Republican Presidential Candidate Mitt Romney named House Representative Paul Ryan as his running mate on Sunday. This is good, because Ryan has specific proposals for the budget that can be evaluated. Romney's plans are clear on direction, but a little weak on details.
So, how would Ryan's Fiscal Year 2013 Budget, titled the Path to Prosperity, affect the economy? First, it would cut $5 trillion over the next decade, and that's a good thing. The U.S. debt-to-GDP ratio is already at 100%, and rising. Unfortunately, Paul's plan doesn't begin to balance the budget for another 20 years -- not soon enough to address the nation's debt ceiling crisis.
Furthermore, many of Ryan's budget cuts include reducing health care benefits to future Medicare recipients, to the poor and to Federal workers. This could increase the number of bankruptcies, half of which are caused by health care costs. (For more, see Why Reform Health Care)
Under Ryan's plan, seniors would receive Federal vouchers to buy their own health insurance. However, the Congressional Budget Office found that most of them would end up paying more than they do now. The plan only affects those who turn 65 in 2023 or later, the savings (and the pain) are postponed until then.
Ryan also proposes eliminating Fannie Mae and Freddie Mac and replacing them with a private funding source. Both Treasury Secretaries Paulson and Geithner tried the same thing, and the banks won't go for it. Fannie and Freddie, for all their faults, provide the government insurance banks are now requiring to accept mortgages. Take that away, and the vulnerable housing recovery will wither.
Ryan's budget follows the Simpson-Bowles deficit reduction plan in many areas, such as Social Security and tax reform. These proposals have the best chance to pass, since they came from the bi-partisan commission. Although it wasn't approved at the time, many in Congress realize the Simpson-Bowles plan may be the only preventative that will keep us from falling off the fiscal cliff.
Everyone agrees that deficit reduction is necessary. It will strengthen the U.S. dollar, keeping imports affordable, lowering the trade deficit and reducing the threat of inflation. However, no one agrees on the best way to do that. The Simpson-Bowles plan should be reviewed and used as a starting place.
- FY 2013 Budget and Spending Primer
- How the $15 Trillion Debt Will Cut Your Standard of Living
- Romney's Plan for the Economy