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About the Author
Congressman Paul Ryan is the Chairman of the House Budget Committee and 2012 Vice Presidential running mate to Presidential candidate Mitt Romney. He is a 7 term congressman born and raised in Wisconsin. Paul has a degree in economics and political science from Miami University in Ohio. He lives in Janesville, MN with his wife and three children.
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A BLUEPRINT FOR AMERICAN RENEWAL
A Nation Challenged
The challenges this nation faces are among the largest in its history.
For years, bad policies advanced by both political parties have contributed to an irresponsible build-up of debt in the economy, and this debt now poses a fundamental challenge to the American way of life.
This build-up of debt has manifested its effects in both the private and public sectors. In 2008, excessive leverage in the financial sector overwhelmed many banks, businesses and families. Irresponsible decisions in Washington and on Wall Street fueled a housing-price bubble that collapsed and turned mortgage-backed securities into “toxic assets.” It soon became clear that these assets, which were spread throughout the financial sector, posed a systemic risk to the economy. The resulting wave of panics bankruptcies and foreclosures brought the global financial system to the brink of collapse.
America is still living with the painful consequences of that crisis today. While some of the federal government’s emergency actions in late 2008 helped to stem the immediate financial crisis, much of its intervention in the wake of the crisis simply aggravated the underlying problems. In most cases, policymakers sought to address the symptoms of the crisis by transferring private-sector debt to the public balance sheet. Since Election Day 2008, debt held by the public has increased by roughly $4.5 trillion – an increase in excess of 70 percent in a mere four years.
This remedy didn’t just ignore the underlying cause of the problem – it made the problem far worse. In Europe, the accumulation of public-sector debt now threatens to cause an even bigger calamity than the one caused by private-sector debt in 2008. The world’s new “toxic asset” is the sovereign debt of irresponsible European governments, infecting the balance sheets of major banks and threatening the stability of the global economy. And in the United States, government debt continues to rise at a frightening pace, raising fears that a similar crisis may happen here.
The growing possibility of such a crisis is creating debilitating uncertainty about the future, hurting job creation and economic growth today. The economy has picked up in recent quarters, but overall growth and job creation remain sub-par, and unprecedented numbers of Americans have simply given up trying to find work. Real GDP grew by just 1.7 percent in 2011, and private-sector forecasters are calling for growth of 2.3 percent in 2012 – well below the 3.0 percent historical trend rate of U.S. growth and just a fraction of the growth pace observed in a typical recovery from recession. Noted economists, including Federal Reserve Chairman Ben Bernanke, have argued that enacting a credible plan to deal with America’s long-term debt build-up would have a positive effect on growth and jobs Immediately.1
Unfortunately, in the years following the meltdown, the President and his party’s leaders failed to use their full control of Washington to offer any plan to lift the debt and foster sustainable economic growth. Instead, the crisis was used as an excuse to enact unprecedented and counterproductive expansions of government power. A massive stimulus package failed to deliver promised reductions in unemployment. An unpopular health care takeover was jammed through Congress on a party-line vote. A short-sighted financial-regulatory overhaul failed to fix what was broken on Wall Street and made future bailouts more likely. And federal policymakers in thrall to a misguided form of environmental activism pushed through regulations and other policies that are making energy more expensive in the midst of a weak economy.
Through it all, the government’s fiscal position sharply deteriorated. Total federal debt has now surpassed the size of the entire U.S. economy. And the government’s non-partisan auditors have issued report after report warning of even larger debts to come, driven by health and retirement security programs that are being weakened by severe demographic and economic challenges.
Instead of taking action, the administration punted the nation’s fiscal problems to a bipartisan commission, whose recommendations it proceeded to ignore in favor of proposals filled with gimmicks instead of real solutions. And the Democratic leaders of the Senate have abandoned altogether their legal obligation to provide a budget plan – it has been three years since the Senate passed a budget.
A Choice of Two Futures
Both parties share the blame for failing to take action over the years. But while Republicans offered a budget last year that would lift the crushing burden of debt and restore economic growth, the President and his party’s leaders are still refusing to take seriously the urgent need to advance credible solutions to the looming fiscal crisis. Instead, they are still offering little more than false attacks and failed leadership.
Questioned about this disappointing reality at a recent House Budget Committee hearing, Treasury Secretary Timothy Geithner admitted, “We’re not coming before you to say we have a definitive solution to our long-term problem. What we do know is we don’t like yours.”2 The President’s strategy seems to amount to this: Let somebody else propose a path forward, and then attack them for political gain.
This budget offers a better path. The following report lays out the challenge – and the choice – that America faces in each key area of the budget. The common thread connecting them all is that a sharp and sudden debt crisis would threaten the entire American project: It would weaken national security, shred the safety net that vulnerable Americans rely on, break promises to seniors, impose massive tax increases on families, and leave all Americans with a diminished future.
This looming crisis represents an enormous challenge, but it also represents a defining choice: whether to continue down the path of debt, doubt and decline, or put the nation back on the path to prosperity. It also represents a tremendous opportunity for this generation of Americans to rise to the challenge, as previous generations have, and fulfill this nation’s unique legacy of leaving future generations with a freer, more prosperous America.
A Blueprint for American Renewal
This budget sets forth a model of government guided by the timeless principles of the American Idea: free enterprise and economic liberty; limited government and spending restraint; traditional family and community values; and a strong national defense.
The federal government has strayed from these American principles. This budget offers a set of fundamental reforms to put the nation back on the right track.
The role of the federal government is both vital and limited. When government takes on too many tasks, it usually does not do any of them very well. Limited government also means effective government. This budget recommits the federal government to the security of every American citizen’s natural right to life, liberty and the pursuit of happiness, while fostering an environment for economic growth and private-sector job creation.
1. Prioritize Defense Spending to Keep America Safe
With American men and women in uniform currently engaged with a fierce enemy and dealing with emerging threats around the world, this budget takes several steps to ensure that national security remains government’s top priority.
Providing for the common defense: This budget rejects proposals to make thoughtless, across-the-board cuts in funding for national defense. Instead, it provides $554 billion for national defense spending, an amount that is consistent with America’s military goals and strategies. This budget preserves necessary defense spending to protect vital national interests today and ensures future real growth in defense spending to modernize the armed forces for the challenges of tomorrow.
Reprioritizing sequester savings to protect the nation’s security: The defense budget is slated to be cut by $55 billion, or 10 percent, in January of 2013 through the sequester mechanism enacted as part of the Budget Control Act of 2011.3 This reduction would be on top of the $487 billion in cuts over ten years proposed in President Obama’s budget. This budget eliminates these additional cuts in the defense budget by replacing them with other spending reductions. Spending restraint is critical, and defense spending needs to be executed with effectiveness and accountability. But government should take care to ensure that spending is prioritized according to the nation’s needs, not treated indiscriminately when it comes to making cuts. The nation has no higher priority than safeguarding the safety and liberty of its citizens from threats at home and abroad.
2. End Cronyism and Restore Free Enterprise
A growing economy, increased employment and higher wages will come from traditional American ingenuity and enterprise, not from government. To achieve this end, small businesses need to be empowered, and the size and scope of Washington need to be reduced so that the hard work and enterprise of Americans can lead a strong, sustained recovery.
Ending corporate welfare: There is a growing and pernicious trend of government overreach into the private economy – a trend that stacks the deck in favor of entrenched interests and stifles growth. This budget stops Washington from picking winners and losers across the economy. It rolls back corporate subsidies in the energy sector. It ends the taxpayer bailouts of failed financial institutions, including Fannie Mae and Freddie Mac. It repeals the government takeover of health care and begins to move toward patient-centered reform. And it reduces the bureaucracy’s reach by applying private-sector realities to the federal government’s civilian workforce.
Boosting American energy resources: Too great a percentage of America’s vast natural resources remain locked behind bureaucratic barriers and red tape. This budget lifts moratoriums on safe, responsible energy exploration in the United States, ends Washington policies that drive up gas prices, and unlocks American energy production to help lower costs, create jobs and reduce dependence on foreign oil.
Streamlining other government agencies: Domestic government agencies have grown too much and too fast over the past decade, and much of their funding has gone to harmful programs and dead-end projects. This budget starts to restore spending discipline. It builds on efforts undertaken last year to contain the government’s growth, and it targets hundreds of government programs that have outlived their usefulness.
3. Strengthen the Social Safety Net
This budget builds upon the historic progress of bipartisan welfare reform in the late 1990s. It strengthens Medicaid, food stamps and job-training programs by providing states with greater flexibility to help recipients build self-sufficient futures for themselves and their families.
Repairing a broken Medicaid system: Medicaid’s flawed financing structure has created rapidly rising costs that are nearly impossible to check. Mandate upon mandate has been foisted upon states under the flawed premise that the best ideas for repairing this important health care safety net can come only from Washington. This budget ends that misguided approach and instead converts the federal share of Medicaid spending into a block grant, thus freeing states to tailor their Medicaid programs to the unique needs of their own populations.
Prioritizing assistance for those in need: The welfare reforms of the 1990s, despite their success, were never extended beyond cash welfare to other means-tested programs. This budget completes the successful work of transforming welfare by reforming other areas of America’s safety net to ensure that welfare does not entrap able-bodied citizens into lives of complacency and dependency.
Ensuring educational and job-training opportunities for a 21st century economy: The government’s well-intentioned approach to higher education and job training in America has failed those who most need these forms of assistance. Federal tuition subsidies are often captured by (and to a certain extent drive) rapidly rising tuition costs for those higher-education programs that should be the first rung on the ladder of opportunity. Meanwhile, dozens of job-training programs suffer from overlapping responsibilities and too often lack accountability.
This budget begins to address the problem of tuition inflation and consolidates a complex maze of dozens of job-training programs into more accessible, accountable career scholarships aimed at empowering American workers with the resources they need to pursue their dreams.
4. Fulfill the Mission of Health and Retirement Security
This budget puts an end to empty promises from Washington, offering instead real security through real reforms. The framework established in this budget ensures no disruptions to existing health and retirement benefit programs for those beneficiaries who have organized their retirements around them, while at the same time building stronger programs that future beneficiaries can count on when they retire.
Saving Medicare: Medicare is facing an unprecedented fiscal challenge. Its failed reliance on bureaucratic price controls, combined with rising health care costs, is jeopardizing seniors’ access to critical care and threatening to bankrupt the system – and ultimately the nation. This budget saves Medicare by fixing flaws in its structure so it will be there for future generations. By putting these solutions in place now, this budget ensures that changes will not affect those in and near retirement in any way.
When younger workers become eligible for Medicare a decade or more from today, they will be able to choose from a list of guaranteed coverage options, including a traditional Medicare fee-for-service plan. This flexibility will allow seniors to enjoy the same kind of choices in their plans that members of Congress enjoy. Medicare will provide a payment to subsidize the cost of the plan, and forcing plans to compete against each other to serve the patient will help ensure guaranteed affordability. In addition, Medicare will provide increased assistance for lower-income beneficiaries and those with greater health risks. Reform that empowers individuals—with a strengthened safety net for the poor and the sick—will guarantee that Medicare can fulfill the promise of health security for America’s seniors.
Advancing Social Security solutions: The risk to Social Security, driven by demographic changes, is nearer at hand than most acknowledge. This budget heads off a crisis by calling on the President and both chambers of Congress to ensure the solvency of this critical program.
5. Enact Pro-Growth Tax Reform
This budget recognizes that the nation’s fiscal health requires a vibrant, growing private sector. It charts a prosperous path forward by reforming a tax code that is overly complex and unfair.
Individual tax reform: The current code for individuals is too complicated, with high marginal rates that discourage hard work and entrepreneurship. This budget embraces the widely acknowledged principles of pro-growth tax reform by proposing to consolidate tax brackets and lower tax rates, with just two rates of 10 and 25 percent, while clearing out the burdensome tangle of loopholes that distort economic activity.
Corporate tax reform: American businesses are overburdened by one of the highest corporate income tax rates in the developed world. The perverse incentives created by the corporate income tax do a lot of damage to both workers and investors, yet the tax itself raises relatively little revenue. This budget improves incentives for job creators to work, invest, and innovate in the United States by lowering the corporate rate from 35 percent to a much more competitive 25 percent and by shifting to a territorial system that will ensure a level playing field for American businesses.
6. Change Washington’s Culture of Spending
Across the political spectrum, experts agree that the budget process is badly broken and in need of reform. The process fails to control spending, fails to provide adequate oversight, and fails to allow the transparency needed for accountability to the nation’s citizens.
Controlling spending: The budget process in Washington contains numerous structural flaws that bias the federal government toward ever-higher levels of spending. This budget would lock in savings with enforceable spending caps and budget process reforms, limiting what Washington spends and how tax dollars are spent.
Enhancing oversight: This budget gives Congress greater tools to perform oversight over wasteful Washington spending.
Increasing Transparency: This budget promotes reforms that would give taxpayers more information over how Washington is spending their hard-earned dollars.
7. Lift the Crushing Burden of Debt
This budget charts a sustainable path forward, ultimately erases the budget deficit completely, and begins paying down the national debt.
Americans truly face a monumental choice – a choice that can no longer be avoided.
The Path to Prosperity advances the serious conversation begun last year about the future of this exceptional nation and the fundamental choices Americans must soon make about the kind of nation they want America to be.
This budget would put in place a comprehensive framework to address the nation’s greatest challenges. It provides a blueprint for the actual work of statecraft. The elected representatives of the American people – in the House of Representatives, in the Senate and in the White House – now must take up this budget and start building the future Americans deserve.
The Fiscal Year 2013 Budget Resolution is in the public domain, and no copyright is claimed therein
Table of Contents
Statement of Constitutional and Legal Authority 5
A Contrast in Visions 6
Introduction By House Budget Committee Chairman Paul Ryan 8
I A Blueprint for American Renewal 11
II Providing for the Common Defense 17
III Restoring Economic Freedom 23
IV Repairing the Social Safety Net 35
V Strengthening Health and Retirement Security 45
VI Pro-Growth Tax Reform 57
VII Changing Washington's Culture of Spending 69
VIII Lifting the Crushing Burden of Debt 75
Appendix I Summary Tables 87
Appendix II Reprioritizing Sequester Savings 90