A Progressive Response To The Paul Ryan Path To Working Class Oblivion

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By Howard Schneider
July 1, 2011

Howard’s analysis won’t set the world on fire, nor make a radical’s heart beat faster, but this is a calm, reasoned argument than although moderate would (and will) be regarded as extreme by the current conservative mob if it ever were to be applied.

This politician could certainly set the budgetary crisis right if he really wanted, but, all the florid rhetoric aside, he simply won't fight.

I was anxiously awaiting Rep. Paul Ryan’s budget plan “The Path to Prosperity” a couple of months ago. Many other people were doing the same. Ryan is the Republican House Budget Committee Chairman and he had a reputation for being a responsible budget cutter. I expected extremely sharp cuts in most programs but not a draconian social re-engineering of our entire social safety net. Medicare and  Medicaid as we know them are completely eviscerated by Ryan’s plan and are turned into voucher programs. He would also repeal the new Healthcare Reform program just passed in 2010. He claims he will drastically cut corporate welfare by ending bailouts and dismantling Fannie Mae and Freddie Mac .

Curiously Ryan refuses to touch tax breaks that benefit immensely profitable corporations such as oil companies. Many programs are eliminated or slashed that have the broad support of the Democratic party while leaving intact programs that are favorites of the GOP. These programs represent a negligible percentage of the budget and thus are simply partisan political cuts. The middle and lower classes have been effectively stripped of most of the social programs that they rely on in his budget plan. To add insult to injury, he included tax cuts for the wealthy and added tax breaks and incentives for Corporate America while making those social safety net cuts.

I agree with Rep. Ryan that we urgently need to close this massive budget deficit. It threatens to destroy our country’s creditworthiness and will saddle our children and grandchildren with crushing debt. Unfortunately Rep. Ryan has proposed a plan that is a cruel insult to the working class of the United States. If implemented it will drop millions into poverty and leave millions more extremely vulnerable. We can do better than this and I have my own plan to start significantly cutting the budget deficit without endangering the welfare of the vast majority of our citizens. I will address only the three largest parts of the federal budget because they are the only areas that will yield significant savings or revenue to address this massive deficit. These areas are Defense and Homeland Security, social entitlements, and the tax code. These components will yield the savings and revenue that will put the United States on the road to fiscal solvency without sacrificing the working class of our country.

The United States military complex has been growing exponentially since the end of World War II. President Dwight Eisehhower warned the nation about the dangers of this phenomenon at the end of his second term. This rapid growth continued on unchecked whether there was a war being conducted or not. The Cold War was the usual reason given for this growth until the Soviet Union fell apart in the 1980’s. Yet this growth continued through the 1990’s without a war to justify it.

Then the 9/11 attacks occurred in 2001 sending military and homeland security spending soaring. Combine this with the subsequent Afghanistan and Iraq Wars and defense spending went through the roof. Military spending for 2012 is scheduled to total 680 billion dollars. Total defense spending including the Homeland Security departments will total 881 billion. The spending for the Afghanistan and Iraq Wars will be 118 billion.

These runaway expenditures must be cut sharply. Serious cuts may be achieved through a continuation of Secretary Gates’ proposals for sharp reductions in redundant weapons systems and military bases. I also believe there should be sharp reductions in troop levels in Europe and Asia. Nuclear weapons expenses should also drop as a result of the new nuclear arms treaty with Russia. I believe we can achieve 80 billion dollars worth of savings annually by way of these cuts. By 2015 the U.S. war commitments in Afghanistan and Iraq should be down dramatically leaving only advisory and support troops. Expenses should be down to a total of 30 billion dollars per year at a maximum. That will save us 90 billion dollars annually. This makes my final estimate of defense savings for military, defense, and homeland security 170 billion dollars a year. It will take a lot of political muscle and tenacity to navigate this plan through Congress, the military brass, and the defense contractor lobbies. If done correctly it will strengthen our economic security without lessening our national defense.

Now let us turn to the area where Paul Ryan was the most controversial and cruel. This would be entitlements spending. The four main programs involved here are Social Security, Medicare, Medicaid, and the new Healthcare Reform plan. Let’s start with Social Security. I constantly hear that this program is broken. Nonsense! Demographics caused by the retirement of the Baby Boomers will be causing a shortfall in this program for a few decades. The fix is a simple one and long overdue. There is an income threshold where social security deductions can be withheld from employee paychecks but no higher. Currently this income level is $106,800.

Social Security has not undergone a major change in its structure since 1983. I believe now is the time for a change especially with so many Baby Boomers retiring. The retirement benefits eligibility age has already been pushed higher a couple of times. I think it is now time to raise that income threshold to $120,000. My estimate is that this change will generate an additional 50 billion dollars a year into the Social Security fund.   Let us then turn to what is probably the thorniest entitlements program. That would be Medicare. A large amount of savings in the Medicare program has already been included in the Healthcare Reform bill which will start in during the year 2014. I believe another 20 billion dollars annually in waste and fraud can be extracted out of this system.

Unfortunately these cuts are not enough. Medicare spending is expected to total 468 billion dollars in 2012. Only 57% of this total is now financed through Medicare withholding taxes. The government withholds 1.45% of an employee’s wages per check for Medicare as well as taxing his or her employer the same amount. These rates have been in effect since 1987. This was many years before the retirement of the Baby Boomers was due to transpire.

The time has come to accommodate this major demographic shift. I propose that this rate be raised to 1.75%. This change would raise approximately another 56 billion dollars annually bringing the percentage of Medicare spending covered by Medicare withholding taxes up to 70%. The balance of Medicare funding comes from general revenues. Medicaid is fully funded by general revenues in the budget. The estimated 2012 expenditures for Medicaid are 269 billion dollars. I believe that 20 billion dollars of waste and fraud could easily be found in this massive yet essential program for the poor.

Much skepticism has been leveled at the new Healthcare Reform plan both during its creation and subsequently after its passage. Many predict it will cause the budget deficit to skyrocket. This is why Rep. Ryan wants to repeal this hard fought for new program. I totally disagree with his premises and his conclusions. My belief is that it was a carefully crafted plan and was designed to be budget neutral. I also believe it will remain so as long as its critics are unsuccessful in their attempts to have it significantly altered. Finally there are also several other mandatory programs that are estimated to cost American taxpayers a total of 598 billion dollars in 2012. I believe we can also find savings in these various programs of 60 billion dollars in fraud and waste without much problem. All told I have come up with 206 billion dollars in savings and tax rate hikes in our various entitlement programs that can be applied to the budget deficit.

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The final aspect of the federal budget that I would like to address is the United States Income Tax Code. My budget deficit solution in this area comes in two parts. The first is very simple. Allow the Bush tax cuts to expire at the end of 2012. The expiration of these tax cuts would yield the Treasury an extra 325 billion dollars annually. These cuts were foolishly passed in 2001 due to the large budget surpluses the U.S. was running after years of deficits. My belief is that these surpluses should have been applied to retiring much of the debt that we had incurred during previous years. The economy was humming along and did not need the stimulus that these tax cuts would provide. President George W. Bush promised these cuts in an effort to get himself elected during the 2000 Presidential election. I guess this should put to rest the myth of Republican economic common sense. We went back into a budget deficit almost immediately.

Then the terror attack of 9/11 took place and all bets were off. The subsequent spending for homeland and national defense swelled the deficit even further. Then we entered into the Afghanistan and Iraq wars and our national budget deficit hit levels never imagined before. Yet President Bush never asked the American people for any sacrifice to fight this “ War on Terror ” that he had declared. I propose we now eliminate these Bush tax cuts to help balance the budget and return us closer to the fiscal sanity of the 1990’s. Finally I would like to address some corporate tax breaks and some individual deductions.

The two industries that I would like to focus my proposals for ending corporate welfare tax breaks on are oil and farming. These sectors are flourishing and are generating immense profits. It is hard to justify continuing their tax breaks in this dismal budget environment. The oil industry gets 21 billion dollars a year in tax breaks while they earn much more than that quarterly. These subsidies are almost one hundred years old and are clearly no longer necessary. The industry is now completely mature. Besides, we are attempting to transition to alternative renewable energy sources.

The farm subsidies are an anachronism from the Great Depression era when a huge amount of small farmers were going bankrupt. American farming is now dominated by massive corporate farms which are commanding record profits. It is difficult to argue that they have a real need for the 20 billion dollars a year in subsidies that they currently receive. I would also propose the elimination of the 3 billion dollar ethanol subsidy. Ethanol utilizes almost as much energy to create it than the energy it replaces. Therefore I consider this subsidy to be a total waste of money. I would also eliminate the state and local income tax deduction which costs the U.S. Treasury 50 billion dollars a year. This deduction always seems to be on the chopping block only to be saved at the last minute. I believe the time has come to finally strip this deduction out of our tax code. The deficit is too massive to allow it to continue.

I would also place some restrictions on the home mortgage interest deduction. This deduction was abused in recent years helping to fuel the housing bubble. It helped finance many second homes, summer homes, and home equity loans. My restrictions would only allow this deduction for primary homes worth 1 million dollars or less. All other mortgages and home equity loans would now be ineligible for this deduction. The restrictions on this deduction will save the U.S. taxpayer approximately 25 billion dollars a year. All told my changes to the Federal Income TaxCode will generate an additional 444 billion dollars a year and cut the budget deficit by over 40%.

The estimated Federal budget deficit for 2012 without any changes stands at 1.1 trillion dollars. The combination of cuts and taxes that I have proposed in this article totals 820 billion dollars annually. I tried to formulate spending cuts and tax changes that made sense and were practical to at least one side of the political aisle. I state this because the Democrats seem unwilling to entertain most spending cuts and the Republicans are repelled by the mere suggestion of any tax hikes or tax break eliminations. Thus it seems impossible to please both sides on any one aspect of my plan.

The biggest piece of my proposal is the elimination of the Bush tax cuts which would return us to the last era of fiscal sanity and prosperity. My proposal for Social Security and Medicare paycheck withholding increases will give these vital programs the ability to withstand the assault on them by the retirements of the Baby Boom Generation. The elimination of unnecessary tax breaks for the flourishing Oil and Farm industries are long overdue. At the same time I am asking for severe and painful cuts to entitlement programs totaling 100 billion dollars. This is in addition to 170 billion dollars worth of defense spending cuts. Rep. Ryan estimates that his plan will achieve deficit savings of 4.4 trillion dollars over ten years. My plan would save 7.725 trillion dollars over the course of ten years.

I expect increased revenues will be coming into the U.S. Treasury coffers as a result of the economic recovery. This amount should total around 200 billion dollars annually once the economy hits its peak levels. It will probably take around three years for the economy to ramp up to this level. My plan combined with this economic and revenue resurgence should put the budget in balance or near balance by 2015.

Rep. Ryan’s plan leaves the deficit very far from balanced. His “Path to Prosperity” is heavier on cuts than mine but includes no additional tax revenues. Ironically it includes large tax cuts for the wealthy and Corporate America. This is just not fair and is a spit in the eye to working class America. This bears the classic imprint of Grover Norquist. Grover is president of the group entitled “Americans For Tax Reform”. He is against any tax increases and any tax subsidy eliminations. His entire philosophy is quite simple. Starve government to shrink it. Norquist fights all lawmakers tooth and nail to prevent any added tax revenues from entering the U.S. Treasury in any form. He has had virtually all Republicans sign his pledge to never raise taxes. He holds each and everyone of them to it and will campaign strongly against them if they renege on this promise in any way. I feel that my plan is much more fair to all citizens of the United States. It is more effective than the other plans I have read about and probably more politically palatable.

The Far Left and the Far Right will most likely howl at my plan. I will take this as a sure sign that I am on to something good if that occurs. Most importantly, the elderly of this country will not be left to secure their own healthcare insurance coverage in a private market that will surely price them out of it. They cannot be asked to bear this price when they are at their most vulnerable stage of their lives. The middle and lower classes will pay more to ensure that their social programs are not pulled out from under them. Everyone will have to pay more and receive a little less. The wealthy will not be getting the tax breaks that Rep. Ryan proposes. They do not need them and they will only increase the wealth gap in our society.

Fairness and shared sacrifice are the key phrases that I would use to characterize my long term budget plan. We are all in this great American society together. One for all and all for one. I know that all plans are tweaked and I am fully open to debate on all of my points. The key for me is that fairness and protection of all of our citizens is maintained. Maybe the tax code needs to be changed to stimulate more investment and job creation. Maybe there are more significant cuts that can be found without hurting our most vulnerable citizens too significantly. I hope my plan sparks a lively debate and yields some innovative new ideas. We have little time before our national debt swallows us up and we are put on a permanent road of economic backwardness. Time is running out for not only us but for generations to come.

Author’s Bio: I am a 53 year old financial services professional. I graduated from Wagner College in 1980 with a B.S in Economics & Business Administration with a minor in Sociology. My interests beyond economics lie in politics, literature, theater, music, and sports. I have always enjoyed writing and I look forward to writing on my varied interests to express my views and interact with others and explore their views. I invite differences of opinion and I am open to having my mind change. The only permanence is change.

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