Paul Ryan economics: 5 things to know

@CNNMoney August 12, 2012: 10:23 AM ET
paul ryan

NEW YORK (CNNMoney) -- In picking Paul Ryan as his running mate, Mitt Romney has made clear what this year's presidential election will be about: Taxes, spending and the future of government programs in people's lives.

Ryan is the leading Republican thinker on budget issues in the House and his 2013 budget proposal -- released in March and called "Path to Prosperity" -- takes aim at many of President Obama's policies and proposals.

Here are some of the main elements of that budget plan.

On Medicare:

"The future of the nation's health and retirement security programs is increasingly based on empty promises from a government unwilling to advance solutions that save and strengthen them," Ryan writes in the plan.

As Ryan sees it, a main reason Medicare needs reform is that government payments are open-ended -- seniors get sick, get treatment, and the program pays for those treatments with few limits.

Revenue into the Medicare system from workers' payroll taxes and seniors' Medicare premiums can't cover it all and the rest is paid for by the federal government.

The problem is that the government's share will continue to grow as the number of enrollees surges in the next few decades and health care costs continue to outpace inflation.

Ryan's proposed fix is his most controversial position: The idea is to one day let Medicare-approved private insurers compete with traditional Medicare on an exchange.

Seniors would pick a plan, and then get a fixed payment -- or "premium support" -- from the government to help pay for it.

Competing insurance plans would be required to offer a level of benefits at least as good as Medicare.

The premium support would be fixed at a level no higher than the second least-expensive insurance plan offered.

And annual per-capita cost increases in the Medicare program would be capped at 0.5% above overall growth in the economy.

The thinking is that competition would keep down the costs. But if it fails to sufficiently, the 0.5% cap would serve as a backup. And the government's share of costs would be limited to the level of the premium support.

One concern: That the plan would increase the financial burden on seniors.

The Congressional Budget Office raised that point in its analysis of the latest Ryan Budget -- but did not make a forecast.

On taxes:

"The President's vision of higher tax rates for small businesses and more complexity in the tax code would exacerbate the problems with the current code and lead to economic decline," Ryan writes in the budget.

Ryan envisions a simpler system, with just two individual rates: 10% and 25%. And he wants to bring down the corporate rate to 25% from 35%. He would also kill the alternative minimum tax.

Those changes mean a lot of lost tax revenue. To make up for some of that, Ryan would close some tax loopholes.

Budget experts take issue with a few elements in the plan. Though all want tax reform that closes loopholes and lowers rates, Ryan doesn't specify which loopholes.

Those details are a big deal. Breaks tied to mortgage interest, health care, charitable giving and low investment tax rates are popular and taking them away won't be easy.

Another issue: Absent details on which breaks get trimmed, the rich would see a big tax cut under Ryan's tax plan, according to TaxVox columnist Howard Gleckman, citing an analysis by the Tax Policy Center.

Unless rates are raised on capital gains and dividends, wrote Gleckman, "it is hard to imagine the highest income households getting anything other than a windfall from this budget."

Under President Obama's budget plan, the wealthy would see a big tax increase, according to TPC.

On the safety net:

"The social safety net is failing society's most vulnerable citizens and poised to unravel in the event of a spending-driven debt crisis, which is precisely when Americans would need it most," Ryan writes in the budget.

Ryan singles out Medicaid and food stamps. These programs are meant to aid low-income families, and are administered by state governments with heavy federal funding.

Ryan points to two problems with their current structure: Federal payments give states incentive to add people to these programs and states don't have flexibility to achieve savings.

Ryan would move to so-called block grants for both programs. States would get a set amount of money from the federal government. That system would both cap federal liability and give states incentive to keep costs down.

Plus, states would be given more flexibility to tailor the program's requirements and enrollment criteria. Food stamp recipients, for example, would be required to work or enroll in a job training program.

Liberal critics say the plan would lead to a dramatic downsizing in those programs. They also worry block grants will restrict states' ability to expand enrollees during economic downturns -- when the need is greatest.

On government's role in the economy:

"The free enterprise system is being stifled by a federal bureaucracy fixated on depriving citizens and businesses of their ability to make social and economic decisions according to what is best for their own needs and interests," writes Ryan.

Ryan's budget goes after the Obama administration's regulatory framework around energy, finance and health care.

He thinks investments in alternative energy should be left to the private sector.

He thinks Obama expanded the scope of the TARP bailout and that the Dodd-Frank Wall Street reform law imposed to many regulations and perpetuates "Too Big To Fail." Accordingly, he thinks government guarantees for large financial institutions should be phased out.

And the budget advocates for repeal of the Affordable Care Act, Obama's health reform bill.

On spending:

"The federal budget process has collapsed, allowing government to spend recklessly and throw tax dollars at problems on an ad hoc basis as the nation's fiscal hole grows deeper," Ryan writes.

Ryan thinks there are several reforms that could enforce spending discipline in Washington. Among them: Capping spending as a percentage of the size of the economy and requiring that increases in mandatory spending programs be paired with spending cuts.

There's little question the cuts would be big. Spending would grow "much more slowly" than it otherwise would, and "decline sharply" as a share of the economy, according to the Congressional Budget Office.

But do the cuts go too far? Budget expert Bob Bixby of the Concord Coalition called Ryan's assumptions for spending "unrealistic" in a commentary when the Ryan budget was released.

At the same time, Bixby also noted Ryan's "reluctance to cut defense spending." For instance, the Ryan budget proposes rolling back defense cuts that were part of the debt-ceiling negotiations last year.  To top of page

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