Paul Ryan, Tom McClintock, Bill Flores AP – House Budget Committee Chairman Paul Ryan, R-Wis., works with Republican members of the committee on …
The praise for Rep. Paul Ryan's budget plan from the commentariat has been almost universally unctuous. "The most comprehensive and most courageous budget reform proposal any of us have seen in our lifetimes," gushed David Brooks of the New York Times. "Good Plan!" reads the headline of a Slate column by my onetime boss, Jacob Weisberg. "Serious," proclaims blogger Andrew Sullivan.
Well, those aren't quite the adjectives I'd use. For one, I would start with "delusional." The research Ryan ordered up from the Heritage Foundation projects that enacting his budget will lead to an unemployment rate of 2.8 percent in 2021. (Um, dudes? The unemployment rate has never been anywhere near that low.) "Bass-ackwards" is another. The Ryan plan calls for big tax cuts for corporations and the well-off and higher taxes on the middle class. How about "random?" Take a pair of twins. One is born December 31, 1956, at 11:58 p.m., the other is born January 1, 1957, at 12:03 a.m. Both work at identical jobs and pay identical taxes. But upon turning 65, five minutes apart, the first will be entitled to Medicare in its current form—a single-player, government-funded, open-ended health insurance plan. The younger twin will get a voucher to buy health insurance that will lose value over time.
Ryan's plan is being hailed as a starting point for a new conversation in American politics. But it's really a continuation of one we've been having off and on for the past 75-80 years: on the government's role in providing what I'd call social insurance — health insurance, unemployment insurance, disability insurance, income insurance.
In the modern era, in the wake of serious, widespread market failures, the government has stepped in to provide backstops, or to incentivize and encourage private companies to do the same. In the 1930s, after many people's life's savings had been wiped out, Franklin Delano Roosevelt proposed old-age income insurance — i.e., Social Security. Denounced by opposition Republicans as a fatal step toward socialism, Social Security became extremely popular among recipients and among politicians of both parties.
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Nearly 30 years later, another market failure was apparent. Retired workers faced a double-edged sword. They were living on fixed incomes and the insurance industry wasn't capable of, or interested in, insuring older people who tend to use lots of medical services. The solution was a new form of social insurance: Medicare. Like Social Security, it was widely denounced by those on the right—here's Ronald Reagan declaring it would lead to a Socialist dictatorship—only to become popular. A similar market failure—the insurance industry's inability to profitably insure the working poor, or to profitably provide long-term care—led to the creation and expansion of Medicaid. (As blogger Matt Yglesias notes with this helpful chart, a lot of Medicaid is spent on long-term care for the elderly and disabled.)
Over time, most of the bitter opponents of social insurance have reconciled themselves to the programs. But in recent years, we've seen schizophrenic attitudes toward social insurance. President Bush, for example, proposed remaking Social Security for future recipients. But he also pushed through the Medicare prescription drug benefit, an open-ended, enormously expensive piece of social insurance with no funding mechanism. (I'm still waiting for the deficit-hawk economists who served in the Bush administration, such as Greg Mankiw and Daily Ticker guests Glenn Hubbard and Douglas Holtz-Eakin, to apologize or explain.)
That dichotomy neatly encapsulates what seems to be the contemporary Republican party's approach to social insurance: generous, untouchable programs for today's elderly and near-elderly, and tough love for everybody else.
There are two problems with this approach. First, as time goes on, the demand for the government to provide—or assist in the provision of—social insurance will grow, not decline. Historically, companies shouldered the load of funding workers' health care and retirement savings. But 401(K)s are replacing pensions. According to the Employee Benefits Research Institute, the percentage of employees participating in defined benefit plans was 33 percent in 2007 compared with 63 percent in 1988. Public-sector pensions are likely to be trimmed. That means tomorrow's retirees will need more old-age income insurance, not less. In addition, jobs increasingly don't come with health care benefits. According to the Census Bureau, the percentage of people in 2009 covered by employment-based health insurance fell to 55.8 percent in 2009, the lowest "since 1987, the first year that comparable health insurance data were collected." With each passing year, more people need help buying insurance, not fewer.
Private-sector developments are driving these changes. But Washington policy proposals would drastically reduce the availability of social insurance. The Ryan plan would — let's be honest — abolish Medicare for those born after 1956. Turning Medicaid into a block grant to states, as Ryan suggests, would essentially give states even more incentives to drop people from the rolls. (Arizona, for example, is dropping 280,000 from Medicaid eligiblity this year, with the federal government's blessing.) Ryan's budget also assumes full repeal of the Affordable Care Act (aka Obamacare), which, as Jonathan Cohn of the New Republic notes, would mean an extra 32 million people would be without health insurance. Oh, and we've been assured that an adult conversation (read: cuts) about Social Security is up next.
Paul Ryan has positioned himself as an implacable foe of entitlements. He's one of those poor souls who, as I've written before, is bedeviled by the haunting fear that someone, somewhere may be getting social insurance. But his proposal doesn't come close to going whole hog. Remember, people 55 and older will find that the government will keep its hands off their Medicare. And the weird wrinkle is precisely why we should be skeptical. Why exempt the old folks? It's not because they've paid for it. Thanks to low Medicare taxes and the rising cost of health care, people in the system are getting far more out of it than they put in. No, it's because older people tend to vote, and these days they tend to vote Republican. In 2008, Obama crushed McCain among young voters. But as CNN noted, the exit polls showed that"the only age group where McCain prevailed was 65 and over," which he won by a 54-44 margin. Republicans spent much of the fall 2010 campaign complaining that Obama's health care reform would cut Medicare, and seniors responded. As Ruy Teixera and John Halpin write, "About 12 percent of 2010 voters were 18-29 years of age, sharply down from their 18 percent share in 2008," and seniors were "21 percent of 2010 voters, up sharply from their 16 percent share in 2008."
Ryan's plan fearlessly goes after entitlement programs, except for those that impact a large demographic slice that has become reliably Republican. Today's retirees are fired up about protecting Medicare and Social Security for themselves, while typical 30- and 40-something voters view them as abstractions. But today's young and middle-aged people will be tomorrow's old people. And when my cohort moves into our late 50s, and we start looking at our 401(K) balances and the cost of insurance, you can bet there will be enormous political pressure to restore the social insurance programs Ryan wants to eviscerate.
Of course, without these cuts, there's no way Ryan can make the huge tax cuts he proposes seem viable. And this is why I'm skeptical that the Ryan plan will work as advertised over the long term. Presuming that legions of older voters would prefer poverty and the tender mercies of the health insurance industry to today's tax rates on high earners and companies isn't courageous or bold. It's politically naive.
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