Wednesday, April 27, 2011

Two views of the proposed budgets

There's considerable wisdom to be found in two opinion pieces that recently appeared in the papers.

"Paul Ryan's Reverse Robin Hood Budget" by former Fed vice-chairman and now Princeton University professor Alan S. Blinder appeared in Thursday's (April 19) Wall Street Journal. Some excerpts:

Worst things first. The plan threatens to eviscerate Medicare by privatizing it—with vouchers that, absent some sort of cost-control miracle, would fall further and further behind the rising cost of health insurance. And to make that miracle even less likely, House Republicans want to repeal every cost-containment measure enacted in last year's health-reform legislation. ...

Then there's Medicaid, which is a lifeline for the poor. House Republicans want to turn it into a block grant, underfund it, and let the 50 states figure it out. ....

The sums involved are huge. The Congressional Budget Office (CBO) estimates that the House Republican budget would reduce federal health-care spending by more than two-thirds by 2050. (No, that's not a misprint.) Did someone say, "We have to destroy Medicare to save it?"

According to the Center on Budget and Policy Priorities, about two-thirds of Mr. Ryan's so-called courageous budget cuts would come from programs serving low- and moderate-income Americans, while the rich would gain from copious tax cuts. That's courage? ...

How many Americans know that 72% of Mr. Ryan's claimed budget cuts would go to fund tax cuts that overwhelmingly benefit the rich? ...

Since Blinder was appointed to the Fed by Bill Clinton and served as an advisor to Al Gore in 2000 and John Kerry in 2004, the fact that he sees the plan as he does isn't surprising, but it's great copy and nice that the Republican-leaning Wall Street Journal gave it play.

"The Bipartisan March to Fiscal Madness," by Republican former Office of Management and Budget Director David A. Stockman appeared in Sunday's New York Times.

Some excerpts:

It is obvious that the nation’s desperate fiscal condition requires higher taxes on the middle class, not just the richest 2 percent. Likewise, entitlement reform requires means-testing the giant Social Security and Medicare programs, not merely squeezing the far smaller safety net in areas like Medicaid and food stamps.

Unfortunately, in proposing tax increases only for the very rich, President Obama has denied the first of these fiscal truths, while Representative Paul D. Ryan, the chairman of the House Budget Committee, has contradicted the second by putting the entire burden of entitlement reform on the poor. The resulting squabble is not only deepening the fiscal stalemate, but also bringing us dangerously close to class war. [Read more...]
In attacking the Bush tax cuts for the top 2 percent of taxpayers, the president is only incidentally addressing the deficit. The larger purpose is to assure the vast bulk of Americans left behind that they will be spared higher taxes — even though entitlements make a tax increase unavoidable. Mr. Obama is thus playing the class-war card more aggressively than any Democrat since Franklin D. Roosevelt — surpassing Harry S. Truman or John F. Kennedy when they attacked big business or Lyndon B. Johnson or Jimmy Carter when they posed as champions of the little guy.

On the other side, Representative Ryan fails to recognize that we are not in an era of old-time enterprise capitalism in which the gospel of low tax rates and incentives to create wealth might have had relevance. A quasi-bankrupt nation saddled with rampant casino capitalism on Wall Street and a disemboweled, offshored economy on Main Street requires practical and equitable ways to pay its bills.

Ingratiating himself with the neo-cons, Mr. Ryan has put the $700 billion defense and security budget off limits; and caving to pusillanimous Republican politicians, he also exempts $17 trillion of Social Security and Medicare spending over the next decade. What is left, then, is $7 trillion in baseline spending for Medicaid and the social safety net — to which Mr. Ryan applies a meat cleaver, reducing outlays by $1.5 trillion, or 20 percent.

Trapped between the religion of low taxes and the reality of huge deficits, the Ryan plan appears to be an attack on the poor in order to coddle the rich. To the Democrats’ invitation to class war, the Republicans have seemingly sent an R.S.V.P.  [Read more...]

Not only do I think Stockman is right-on, I am hugely tickled by the fact that he was the director of the Office of Management and Budget under Ronald Reagen from 1981 to 1985. Wikipedia says:

Stockman emerged as one of the most powerful and controversial OMB directors ever during a tenure that lasted until his resignation in August 1985. Committed to the doctrine of supply-side economics, he took the lead in directing passage of the "Reagan Budget" ..., which Stockman hoped to be a serious curtailment of the "welfare state" .... During this period, although only in his early 30s, Stockman played a central and highly visible role as the ultimate "budget guru" in the fierce debate and contentious political wrangling over the future direction of the role of the federal government in American society.

As the days and weeks go by, many are weighing in on the Ryan budget proposal.  I agree with Stockman - both parties are playing politics.  And we can't afford it.

As Stockman concludes:
[The] Ryan plan worsens our trillion-dollar structural deficit and the Obama plan amounts to small potatoes, at best. Worse, we are about to descend into class war because the Obama plan picks on the rich when it should be pushing tax increases for all, while the Ryan plan attacks the poor when it should be addressing middle-class entitlements and defense.

In the real world, however, the global bond market is already rumbling — and around the corner, a fiscal conflagration surely lies.

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