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A misguided ‘path to prosperity’

Adam Newman | Monday, May 2, 2011

Recently, Congressman Paul Ryan, the 41-year-old Chairman of the House Budget Committee, revealed the Republican version of the 2012 budget for the federal government titled “The Path to Prosperity.” “The Path to Prosperity” cuts over $4 trillion from the national debt during the next decade by reforming government programs and simplifying the U.S tax code. While Mr. Ryan should be commended for his work, his budget contains misguided policies that are more geared towards creating a political firestorm than much needed compromise.

“The Path to Prosperity” contains five major reforms. First, Medicare (the federal government’s health insurance program for the elderly) becomes privatized for those under 55 and faces tremendous cuts. Second, Medicaid (the joint federal-state government program that provides health insurance for the poor and some health insurance for the elderly) faces cuts and becomes a “block grant,” meaning states will have more flexibility in how they spend Medicaid funds. Third, the U.S tax code will have fewer tax brackets, lower tax rates and fewer tax loopholes. Fourth, the recently passed health care bill is repealed. Fifth, numerous cuts are made to discretionary programs like Pell Grants.

As someone who spends (too much) time studying the federal budget, I have a deep admiration for Congressman Ryan’s knowledge of complicated budgetary issues and his political fearlessness for proposing reforms to entitlements. However, there are three main issues with his plan.

First, Congressman Ryan cuts health care costs the wrong way. Medicaid payment cuts will cause states to “decrease payments to Medicaid providers, reduce eligibility for Medicaid, provide less extensive coverage to beneficiaries or raise taxes” according to the non-partisan Congressional Budget Office (CBO). The CBO also found that the cuts to Medicare would shift more of the cost of Medicare onto seniors. Under current projections, in 2022, seniors will pay for 30 percent of their health care costs. The CBO found that under Congressman Ryan’s plan in 2022 seniors would pay on average 60 percent of their health care costs, a $6400 increase.

A better solution would be to make major investments in something called comparative effectiveness research, or CER. CER could be used to see which of many similar treatments is the most “cost-effective.” For instance, let’s say treatment “A” and “B” are both used to treat a common disease. “A” may cost more than “B,” but it is likely that no evidence is available to prove that “A” is any more effective than “B.” CER may be able to show that “B” is just as effective as “A,” or the added benefit of “A” may not be worth its additional cost. If this research is funded, the federal government could incentivize providers to practice the treatments that are the most “cost-effective.” This is a less painful way of decreasing health care costs that Congressman Ryan ignores.

Second, too many of the sacrifices that “The Path to Prosperity” calls for fall on the disadvantaged. Deficit reduction should require cuts to every sector of the budget and require every American, poor and rich, young and old, to share in the sacrifice. Congressman Ryan’s plan does not embody this ideal. “The Path to Prosperity” makes virtually no cuts to defense spending (20 percent of the budget), but makes major cuts to non-defense discretionary spending (the 15 percent of the budget containing Pell Grants, the EPA’s budget, infrastructure funding, etc.) Moreover, while Congressman Ryan’s tax reform lowers rates for all Americans, the highest tax bracket will be reduced from 35 percent to 25 percent. While economic growth is a necessary solution to deficit reduction, this tax break for the rich is far too great, even if many loopholes are eliminated. Many seniors and poor people would take major financial hits due to the cuts to Medicare, Medicaid and other services. Reducing taxes for the rich so greatly while drastically cutting services for the poor and elderly does not represent the “shared sacrifice” America needs.

The third and most pressing issue with “The Path to Prosperity” is that Congressman Ryan makes no attempt at compromise. The combination of lowering taxes on the rich, drastically cutting services and repealing the health care bill make it politically impossible for this budget to receive Democratic support. Instead of working to please the conservative base, Congressman Ryan should have written a more moderate budget that would have attracted the support of both Democrats and Republicans.

President Obama recently proposed a deficit reduction plan of $4 trillion over the next decade, a number similar to what Congressman Ryan has proposed. While both men agree on the amount of deficit reduction, President Obama’s and Congressman Ryan’s plans achieve it in very different ways, meaning tough negotiations will occur in the coming weeks. If negotiations between these two fail, it will not be because of Paul Ryan’s ideas, but his unwillingness to compromise. It would be sad for so much political courage to go to waste.

Adam Newman is a sophomore majoring in finance. He can be contacted at [email protected]

The views expressed in this column are those of the author and not necessarily those of The Observer.