Fiscal 2012 Budget Resolution: “Path To Prosperity” Is Really A Roadmap To Ruin

The Legislation

House Budget Committee Chairman Rep. Paul Ryan on April 5 unveiled a budget resolution for fiscal year 2012 that he labeled a “path to prosperity.” The budget blueprint was approved on a 22-16 party-line vote by the House Budget Committee on April 6 and sent to the House floor for an expected vote the week of April 11.

The resolution would cut projected federal spending by $6.2 trillion below what the Obama administration has proposed over the next 10 years, and $5.8 trillion below what would be spent under current law. For 2012, the budget under Ryan would be $102 billion below President Obama’s budget request and $72 billion below appropriated spending for fiscal year 2010.

Some of the most significant changes the resolution proposes are in Medicare and Medicaid.

Seniors eligible for Medicare starting in 2022 would be enrolled in private insurance plans, with a portion of the premium underwritten by the government. How much of the premium seniors would end up paying would be based on income. This plan assumes that costs would be controlled by “market competition” among insurance companies and medical providers. It is not clear the extent to which government subsidies would adjust over time based on increases in health care costs, but critics of Ryan’s plan presume that the value of the subsidy would not keep up with health care cost inflation, meaning over time seniors would increasingly be pressured to shoulder more costs on their own or obtain less care. Ryan’s resolution assumes $30 billion in Medicare savings over current law within its 10-year window, some of which would be gained by barring what the resolution calls “abusive and frivolous lawsuits” by Medicare patients.

Medicaid, the health care subsidy program for the poor, would be converted into a block grant program to the states. Each state would receive a fixed amount of funding each year from the federal government, and the states would then decide who receives medical care with that funding, and how. Ryan’s resolution anticipates $771 billion in Medicaid savings over current law over 10 years.

Among the other spending changes proposed by Rep. Ryan:

  • The federal mortgage guarantee agencies, Fannie Mae and Freddie Mac, would be replaced by private secondary mortgage lenders. Fannie Mae and Freddie Mac have played a key role in enabling millions of working-class people to be successful homeowners; the private firms Ryan envisions filling in the vacuum would be under no such mandate.
  • The Supplemental Nutrition Assistance Program, commonly referred to as the “food stamp” program, would be converted into a state block-grant program and be subject to work requirements and time limits along the lines of the 1990s welfare “reform” rules. States would no longer be encouraged as they are today to ensure all eligible people receive food assistance.
  • Housing aid for the poor would be reduced, and work requirements would be imposed on aid recipients.
  • Funding for Pell Grants would be reduced to what they were before 2008, targeted to the “truly needy,” and would intentionally not keep pace with rising tuition costs above the rate of inflation.
  • Dozens of specialized federal job-training programs would be consolidated into “career scholarship programs” that would funnel job-training recipients into such institutions as community colleges and for-profit and nonprofit training centers.
  • The federal workforce would be subject to a five-year wage freeze (and would actually see a loss of take-home pay once increases in their required health care and retirement contributions are factored in) and would be reduced in size by 10 percent in three years.

The resolution does not contain a detailed plan for Social Security—appropriately, since Social Security does not contribute to the federal deficit—but it does embrace the view that the program is facing a financial crisis, says the fact that the program is solvent for the immediate future is based on “dubious government accounting,” and is antagonistic to the idea of raising the cap on income subject to Social Security taxes.

In a commentary in The Wall Street Journal, Ryan wrote, “Our budget offers the nation a model of government that is guided by the timeless principles of the American idea: free-market democracy, open competition, a robust private sector bound by rules of honesty and fairness, a secure safety net, and equal opportunity for all under a limited constitutional government of popular consent.”

Rep. Chris Van Hollen, D-Md., the ranking Democrat on the House Budget Committee, in a statement criticized the Ryan budget for its “lopsided approach” to deficit reduction, noting that among other things it makes permanent the Bush administration’s tax cuts on the wealthiest Americans. “The question is not whether to reduce the deficit, but how. To govern is to choose, and it is not courageous to protect tax breaks for millionaires, oil companies, and other big money special interests while slashing our investments in education, ending the current health care guarantees for seniors on Medicare, and denying health care coverage to tens of millions of Americans. That’s not courageous, it’s wrong.”

The Middle-Class Position

Rep. Paul Ryan’s budget proposal is a real “roadmap to ruin” for both low-income and middle-class people. It catastrophically weakens the safety nets that seniors and other economically vulnerable people depend on for their basic needs, and it does the same to the stepping stones that millions of people depend upon to aid their climb up the economic ladder. At the same time, it would lock in lower tax rates for the wealthiest individuals and corporations, and would take insufficient steps toward ending billions in tax giveaways to corporations and the super-rich.

Two-thirds of the program cuts in the budget—roughly $3 trillion—come from programs that directly benefit low-income (and some middle-income) Americans. But the financial impact on households would be even broader.

Health care—On health care, Ryan’s budget plan would push rising health care costs onto those least able to afford them – the elderly, the disabled and the poor. It would do nothing to curb the rising costs imposed by the powerful complexes – insurance and drug companies, private hospitals – that now force Americans to pay twice as much for health care, while experiencing worse health outcomes, than people of any other industrial nation. And because at the heart of its health care proposals is the repeal of the health care reform passed in 2009, consumers lose the considerable benefits and deficit reduction that resulted from that law.

By replacing Medicare’s system of guaranteed, comprehensive health coverage with a “defined contribution” to a private insurance plan that each senior would choose, seniors would find themselves paying more out-of-pocket costs or choosing to self-ration medical care. The Congressional Budget Office found that by 2030, typical 65-year-olds would be required to pay 68 percent of the cost of their coverage, which includes premiums, deductibles and other out-of-pocket costs, rather than 25 percent under current law.

In fact, advocates for this plan view that as a good thing: As “consumers,” they reason, seniors will seek out the lowest-cost health care options and the market would cater to that demand. In reality, it would be the health insurance industry—which is in effect an oligopoly—that would drive costs to protect its profit margins. Ryan’s plan is silent on how it would be possible for seniors to get the care they need through private insurance (which has four to six times the administrative overhead of Medicare) while saving taxpayers money for good reason: The only way that is possible is for seniors to pay more.

In converting Medicaid to a block grant, low-income people would find themselves at the mercy of 50 different standards for the amount of health care the citizens of their state would be willing to offer. We already saw the consequences of a health care system that treats people’s health conditions differently depending on where they live in late 2010 when Arizona’s government decided to no longer subsidize the costheart transplants for low-income state residents. The reality is states differ widely in their ability to meet the health care costs of their neediest residents. That is why governors in the past have pushed the federal government to assume all of the costs of Medicaid.

For a more detailed analysis of how Ryan’s Medicare, Medicaid and Social Security proposals would affect seniors, read Richard Eskow’s analysis on OurFuture.org.

Higher education—For working-class and middle-class families expecting to send children to college, the Ryan plan’s cuts to Pell grants would put an affordable college education out of reach of significant numbers of college students.

Ryan’s rationale is that increased aid to college students is driving tuition increases, but there is no evidence that less federal aid to college students would cause tuition costs to rise more slowly. In fact, state-level cuts of higher education subsidies have resulted in significant state college tuition increases. These state-level cuts, in fact, are likely to continue, if not accelerate, if the Ryan budget were to take effect because of the dramatic reductions in grants to state governments for a broad range of services.

Homeownership—The dream of middle-class homeownership will end up being beyond the reach of millions of more families if Ryan’s plan to fully privatize the role of Fannie Mae and Freddie Mac as mortgage financiers. And there is nothing in Ryan’s plan that speaks to the millions of households that have faced or are in danger of facing foreclosure; House Republicans have in fact already voted to dismantle the meager homeownership aid programs the Obama administration had in place.

Ryan promotes the myth that the housing bubble that helped fuel the Wall Street financial crash was created by Washington over-regulation. In reality, as this OurFuture.org article details, it was the fact that Fannie Mae and Freddie Mac became  in essence Wild-West private companies whose casino bets were covered by the taxpayers, rather than companies that kept capital flowing through the housing market, that spawned the behavior that led to their implosion. Both Fannie Mae and Freddie Mac have a mandate from Congress to make sure the housing market is accessible to working families. The private companies that Ryan foresees replacing these enterprises would have no such mandate. Plus, they would operate in a highly deregulated environment, allowing the same high-risk and even fraudulent behavior by lenders that helped cause today’s depressed housing market with its continuing wave of foreclosures.

Tax policy—Under the Ryan plan the Bush-era tax cuts for people earning more than $250,000 a year, extended through 2012, would be locked in permanently. That alone costs $700 billion over 10 years, according to the Center for Budget and Policy Priorities. Undoing the estate tax break that was cut last December that meant lower taxes for the wealthiest one-quarter of 1 percent of Americans when they transfer their estates would save tens of billions of dollars.

The Ryan plan makes a nod toward “ending corporate welfare,” but what it calls “corporate tax reform” is actually a corporate tax cut, from a top rate of 35 percent—which virtually no large corporation actually pays—to 25 percent. It does not ask corporations to pay a larger share of taxes even though corporate profits are at record highs. And the Ryan plan would not end corporate subsidies to oil and coal, but its “ending corporate welfare” in energy would be limited to what the plan derisively calls “the president’s allied industries”—wind, solar and other emerging renewable energy industries. In the name of “not picking winners and losers,” the Ryan plan picks a winner—Big Oil. And it robs middle-class households of the promise that cleaner, cheaper alternatives are on the horizon that will also be the source of millions of new well-paying jobs.

Impact on jobs—Rep. Ryan makes the assertion that his budget “creates nearly 1 million new private-sector jobs next year, brings the unemployment rate down to 4 percent by 2015, and results in 2.5 million additional private-sector jobs in the last year of the decade.” This claim, based on a paper from the right-wing Heritage Foundation, should be laughable based on the failure of the George W. Bush administration to create jobs through top-end tax cuts and corporate deregulation, a failure that led the Wall Street Journal to label his presidency as having the “Worst Track Record On Record” on jobs.

The Economic Policy Institute says that Ryan budget could actually cost the economy well over a million jobs over the next five years. In any event, its analysis says, the assumptions that are used to justify the Ryan-plan-creates-jobs claim are just plain false.

Middle-class households have been clear that they want Congress to act on the deficit—and they have been explicit in poll after poll about how they want Congress to proceed toward that goal: End the tax giveaways to the wealthy, invest in such job-creating activities as upgrading our transportation network, improve our schools and keep college affordable, and foster the growth of new industries that will produce jobs with solid middle-class wages in America. Rep. Paul Ryan’s budget path leads us away from prosperity in all of these areas.