Since the stunning result of the Massachusetts
senatorial race, President Obama has softened his tone quite a bit,
essentially saying to Republicans that if they have any good ideas,
“Bring ’em on.”
Whether he’s sincere or not remains to be seen, but the
implication is that he’s unworried, because in his opinion the
opposition party only knows how to criticize and doesn’t have anything
constructive to say.
He needs to call Wisconsin Congressman Paul Ryan, ranking member of
the Committee on the Budget, and have him over for tea.
Ryan is a representative who appears to take his job –
overseeing the federal budget – seriously.
In 2008, he introduced legislation called “A Roadmap for America’s
Future.” It died, so
he’s reintroducing it this year. It won’t pass, unless the
Democrats somehow manage to lose control of the House. It’s just too
simple.
It’s also breathtakingly visionary. In one fell swoop, Ryan
takes on taxes, health care, Social Security, and the federal deficit, and
fixes them all. He puts the government back on the road to solvency,
something no other plan comes close to achieving. Most important, he wants to
shift our mindset, so we finally recognize that the cure for debt problems is
not to pile up more debt.
Income and Other Taxes
Ryan has a nicely targeted sense of humor. For those who can’t
bear to part with today’s elephantine tax code, he leaves it in place,
and anyone who loves it can still use it. For the rest of us: Single filers
would pay 10% on income up to $50,000 ($100,000 for joint filers) and 25%
thereafter, with a generous standard deduction and personal exemption
($39,000 for a family of four). That’s it. No loopholes, deductions,
credits or exclusions. Fill out the postcard and mail it in.
Additionally, the plan promotes saving by eliminating a whole bunch of
other taxes -- on interest, dividends and capital gains. It scraps the
alternative minimum tax and abolishes the death tax. It replaces the
corporate income tax – currently the second highest in the
industrialized world – with a business consumption tax of 8.5%, about
half the world average, putting American companies and workers in a stronger position
to compete in the global economy. And it allows for immediate expensing of
new business investment.
Health Care
A refundable tax credit – $2,300 for individuals and $5,700 for
families – to purchase coverage (from another state if they so choose)
and keep it with them if they move or change jobs. State-based high-risk
pools. Supplemental payments to low-income recipients, who can choose their
care rather than be consigned to Medicaid.
Medicare
Large-scale, common-sense reforms involving vouchers and medical savings
accounts, along with a very gradual rise in eligibility age, designed to
preserve the best parts of Medicare while securing its solvency for
generations to come.
Social Security
Maintains benefits for current recipients, while making the program permanently
solvent by combining a modest adjustment in the growth of initial Social
Security benefits for higher income individuals with a gradual, modest
increase in the retirement age. Includes a property right, so that your
vested Social Security interest does not die with you. Those who own these
accounts can pass on assets to their heirs.
Making all this work would require some adjustments, though.
Nondefense discretionary spending, for example, would be frozen for ten years
at 2009 levels in nominal terms and allowed to grow thereafter by an amount
linked to CPI.
There has been immediate criticism from Democrats, mainly centered around cuts to Medicare. And some of the objections could
be valid; maybe the plan could be tweaked a little to bring more of the
opposition on board. Or maybe they’ll just continue to complain because
reducing the size of government doesn’t sit well with them.
But the thing is, even the critics have been forced to admit that the
plan would probably work. How do we know? Ryan had the confidence to submit
it to the Congressional Budget Office for analysis. As you probably know, the
CBO has stated frankly that continuing along the current path leads to
unsustainable deficit levels and bankruptcy for the country.
According to CBO projections, debt will spike sharply upward in 2015,
rising – relentlessly and unstoppably – to over 700% of GDP in
2080. Of course, the economy will be destroyed and government forced to
default long before then.
If Ryan’s Roadmap were adopted, however, the CBO estimates that
debt/GDP would peak at 100% in 2043 and “decline thereafter, reaching
zero by 2080,” then move into surplus. (For the complete CBO
report, go here.)
Yes, all predictions are bound to be flawed. Yes, we must remain
skeptical of anything that comes from a politician. And yes, it’d be
better for government to shrink more than this proposal envisions. But,
especially concerning taxes, it’s a big step in the right direction.
The president is wrong. There is another idea out there, and
according to the government’s own budgetary watchdogs, it’s a
good one. It “just” necessitates adopting a 75-year time line.
Of course, the odds of Congress looking that far ahead are slim to
none, and you know where Slim is. But who knows, if enough Americans beat the
drum for Paul Ryan, this country may actually have a future.
Doug Casey and
his team keep saying that in this day and age, politics is inseparable from
the economy and the markets. In The Casey Report, we closely
follow the actions of Washington’s movers and shakers, which help us,
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of any crisis – and profit while others lose their shirts. Click
here for more.
Doug Hornig
Senior Editor, Casey Research
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