House Republicans scored major points last week when President Obama agreed to $4 billion in cuts for fiscal year 2011. The spending reductions were part of a stopgap continuing resolution that will fund the government through March 18. True, $4 billion may seem small when compared with a $1.5 trillion deficit, but don’t forget that these are the first real-time cuts in government spending in modern memory. The two parties are already negotiating on a follow-up resolution that (we hope) will cut spending further while ensuring government operations through the end of the fiscal year. And the sooner FY11 is behind us, the better, for House Republicans will have cleared the decks for a more important fight: next year’s budget.
That document will be important for two reasons. The first is that Congress and the White House have been treading water in recent weeks, struggling to keep the government afloat in the very short term. It’s time they got on with crafting a full-year budget, which is a forward-looking exercise. Squint hard at the actuarial tables and charts, and you can discern the author’s vision for the country’s future. President Obama, for instance, better see an ophthalmologist: His 2012 budget proposal is too clouded with red ink and marred by a cynical attachment to the status quo. By default, it’s up to House Republicans, budget chairman Paul Ryan in particular, to design a clear-eyed alternative that puts America on the path toward sustainable finances and economic growth.
The second reason the 2012 budget matters is entitlement spending. Congress has shown a willingness to reduce discretionary spending, but it could eliminate every last dollar spent on defense, education, welfare, and the environment and America would still be headed toward insolvency. A bike path in Dubuque is not going to break the bank. The main drivers of our growing national debt are Medicare, Medicaid, Social Security, and interest payments.
With common sense changes in the architecture of the three entitlement programs now, we can avoid cutting benefits for retired Americans or those near retirement while preserving the safety net for future beneficiaries and eventually getting our debt under control. The alternative, which politicians in both parties have been pursuing for decades, is to do nothing while the problem grows worse. Social Security, Medicare, and Medicaid cannot live forever in their current form. Either we make the necessary adjustments ourselves, or the bond markets will force them on us. And that could get ugly.
Having pledged on February 15 to “include real entitlement reforms” in the upcoming budget, House Republicans now have to show the country how to avoid a future when Social Security, Medicare, and Medicaid consume the federal government and the American economy. And they have to do that without relying on budget gimmicks and bookkeeping tricks stolen from the Enron Guide to Double-Entry Accounting. Otherwise they’ll be laughed out of the room.
The good news is that there’s a consensus about which reforms are necessary. Begin by focusing on the expensive health care programs: Block-grant Medicaid to the states while suspending the Maintenance of Effort regulations that tell governors how to spend the money they receive from Washington. Allow the governors to use the block-grant money to set up private exchanges where Medicaid recipients use benefits to shop for private insurance plans. Cut the red tape in Medicare that prevents doctors and hospitals from finding new ways to treat patients at a lower price. For Americans 55 years old or younger, gradually move to a system where patients use a fixed Medicare payment to choose the approved plan that’s best for them. This is the bipartisan approach proposed by Chairman Ryan and economist Alice Rivlin, a Democrat.
Ultimately, these changes will require a Republican president as well as a Republican Congress. But you can’t expect a Republican presidential candidate to run and win on these issues in 2012 unless the ground is laid by the Republican party in the House beginning now. After saving billions in 2011, Republicans have to show how they’ll save trillions in the future. It’s not enough to win the argument over fiscal year 2011. We need to win the fight for fiscal year 2012—and beyond.