Paul Ryan, Patty Murray and a budget walk into a bar
The Republicans, led by House Budget Committee Chairman Paul Ryan, aim to shave $4.6 trillion off of the federal government’s spending trajectory. They get there primarily by reducing the growth rate of domestic social programs like Medicaid and rolling back the coverage-expanding provisions of the Affordable Care Act. Although the Ryan budget accepts the revenue increases that were part of the fiscal cliff deal and the Affordable Care Act, it does not allow for any further revenue increases.
The Democrats, led by Senate Budget Committee Chairwoman Patty Murray, aim to reduce spending by $975 billion. Yet they also call for $100 billion in new stimulus spending and shutting off the $1.2 trillion in automatic spending cuts scheduled to take place under sequestration, which suggests that spending reductions will be more than balanced by spending increases. And while the Ryan budget resists revenue increases, the Murray budget calls for $975 billion in revenue from unspecified cuts to loopholes and spending in the tax code.
Beneath the surface of these two budgets lie coalition politics. The Ryan budget, for example, delays its major Medicare reforms until today’s 55-year-olds reach retirement age. It also leaves Social Security largely untouched. One way to look at this is as a concession to the political reality that older Americans tend to support Republicans, and so reforms that reduce benefits for older Americans will be met with strong intra-party resistance. At the same time, the main beneficiaries of Medicaid expansion are low-income adults who are not, as a rule, inside the GOP tent. Conservatives generally believe that smaller government is better for everyone, including the poor. Yet conservative politicians have more to fear from voters who rely on Social Security and Medicare than from voters who rely on Medicaid, which explains their reluctance to make deep cuts in old-age social programs and their willingness to make cuts in programs that tend to benefit the young.
The Murray budget, in contrast, tries to unite a very different coalition. Democrats represent low-income adults who rely on programs like Medicaid; unionized public employees and health-sector workers who rely on federal spending to make a living; students and educators who count on higher education subsidies; and college-educated professionals who favor tax increases on people richer than themselves. This unwieldy coalition makes it very difficult to cut spending. There is a strong intellectual case that Democrats should embrace a single-payer system like Canada’s to shrink health costs, thus allowing the federal government to spend more on, say, green energy investments. But for every left-of-center Democrat who likes the idea, there is a Democrat who represents hospitals and insurers who does not. And though Democrats are far more open to tax increases than Republicans, they have backed themselves into a position in which they can only raise taxes on, at best, the top 2 percent of earners.
Between these two budgets lies a potentially attractive middle ground, and the interesting question is which party will get there first. It has become commonplace to argue that Republicans are constrained by a highly ideological conservative base that will brook no compromise on taxes or spending. And there is something to that. But the tensions within the Democratic coalition mean that Democratic politicians will have an even harder time embracing root-and-branch spending reforms. By offering a fiscally sustainable path to universal coverage and a better deal for middle-income parents, conservative reformers have a shot at breaking America’s political stalemate.
The first step would be for Republicans to rally around James Capretta’s market-based alternative to the Affordable Care Act. Like Ryan, Capretta starts out by repealing most of the ACA. But he also reforms the tax treatment of health insurance to curb the benefits for the highest earners while creating a refundable tax credit for individuals without access to job-based coverage. He also overhauls the Medicaid program by giving state governments a fixed amount of money per Medicaid beneficiary that they can combine with the refundable tax credit to buy coverage for low-income residents. To broaden insurance coverage as much as possible, Capretta proposes that states provide default insurance options for individuals who don’t actively use their tax credit to purchase coverage. Capretta’s path to universal coverage wouldn’t be free, but he argues that it would cost a fifth or less of what the coverage provisions of the Affordable Care Act are expected per year.
The second step would be for Republicans to call Patty Murray’s bluff on taxes. Murray is right to believe that cutting tax expenditures on high earners could generate a great deal of revenue. Diane Lim of the Pew Charitable Trusts recently observed that capping the total dollar value of itemized deductions at $17,000 would raise $1.6 trillion in revenue over the next decade. One awkward challenge for Murray, however, is that some of the biggest beneficiaries of the loopholes and unfair spending in the tax code she condemns are two-earner couples living in high-tax jurisdictions like New York, New Jersey and California, a vital part of the Democratic coalition.
With this in mind, Republicans ought to embrace Murray’s call for closing loopholes and cutting unfair tax code spending. But instead of using this new revenue to finance government spending, Republicans should insist it be used to dramatically expand the popular child tax credit. Robert Stein has proposed a $4,000 per child credit that could be used to offset income and payroll taxes, a measure that would increase the disposable income of millions of middle-income families. While Democrats often accuse Republicans of wanting to cut social programs to finance tax cuts for the rich, they’d have a much harder time attacking the GOP for cutting tax breaks for affluent coastal suburbanites to finance tax cuts for middle-income families with kids.
Neither of these ideas is incompatible with Ryan’s broad objectives, and neither threatens the GOP’s core constituencies. Yet they would make it far easier for Republicans to make inroads among the independents and moderates both parties will need to win in 2014 and beyond.
PHOTO: House Budget Committee Chairman Rep. Paul Ryan (R-WI) holds a news conference to unveil the House Republicans’ FY2014 budget resolution in Washington March 12, 2013. REUTERS/Gary Cameron | Senate Budget Committee chair Senator Patty Murray holds up a copy of a federal employees’ Worker Adjustment and Retraining Notification (WARN) at a news conference on Capitol Hill in Washington February 28, 2013. REUTERS/Larry Downing