A budget for the long term

THE Republican Party has been playing games with America's budget procedures, threatening to shut down the government if Democrats fail to agree to cuts too small to matter to solvency but too large to thrust on a vulnerable economy. This recklessness earned them a rebuke from The Economist in a Leader this week:Both sides must shoulder some of the blame for the steadily worsening atmosphere on Capitol Hill. The Democrats have failed repeatedly, most recently with Mr Obama’s dishonest budget for the next fiscal year, to indicate how they intend to repair the nation’s finances. Yet even set against that miserable standard, it is the Republicans who deserve most criticism. While extracting many concessions from the Democrats, they have made precious few themselves. And while spinelessly failing to explain how the deficit might be controlled in the medium term, conservatives have vaingloriously demanded more cuts in the short term than should be inflicted on an economy as weak as America’s now is.Quite right; short-term budgeting is about guiding the budget back to sustainability without harming an economy in which 1 in 7 Americans is still un- or underemployed. The long-term picture, by contrast, is one in which rising health-care costs threaten to explode the country's budget. Cuts to discretionary spending, which the Republicans heavily favour, are meaningless against this backdrop.But tomorrow, Paul Ryan, Republican representative from Wisconsin and chairman of the House's budget committee, will aim to answer some of the above criticisms in what seems certain to be described as a radical budget proposal. Bits and pieces of the GOP budget have been leaking out, and many details are as yet unclear. It seems likely that Mr Ryan will ask for large cuts to spending in 2012—which won't necessarily improve the party's position on short-term budgeting—but it's not known where most of those cuts may fall.What is clear, however, is that Mr Ryan will be pushing a bold policy of entitlement cuts designed to address the long-run growth in health spending.To review briefly: health costs have been rising steadily and are projected to soar in the decades to come. If revenues are not increased to keep up, America's fiscal position will be impossible within a couple of decades. If revenues are increased, government spending will eat up ever more of the economy, threatening growth. Two problems must then be solved: first, government spending must be limited to a sustainable share of the economy, and second, total health care spending—public and private—must somehow be controlled.Mr Ryan's plan solves the first problem by outsourcing the second to households. Beginning in 2021, the government would issue $15,000 "premium-support" vouchers to those qualifying for Medicare (the very poor and sick would get a bit more) that could be applied to the purchase of private insurance. That limits government exposure to rising costs. Those must be handled by the private insurers and by households, who will either get better at prioritising effective treatments or simply cease using services that are no longer affordable.If one assumes that private insurers and individuals manage cost control all right and that adequate protections are in place to make sure that the poor and unhealthy aren't left in the cold, then the plan isn't that crazy. Indeed, aspects of it closely resemble the idea behind ObamaCare. But there are significant risks to this strategy.The first and most obvious is political. Republican voters skew older than the population as a whole, and they zealously guard their federal benefits. Medicare is extremely popular on the left and the right. This kind of dramatic restructuring of entitlement spending will run into stiff resistence in both parties.Mr Ryan's efforts to negotiate certain opposition seem unlikely to earn him new supporters. His plan to gut Medicaid and make permanent all of the Bush tax cuts may help rally some Republicans to his side but will guarantee near-universal Democratic ire. It's difficult to see the sense in maintaining the tax cuts. Most budget experts agree that balance will require some additional revenue, and expiration of a package of costly cuts significantly tilted toward top-earners is a logical place to start.The bigger question is whether this is, in fact, the right way to go about addressing the long-term cost issue. Private insurers might fail to control costs while maintaining a high quality of treatment; at present, few do this well. And then there is another challenge: can any plan that works by limiting the action of future Congresses really be considered a workable policy? What's to stop the size of the federal voucher from growing steadily, in line with costs?It's not as though Democratic leaders have vastly better answers to these questions. The Ryan strategy would be more encouraging if Republican leaders had engaged with proposed cost-control measures in the Obama health care plan, rather than demonising them as "death panels". Ultimately, these difficult questions must be resolved (and bond markets will—eventually—resolve them if Congress does not). Mr Ryan deserves credit for not dodging the long-term entitlement question. But this dramatic a shift could only pass with strong bipartisan support. Given that Mr Ryan has included much that will offend the Democrats and plenty that will cost him Republican support, it's hard to have much confidence in the ability of the GOP budget proposal to advance the conversation.