WASHINGTON — Budget experts gave high marks for courage and low marks for the details in a bold Republican plan offered Tuesday to slash government spending by about $6 trillion over 10 years while overhauling costly medical programs for the elderly and poor.
The proposals from Rep. Paul Ryan, R-Wis., the chairman of the House Budget Committee, would reverse retirement policies that became staples of American life with President Lyndon B. Johnson's Great Society programs of the mid-1960s. They come against a backdrop of two decades of widening income inequality, in which America's top earners have won ever-increasing shares of society's wealth.
Ryan's is the opening move in a political chess match that's likely to unfold over several years. His plan effectively would end Medicare for seniors, revamp Medicaid for the poor, scrap the 2010 health care law, roll back nonmilitary federal spending overall and lower individual and corporate tax rates.
Ryan's "Path to Prosperity" plan has virtually no chance of enactment in the next two years, with Democrats in charge of the Senate and the White House, because it relies almost exclusively on cutting spending in programs that Democrats cherish. However, the plan does frame a Republican vision for 21st-century government, one that's likely to help American voters choose the future they want in 2012.
Independent analysts praised Ryan for getting ahead of President Barack Obama by daring to propose bold changes to costly programs that, unless overhauled, will send the national debt soaring as baby boomers — 75 million Americans born from 1946 to 1964 — reach retirement age soon.
"I give him credit for putting out a proposal. He's ahead of the president on this, because the president says he cares about debt reduction but hasn't proposed anything specific," said Leonard Burman, a tax and budget expert at Syracuse University.
"I think Chairman Ryan should be commended for his leadership and courage to lay out a specific framework that would achieve spending cuts even greater" than earlier commissions proposed, said David Walker, a former U.S. comptroller general who's crusaded for years on the need to tackle the looming threat of federal debt.
The most controversial part of Ryan's plan is its eventual elimination of Medicare, the federal health plan for seniors, and its significant changes to Medicaid, the joint state and federal program that provides health care to the poor.
Ryan would give states block grants for Medicaid and end federal rules specifying who gets what benefits, leaving those determinations to state governments.
On Monday, 17 Democratic governors wrote congressional leaders to protest Ryan's Medicaid plan, which they said "would shift costs and risk to states. Such a cost shift would severely undercut our ability to provide health care to our residents and adequately pay providers. ... In the face of state and federal budget pressures and rising health care costs, we need federal policy that creates cost savings, not cost shifting."
Under Medicare today, the federal government covers about half the health expenses of Americans 65 and older. Ryan's plan would end this program for anyone who retires after 2021 and replace it with a "premium support" program. Older Americans would choose among several private insurance plans that would operate on a federally regulated exchange. The federal government would subsidize their plans.
The government would save trillions, but costs would shift to retirees. While the government would adjust payments to the broad inflation rate, medical inflation — the rise in health care costs — has outpaced the overall rise in prices across the economy for the past 15 years.
Experts at the nonpartisan Employee Benefit Research Institute, which studies health and retirement issues, said Ryan's plan would affect the healthy and unhealthy quite differently.
"The good news for somebody that's really, really healthy is that they need only $75,000 (in savings) to cover post-retirement medical expenses," said Dallas Salisbury, the president of the institute. "The bad news for people post-age 65, it can be more than $500,000 to $600,000 to pay for" post-retirement health problems.
A senior today, on average, costs the Medicare system about $185,000, half of which the senior pays, Salisbury said. If Medicare ends, affected seniors would have to save at minimum another $90,000 to make up for lost Medicare contributions.
While Ryan's Medicare proposals may be faulted, experts said they confronted a grim reality: The payroll tax would have to triple to cover the cost of promised future benefits, or Medicare spending must be slashed in half to balance the budget. Neither option is politically feasible; hence the need for tough tradeoffs.
"You may like or not like the specifics of what Ryan is proposing ... but hey, something dramatic has to be done, because this is not sustainable," Salisbury said.
On another controversial front, Ryan's plan assumes that tax cuts for the wealthiest Americans would remain in place over the next decade.
"While the problem is primarily a spending problem, it is going to take some additional revenues in order to achieve agreement," Walker said, underscoring that Democrats won't go along with budgets that simply cut spending while leaving tax cuts for the top earners in place.
Treasury Secretary Timothy Geithner warned Tuesday that deficit reduction must allow the expiration of last year's two-year extension of tax reductions for the top 2 percent of earners.
"It's critically important," Geithner said, testifying before the Senate Appropriations Committee. He noted that the country would have to borrow $1 trillion over 10 years to pay for the lost revenue from those cuts. "We cannot afford to do that; it is not a responsible act to do that."
Fiscal watchdogs such as the Concord Coalition say the extension of Bush-era tax cuts for the other 98 percent of earners is equally unaffordable and also should be on the negotiating table for fixing the federal budget.
Ryan proposes bringing individual and corporate taxes down to a top rate of 25 percent, but gives only vague details on how to pay for it, saying unspecified loopholes will have to be closed. In reality, this would involve curtailing popular tax breaks such as the mortgage interest deduction for individuals and a wide range of them for corporations.
In a statement, the U.S. Chamber of Commerce praised Ryan's plan as "an important first step" but was silent on its vague promise to close corporate tax loopholes.
Lowering tax rates was the easiest part of Ryan's plan, Burman said, but it can't be viewed in isolation.
"Cutting the corporate tax rate is a good idea if you could do it in a fiscally responsible way, which he doesn't do," Burman said. "The whole thing sort of locks in place grossly inadequate levels of revenues, and virtually all the deficit reduction is done on the spending side."
Americans, he said, "want a bigger government than he's laying out here, and we ought to figure out a way to pay for it."
On balance, budget experts don't expect changes on the scale of Ryan's plan to become law anytime soon.
"My view is that it's not likely that you are going to see significant actual reforms before the 2012 election," Walker said.
RYAN'S PLAN WOULD:
- Eliminate $6.2 trillion in government spending compared with President Barack Obama's 10-year budget blueprint, $5.8 trillion from current baseline budget projections.
- Reduce federal deficits by $4.4 trillion compared with the president's budget over 10 years.
- Eliminate what it calls $800 billion in taxes called for under the 2010 health care overhaul, and leave in place $1.5 trillion in Bush-era tax cuts over the next 10 years.
- Set the top individual and corporate tax rate at 25 percent while promising to end unspecified loopholes and popular deductions.
- End Medicare in 2021, replacing it with "premium support" programs.
- Replace Medicaid system with block grants to states.
- Freeze most government spending at below-2008 levels.
- Exempt the Pentagon from deep spending cuts.
(David Lightman contributed to this article.)
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