Commentary: Will Democrats follow Paul Ryan's lead on budget cuts?

The Kansas City StarApril 13, 2011 

If you enjoy a good scare, try Googling, “If Japan dumps its Treasuries.” You can scroll through the various scenarios for what might happen if Tokyo unloads its $886 billion stash to finance post-disaster reconstruction.

I tend to be an optimist and one of my rules of thumb is that the scare stories usually don’t happen, at least not in the way the worst predictions suggest.

The bad things that get you usually aren’t the predicted disasters, they’re what former defense secretary Donald Rumsfeld would call the “unknown unknowns” — earthquakes, exploding oil wells, jetliners running into your office buildings. You don’t see them coming.

But maybe the current federal debt crisis and where it might lead is the exception. What’s scary is that the recession and the falloff in revenue suddenly worsened the financial health of our three big entitlement programs, Social Security, Medicare and Medicaid.

We’ve been hearing about unsustainable entitlements for, what — 40 years? But nothing is ever done about it. Now the situation is more serious than at any point in the past, which means that we’re going to find out if the country is willing to finally deal with the out-of-control costs of these programs.

Both parties agree: If you don’t do something about entitlements, you can’t do much about our humongous deficits. Personally, I think that if they can cut even a dollar of federal spending, they ought to do it, because it’s harder to make the big cuts if you leave the smaller-scale waste lying around to stink up the budget. The long-term goal is changing the Washington spending culture.

But yes, the big money is in the entitlements, and if we do nothing about them, we can’t really work our way out of the hole we’re in.

Last week Rep. Paul Ryan, Republican of Wisconsin, chairman of the House Budget Committee, served up a budget plan that would carve $4 trillion out of projected deficits over the next 10 years and put the country’s finances on a sustainable path.

The plan includes growth-oriented tax reform, with a broader base and lower rates that would top out at 25 percent. It would cap domestic spending at 2008 levels, get rid of Obamacare and curb crop subsidies, among other things.

It wouldn’t deal with Social Security, but the big news is that Ryan proposes to tackle the other two biggest sources of spending growth, Medicare and Medicaid.

Medicaid would become a block-grant program, freeing the states to decide how best to deliver aid to low-income recipients.

As for Medicare, nothing would happen for 10 years. After that, recipients would receive federal aid for the purchase of health insurance, a plan similar to what’s available for members of Congress. Aid would increase as recipients age, and with inflation. Those with lower incomes or chronic health problems would get more help.

Yes, recipients would pay more for their care than people in the current system pay. But unless something is done, Medicare — which now costs more than $520 billion a year — will someday eat up every dollar of federal revenue.

Every time Republicans have proposed serious entitlement reform, they’ve taken a beating. They’re betting that this time the voters understand something serious has to be done or we end up like Greece or Ireland or Portugal, with our government bonds trashed in the markets, interest rates shooting up and the dollar tanking. If that happens you can kiss any economic recovery goodbye.

But it’s far from clear the average voter appreciates what’s at stake. Incredibly, 54 percent of those in a Wall Street Journal/NBC poll said they didn’t believe Medicare cuts were essential to meaningfully trim the deficit. I’d say Republicans have a lot of work to do.

The Dems will play their usual cards: The GOP wants to starve the kids and throw the seniors out in the cold. This time, if they thwart serious reform they will increase the risk of a financial crisis that would hammer the economy. The resulting misery would utterly dwarf the future pain of modestly constrained government benefits.

With the Democrats still holding the Senate and White House, Ryan’s plan won’t go anywhere in the legislative process. It’s meant to shape the debate for the coming political cycle, and that’s where it has to succeed.

We’ll learn soon enough whether the Dems are as serious as Paul Ryan. I hope they, too, are worried about what Japan might do with its Treasury hoard, and how the bond market would view Japanese Treasury sales if — at the same time — the market sees a Washington political establishment once again trying to duck a problem everyone has known about for nearly two generations.

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