The Path to Prosperity

The 2012 United States federal budget funds the operations of the Federal government of United States for the fiscal year 2012, which runs October 2011–September 2012.

'The Path to Prosperity' is the official name for Republican budget proposal for the year 2012. It is competing with budget proposals outlined separately by President Obama. and the Congressional Progressive Caucus. The Republican proposal was formalized and passed by the House of Representatives on Friday, April 15th, largely along party lines. No Democrats voted in favor of the bill and only four Republicans voted against it, which created a 235 to 193 end vote total. The four Republican members of Congress who voted against the bill were Walter B. Jones, Jr., David McKinley, Ron Paul and Denny Rehberg.

Representative Paul Ryan, Chairman of the House Budget Committee, played a prominent public role in drafting and promoting The Path to Prosperity proposal, and it is often known as the Ryan budget, Ryan plan, Ryan proposal, etc.

Key features

U.S. federal deficits, surpluses, and debt under various plans.

The Republican 2012 Budget proposal, as specified to Congressional Budget Office(CBO) by Paul Ryan's staff, encompasses changes to Medicare, Medicaid, the major 2010 health care legislation, other government spending (excluding that for Social Security), and tax law.

• Medicare: Starting in 2022, the proposal would convert the current Medicare system to a system of somewhat voucher-like "premium support payment" and would increase the age of eligibility for Medicare:
  • Starting in 2022, the age of eligibility for Medicare would increase by two months per year until it reached 67 in 2033.
  • After 2022, people eligible for Medicare would not enroll in the current Medicare program but instead would be entitled to a premium support payment to help them purchase private health insurance.
  • Beneficiaries of the premium support payments would choose among competing private insurance plans operating in a newly established Medicare exchange. Plans would have to insure all eligible people who apply and would have to charge the same premiums for enrollees of the same age. The premium support payments would go directly from the government to the private insurance companies that people selected.
  • The premium support payments would vary with the health status of the beneficiary. For the average 65-year-old, payment in 2022 is specified to be $8,000, which is approximately the same dollar amount as projected net federal spending per capita for 65-year-olds in traditional Medicare in that year.
  • Each year, the premium support payments would increase to reflect increases in the consumer price index (average inflation) and the fact that enrollees in Medicare tend to be less healthy and require more costly health care as they age.
  • The premium support payments to enrollees would also vary with the income of the beneficiary. The wealthiest 2% of enrollees would receive 30 percent of the premium support amount described above; the next 6% would receive 50 percent of the amount described above; and people in the remaining 92% the income distribution would receive the full premium support amount described above.
  • Eligibility for the traditional Medicare program would not change for people who are age 55 or older by the end of 2011 or for people who receive Medicare benefits through the Disability Insurance program prior to 2022. People covered under traditional Medicare would, beginning in 2022, have the option of switching to the premium support system.
• The proposal would modify Medicaid as follows:
  • Starting in 2013, the federal share of all Medicaid payments would be converted into block grants to be allocated to the states. The total dollar amount of the block grants would increase annually with population growth and with growth in the consumer price index (average inflation).
  • Starting in 2022, Medicaid block grant payments would be reduced to exclude projected spending for acute care services for elderly Medicaid beneficiaries.
  • States would have additional flexibility in designing their programs.
• 2010 Health Care Legislation: The Republican proposal would make several changes to the 2010 Patient Protection and Affordable Care Act and the health care provisions of the Health Care and Education Reconciliation Act of 2010.
  • In general, key provisions of those laws that deal with insurance coverage would be repealed, including:
    • Repeal the requirement that most legal U.S. residents obtain health insurance;
    • Repeal the establishment of health insurance exchanges and subsidies for some individuals and families who purchase coverage through the exchanges;
    • Repeal the expansion of Medicaid coverage to include most nonelderly income below 138 percent of the federal poverty level;
    • Repeal penalties on certain employers if any of their workers obtain subsidized coverage through the exchanges; and
    • Repeal tax credits for small employers that offer health insurance.
  • The proposal would repeal the Community Living Assistance Services and Supports Act (CLASS Act) program for long-term care insurance, as well as a number of mandatory grant programs including funds for so-called high-risk pools, reinsurance for early retirees, and prevention and public health activities.
  • The proposal would repeal the provisions that created the Independent Payment Advisory Board, which has the explicit task of reducing the rate of growth in Medicare without affecting coverage or quality.
  • Canceling the expanded subsidies aimed at closing the “coverage gap” in Medicare Part D, the so-called Medicare doughnut hole. The gap is a range of spending in which many Medicare beneficiaries are financially responsible for the entire cost of prescription drugs until the expense reaches the catastrophic coverage threshold.
• Tort Reform: Several changes would be made to laws governing medical malpractice, including putting in place limits on noneconomic and punitive damages.
• Other spending cuts: The Path to Prosperity will reduces other mandatory and discretionary spending from 12 percent of GDP in 2010 to about 6 percent in 2021. No proposals were specified that would generate that path. However, budget cuts would likely affect programs such as federal civilian and military retirement, the Supplemental Nutrition Assistance Program, unemployment compensation, Supplemental Security Income, the refundable portion of the earned income and child tax credits, and veterans’ programs.
• Revenues: The instructions given to the CBO to evaluate the proposal specified revenue of 19% GDP, which is above the current level of around 15% GDP and slightly above the 30-year historical average of 18.2% GDP. The Path states separately that income tax rates would be lowered and selected tax expenditures (e.g., deductions, exemptions and subsidies) would be eliminated.
• Social Security receives no changes in the proposal compared to the baseline. The CBO states that "spending on that program is projected to be relatively stable as a share of GDP from 2030 forward."

Reactions and debate

Paul Ryan pictured in February 2011.

The proposal broadly generated negative reactions from Democrats and positive reactions from Republicans.

A news analysis piece by Glenn Kessler in the Washington Post stated that the proposal "relies on dubious assertions, questionable assumptions and fishy figures". He stated that it involved unrealistic assumptions for the status quo (the alternate fiscal scenario) such as the inclusion of all the Bush-era tax cuts being extended forever and the alternative minimum tax being indexed for inflation.

Ryan appeared on the April 3rd episode of Fox News Sunday with Chris Wallace to discuss the proposal.

Minority Whip Steny Hoyer, a Democrat from Maryland, remarked on CNBC's Squawk Box that the House had ignored the recommendations made by the federal deficit commission. Hoyer said, "This is exactly the same rhetoric, exactly the same kind of plan that was offered in 2001 and 2003, and it led to the deepest recession this country has seen; extraordinary loss of jobs and a tanking of the stock market. Very frankly, that's not a path we want to go down again."

Speaker of the House John Boehner and House Majority Leader Eric Cantor praised Ryan's proposal. They argued that a national conversation must take place between people of all political stripes about the fiscal future. Boehner remarked, "The president is certainly entitled to disagree with our budget... but what exactly is his alternative?"

Cantor said on the April 10th episode of Fox News Sunday with Chris Wallace:

What we've said and what the Ryan budget calls for are spending targets. And the way we get to spending targets both on the discretionary and mandatory side of the ledger. As we know, the unfunded obligations on entitlement programs are really what are so daunting and causing global investors, as well as Americans, to doubt whether this country can deal with its fiscal challenges. So, what we've said is this: we're going to protect today's seniors and those nearing retirement. But for the rest of us, all of us who are 54 and younger, I know those programs are not going to be there for me when I retire, just like everyone else 54 and younger. They can't. We cannot sustain that kind of trajectory.

Economist Paul Krugman called it "ridiculous and heartless" due to a combination of income tax rate reductions (which he argued mainly benefit the wealthy) and large spending cuts that would affect the poor and middle classes. The New York Times editorial board wrote: "We are also certain that repealing [Obama's healthcare ] reform — the Republicans’ No. 1 goal — would do enormous damage to all Americans and make it even harder to wrestle down health care costs, the best way to deal with the country’s long-term fiscal crisis."

Changes to Medicare

Michael Hiltzik in the LA Times says there's no reason to believe that Ryan's proposals will do anything to reduce healthcare costs in the U.S., and reason to believe they would do the opposite. Starting in 2022, the Republican proposal would extinguish Medicare as a guaranteed coverage program for new enrollees and would replace the program with healthcare vouchers, allowing seniors to buy private health insurance with a government subsidy.

According to Henry Aaron, one of two economists who coined the term "premium support" in response to criticisms of health care vouchers, states that the Republican plan for Medicare uses vouchers, not “premium support”. The defining attribute of the plans that Aaron christened “premium support” was that governmental financial support would rise with average health care costs. The Republican plan instead, has this support rising with the consumer price index (general inflation). This difference is crucial to understanding the Republican proposal -- the cost of health care is rising much faster than the consumer price index. The Republican voucher plan is virtually guaranteed to become increasingly inadequate over time. Beneficiaries will need to pay for the increases in health care costs due to inflation –- that how the Republican plan saves money.

The vouchers would rise in value with the consumer price index (general inflation), but as medical expenses have been rising much faster than the consumer price index, the value of the government subsidy would erode over time. When the program begins in 2022, the typical 65-year old would be responsible for about 25% of the cost of their healthcare, which is consistent with Medicare as it exists today. However, the share paid out-of-pocket by this typical 65-year-old in 2030 would be 68% under the Republican plan, according to the bipartisan Congressional Budget Office.

Chairman Paul Ryan claims that his new Medicare plan was modeled after the health care plans that Congressmen themselves currently receive. Others point out that Members of Congress have what is called a "fair-share deal"; they do not bear the entire risk of increased costs due to health care inflation. The health care plan that Members of Congress use, indexes benefits to health care inflation, not to the consumer price index. As health care become more expensive due to inflation, the government, not Members of Congress is responsible for most of the extra costs.

Chairman of the Senate Budget Committee Kent Conrad, a Democrat from North Dakota, told NPR's Morning Edition that the reductions in Medicare spending would be "draconian". He also faulted the effort for not including cuts to defense spending and tax increases, which Hoyer argued must be part of any serious budgetary reform.

Democratic Representative Debbie Wasserman-Schultz, incoming chair of the Democratic National Committee, stated that "This plan would literally be a death trap for seniors". Her popularization of the neologism "death trap" among Democrats is similar to Sarah Palin's popularization of "death panels" supposedly in the recent health care reform effort among Republicans.

Several presumptive Republican Presidential candidates made statements in support of the proposal. Former Minnesota Gov. Tim Pawlenty and former Massachusetts Gov. Mitt Romney applauded the effort for "offering real leadership" and "setting the right tone".

Changes to the tax law

James Fallows, national correspondent for The Atlantic, panned the proposal. He wrote:

A plan that proposes to eliminate tax loopholes and deductions, but doesn't say what any of those are, is neither brave nor serious. It is, instead canny -- or cynical, take your pick. The reality is that many of these deductions, notably for home-mortgage interest payments, are popular and therefore risky to talk about eliminating. {Bold in original)

CBO review

File:Republican Proposal - Federal Spending as % GDP.png

CBO - Federal Spending as %GDP Under Alternative Scenarios and Ryan's Path

The CBO did an analysis of the resolution (a less rigorous evaluation than full scoring of legislation), estimating that the Path would balance the budget by 2030 and reduce the level of debt held by the public to 10% GDP by 2050, vs. 62% in 2010. The Path assumes revenue collection of 19% GDP after 2022, up from the current 15% GDP and closer to the historical average of 18.3% GDP. A grouping of spending categories called "Other Mandatory and Defense and Non-Defense Discretionary spending" would be reduced from 12% GDP in 2010 to 3.5% by 2050.

The CBO also analyzed the Medicare aspects of the resolution, reporting that: "Under the proposal, most beneficiaries who receive premium support payments would pay more for their healthcare than if they participated in traditional Medicare under either of CBO's long-term scenarios. CBO estimated that, in 2030, a typical 65-year old would pay 68 percent of the benchmark under the proposal, compared with 25 percent under the extended-baseline scenario and 30 percent under the alternative fiscal scenario." The benchmark refers to the estimated cost of a private health insurance plan with a benefit package comparable to Medicare. The additional cost was because both administrative costs (including profits) and payment rates to providers are higher under private plans. The additional cost would be partially offset by: a) incremental "utilization management" or care restrictions exerted by private providers versus Medicare; and b) enrollees facing increased cost-sharing would tend to lower utilization of services.

See also

• National Commission on Fiscal Responsibility and Reform

External links

• The Path to Prosperity: America's two futures, visualized - HouseBudgetCommittee @ YouTube
• Full Report
• CBO Analysis of Ryan Budget Proposal-April 2011