of its deficit reduction from tax increases, maintained the Medicaid entitlement, and upheld the health care law. “You need a balanced approach: You need more revenues, and you need to reduce spending,” said William Novelli, the former head of the giant senior lobby AARP, who also signed the plan.
Many safeguards would need to be included (such as a pricing structure that ensures access to conventional Medicare), but experts such as Bell and former CBO Director Robert Reischauer believe that a solid cohort of Democrats eventually could accept a premium-support approach. Obama’s system for covering the working-age uninsured, after all, uses tools similar to Ryan’s plan for the elderly: Each provides uninsured Americans subsidies to purchase coverage on exchanges. But such a bipartisan convergence would require a comprehensive budget solution that balances more revenue with less spending, and balances security for seniors with investment in children. To impose change with the broad support to endure, Ryan and Romney will need a more inclusive vision.