Doyle McManus: The choice between low taxes vs. Medicare benefits

Rep. Paul D. Ryan (R-Wis.), chairman of the House Budget Committee, won praise from his fellow Republicans this week for proposing a federal budget that would reduce the deficit by slashing spending in almost every domestic program.

Some of the praise was exaggerated; Ryan's plan has holes in it, just like President Obama's budget. Ryan proposes an overhaul of the tax code, but doesn't offer any specifics except for lower tax rates. It doesn't suggest any fixes for Social Security, even though he says fixes are needed.

But on one major point, Ryan has done a great service. He has made it clear that if you're serious about cutting the federal deficit, you have to make a choice: low taxes or guaranteed Medicare coverage. You can't have both.

That may come as unwelcome news to millions of Republican voters, including "tea party" adherents who helped Ryan's GOP win its majority in the House. Polls have shown that most tea party folks are just like everyone else: They want lower taxes and they want to keep their benefits.

Ryan has opted for low taxes. On that count, he's the most orthodox of conservative Republicans. He doesn't just want to keep George W. Bush's tax cuts for upper-income taxpayers forever; he also wants to cut the top individual tax rate from 35% to 25%, paid for by — well, he doesn't say. He'd repeal an upper-income surtax in Obama's healthcare law. And he'd lower the corporate tax rate (a goal Obama shares).

The one thing he doesn't propose is increasing any taxes to help close the deficit. (That's one reason his budget doesn't bring revenues and outlays into balance until at least 2030.) He believes in the supply-side article of faith: Lower taxes will solve every economic ill.

With no increases in tax revenue on the table, Ryan balances the budget with exactly one tool: deep cuts in domestic spending (though he spares the defense budget).

His biggest cuts come from programs that serve the poor, including nutrition, student loans and especially healthcare. His plan argues that those cuts aren't intended merely to shrink the deficit, but also "to ensure that America's safety net does not become a hammock that lulls able-bodied citizens into lives of complacency and dependency."

But he also takes aim at Medicare, the health insurance program that covers everyone who reaches the age of 65. It's here that Ryan has been praised for his courage at taking on one of the third rails of American politics — although almost everyone who has ever looked at the federal budget (including Obama and Ryan) agreed long ago that the deficit can't be mastered without controlling the growth in Medicare costs.

This presents a potential dilemma for Ryan and his Republican colleagues, who spent much of last year denouncing Obama for trying to reduce future Medicare spending in his healthcare law. Now they have to explain why it's right for Republicans to squeeze Medicare when it was wrong for Democrats to do it. (Short answer: Obama did it to help pay for "Obamacare"; the GOP's doing it to cut the deficit, a nobler cause in its view.)

Ryan's proposal for Medicare would scrap the current, government-run "fee-for-service" insurance system beginning in 2022. Instead, it would offer a federal subsidy to help senior citizens buy private health insurance. Low-income seniors and participants with preexisting conditions would get bigger subsidies than healthy, high-income seniors. But the subsidies would be limited; they would cover a smaller share of the cost of health insurance than Medicare does today, according to the Congressional Budget Office, meaning out-of-pocket costs would rise. And Ryan would raise the age of eligibility from 65 to 67.

In rough terms, this would be Obamacare for the old: government-subsidized access to private health insurance. That's not inherently a bad idea; would-be Medicare reformers in both parties have been talking about it for decades. Ryan noted this week that his plan was based on one he drafted with Alice Rivlin, the doyenne of Democratic budget hawks.

Only one problem with that claim: Rivlin doesn't like Ryan's new proposal.

"This budget plan is quite different from anything I would recommend," she told me Wednesday.

Rivlin still likes the idea of adding more private insurance options to Medicare. But she wants to keep the fee-for-service plan too and give seniors their choice. And she thinks Ryan's plan is based on an unrealistically low estimate of future healthcare costs, meaning the subsidies would end up too low unless Congress intervened to increase them — wiping out the savings that the plan was intended to produce.

And, on the most fundamental question, she thinks Ryan took a wrong turn by ruling out tax increases.

"We need more tax revenue," she said.

Rivlin and Ryan served on the bipartisan debt commission led by former Sen. Alan Simpson (R-Wyo.) and then-President Clinton's chief of staff Erskine Bowles.

The commission didn't produce a formal recommendation, but most of its members agreed that fixing the budget would require both tax increases and deep spending cuts.

Ryan's budget, she said, "isn't a bipartisan proposal. I don't think anybody on the Democratic side could vote for it. But it's an opening bid in a negotiation."

One result of Ryan's one-sided proposal may be to revive interest in the recommendations of Simpson and Bowles, who now stand roughly midway between Obama and the House GOP. Ryan's plan might even have the unintended effect of making Obama's own attempts to cut future Medicare costs look mild.

But the best effect of Ryan's proposal may be that it makes a basic choice clear. If you want to cut the deficit, you're going to have to agree to higher taxes or deep cuts in Medicare and other health programs, or — most likely — a mixture of the two. You can't keep your Medicare and keep your tax cuts too; that's a big part of how we got into this mess.

doyle.mcmanus@latimes.com

Copyright © 2014, Los Angeles Times
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