FREEPORT – By now most Americans understand that the country is in financial trouble as a result of years of profligate and irresponsible spending.

There are three definable paths to our financial future.

The first option is to do nothing. This path is reflected in the Congressional Budget Office’s baseline forecast for the next 10 years, which assumes that spending will continue under legislation already in place. Most importantly, this forecast assumes that all tax rates will increase in 2013, that the 2010 health care legislation will be phased in as scheduled, and that the rapid growth of other entitlement programs will continue unimpeded.

In this scenario, the annual deficit declines briefly from a record $1.4 trillion this year, but is rising again by 2021 and totals $6.7 trillion for the decade.

Constant deficits raise the national debt to $18.1 trillion, double the amount in 2010 and triple the 2008 total. Beyond 2021 the forecast worsens.

The clearest indication that something is badly wrong is that in 2021, interest on the federal debt will be $807 billion, will be the fourth largest item in the budget after Social Security, Medicare and defense spending, and will be larger that all other non-defense discretionary outlays combined.

The second option is President Obama’s budget for 2012. It freezes certain discretionary spending, makes a few minor cuts and raises rates on upper bracket taxpayers.

But because the president’s budget extends current tax rates for those in the middle and lower brackets and contains a variety of new spending proposals, its cumulative deficit for the period is $9.5 trillion, $2.7 trillion higher than the baseline total. As a first step toward restoring the country’s financial health, the president’s proposals are no help.

This observation about the president’s budget is not partisan criticism. The numbers are what they are, and in the baseline forecast and in the president’s budget they lead inexorably to an increasingly bleak financial future.

The third option is Paul Ryan’s budget, which has the potential to fundamentally change the budget trajectory.

The great value of Ryan’s proposal is not its spending details, but that it puts controls on total government spending.

For example, Ryan’s budget reduces discretionary expenditures, but more importantly it imposes an enforceable statutory cap on annual outlays.

Most importantly, Ryan’s plan restructures Medicaid and Medicare, which are now open-ended, no-limit programs that are uncontrollable and unaffordable, into sustainable strands of a safety net designed to help those most in need.

Medicaid would become a block grant program that would allow states to determine how the money could be most effectively used for their populations. Starting in 2022, Medicare would become a means-tested premium support program that would allow beneficiaries to choose a health plan that best met their needs.

Those who need special assistance would get it. Those who are now 55 or older could stay in the existing plan, or switch to the new one.

Medicare and Medicaid are on track to eventually absorb all federal revenue, and even their actuaries and trustees say they are unsustainable.

Those who howl and wring their hands at any suggestion of change in these programs need to tell the rest of us how they are going to be paid for without fundamental reform.

Raise taxes on the rich? Tax increases on top bracket payers are already built into the baseline and the president’s budgets. History suggests that raising them further would produce little additional revenue, and then only at the cost of less investment, lower productivity and slower economic growth.

The country’s long-term fiscal imbalance is the result of too much spending, rather than not enough revenue. Future entitlement outlays are the 800-pound gorilla in the budget outlook, and the key to change is controlling the growth of the major programs.

The budget alarm has been ringing for a long time, and restoring the country’s fiscal health will become harder each year without action.

Ryan’s proposals are the best chance we have of avoiding the gathering financial storm.

– Special to the Press Herald

 


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