With all the noise about the presidential campaign, the election, Bain Capital and Romney’s tax returns filling the airwaves you may have forgotten that the country is racing toward a huge financial cliff come January 1, 2013. The Bush tax cuts are set to expire as are the payroll tax cuts. The debt ceiling must be re-negotiated and billions in expense cuts will automatically kick in due to the Super Committee’s failure to reach a grand bargain on the debt and deficit.
There are two primary solutions to this financial conundrum that are being discussed on the Hill. One is the Simpson-Bowles Plan offered by the President’s National Commission on Fiscal Responsibility and Reform. This plan was ignored by the President but has now found traction among Democrats, independents and some moderate Republicans. The other option is the Ryan Budget Plan offered by House Budget Chairman Paul Ryan. The Ryan Plan is widely popular among Republicans; particularly among members of the Republican base.
When Mitt Romney was competing in the Republican primaries he was a vocal supporter of the Ryan Budget Plan. He was courting the Republican base and attempting to overcome the label that he was “not conservative enough.” But now that Romney has secured the nomination you don’t hear him extolling the virtues of the Ryan Budget. In fact Romney has not mentioned it in quite some time. Here is why.
There are two key components to the Ryan Plan. One focuses on tax reform; the other on entitlements. If anyone other than the top 2% wage earners dig into the details, we can guarantee they won’t like what they find.
Ryan proposes to balance the federal budget by completely revamping Medicare and Medicaid. Ryan wants to give everyone who is eligible for Medicare a lump sum payment each year which they are to use to buy health insurance and pay for any medical bills or prescriptions not covered by that insurance. Ryan has not been specific about the amount of the payment but estimates are between $6,000 & $9,000 per year. So as far as Ryan is concerned: “Here is your annual lump sum payment. Hopefully this will be sufficient for you to buy health insurance and pay for any uncovered medical expenses. If that amount proves to be inadequate for your needs; well that’s too bad.” Keep in mind that Ryan also wants to overturn the President’s Affordable Health Care Act which prevents insurance companies from denying individuals coverage based on pre-existing conditions. So in the world according to Ryan, upon reaching the age of eligibility, seniors, many of whom have had previous health care issues, are going to be given a lump sum and told to find a insurance company who will not only accept them with their pre-existing medical history, but charge them a premium that they can cover with the government’s lump sum payment.
As for Medicaid, Ryan wants to give each state a lump sum of money and let them address the health care needs of their citizens as they see fit. That’s it. That’s the plan. So Ryan and the Republicans who screamed about government involvement in the administration of health care under Obamacare are more than willing to turn Medicaid over to the state governments to handle as they please. Most states cannot handle the current burden Medicaid places on their staffs and on their budgets. So how are they supposed to handle the entire responsibility of administering Medicaid? This shift in responsibility may help to balance the federal budget but make no mistake; states will have to raise their taxes to handle the burden. And what about the quality of care when 50 different state governments are in charge of oversight? Not Ryan’s problem! His goal is to reduce the federal debt and deficit and balance the budget. How the s—t rolls downhill to the states and the taxpayers is not his concern. In the end it is estimated that seniors currently pay out of pocket for 25% of their health care. Under the Ryan plan that out of pocket cost would increase to 50%-60%. That of course assumes that they can find coverage.
The other major component of Ryan’s Plan involves reforming the tax code. Ryan wants to reduce the overall tax brackets and reduce corporate taxes to be more in line with our global competitors. He wants to pay for these decreases in revenue by reforming Medicare and Medicaid and eliminating what he calls the unfair tax loopholes. We have already explained how he plans to reform entitlements by shifting the burden from the federal government to the states. He is pretty specific about these plans. But when it comes to closing tax loopholes he is quite vague. He doesn’t tell us specifically what loopholes he would eliminate. That’s because the tax loopholes that are of any significance are those that no politician would tackle without fear of losing his job.
When you are looking for tax loopholes to close in order to increase revenue there are only five that are of any significance. As economic analyst Steve Rattner recently illustrated on “Morning Joe” they are:
Untaxed Health Care Benefits - $106 billion
Mortgage Interest - $91 billion
Retirement Plans - $84 billion
Capital Gains and Dividends - $78 billion
Charitable Contributions - $37 billion
Any substantive conversation about closing tax loopholes must include the elimination of these five categories. No wonder Ryan is less than specific about what loopholes he proposes to close.
Romney has said repeatedly that on the first day of his presidency he would repeal Obamacare and reform the tax code. Based on the above facts, it’s easy to see why he is no longer touting the Ryan Plan as his replacement solution. He’s preaching to a different audience now and he has to alter his message…again.
One thing about Romney…he knows how to change his tune.
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