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 a budget proposal outlined by President Obama. 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.

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.

Contents

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

The proposal aims to, among other things:

• Overall reduce government spending by $5.8 trillion relative to the current-policy baseline.
• Limit government spending to below 20% of the economy.
• 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.
  • People who become eligible for Medicare in 2023 and subsequent years would receive a payment that was larger than $8,000 by an amount that reflected the increase in the consumer price index and the age of the enrollee.
  • 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.

• Convert the matching payments that the federal government makes to States for Medicaid costs under current law into block grants of fixed dollar amounts beginning in 2013. States have more flexibility to administrate their Medicaid programs, which arguably means more efficeies, but the lowered funds will necessarily imply less care or more payment from recipients. This will involve about $750 billion less in spending for Medicaid programs.
• Key provisions of the 2010 Patient Protection and Affordable Care Act would be scrapped.
  • The individual mandate, employer mandate, health insurance exchanges, and the subsidies for the certain individuals and families placed into the exchanges would be ended.
  • Most changes to Medicare from the Act with the exception of the creation of the Independent Payment Advisory Board and the expanded Medicare Part D payments would be kept.
• Reduce and eventually eliminate budget deficits. Deficits would be about 2% of GDP in the 2020s, then decline during the 2030s, and then reach surplus status by 2040.

The proposal was designed from the outset to exceed the about $4 trillion in spending reductions set forth in the federal deficit commission.

Social Security recieves no changes in the propsal 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.

Changes to Medicare

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)

See also

• National Commission on Fiscal Responsibility and Reform

External links

• The Path to Prosperity: America's two futures, visualized - HouseBudgetCommittee @ YouTube
• Full Report