Fixing The National Debt: Control Federal Spending

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NEAL CONAN, host:

This morning Paul Ryan, the chairman of the House Budget Committee, announced a plan to cut about $5 trillion in federal spending over the next decade. Much of the savings will come from programs long-considered politically untouchable - Medicaid and Medicare. The proposal does not touch Social Security and assumes all the Bush tax cuts would become permanent.

The Wisconsin Republican's plan would repeal and replace President Obama's health care law. Control over Medicaid, the federal health plan for the poor, would shift entirely to the states. Medicare, the health insurance plan for tens of millions of senior citizens, would eventually become a voucher program to pay for private insurance policies.

All this week we're getting different perspectives on the long-term debt. We hope you'll listen and save your questions for Thursday, when we'll devote most of the hour to the subject.

Today, Alison Acosta Fraser joins us from a studio at The Heritage Foundation, where she directs the Thomas A. Roe Institute for Economic Policy Studies.

Thanks very much for joining us today.

Ms. ALISON ACOSTA FRASER (The Heritage Foundation): My pleasure. Thanks for having me.

CONAN: And is it fair to describe you as a supporter of the Ryan plan?

Ms. FRASER: I'm a big fan of the Ryan plan, absolutely.

CONAN: And what about it, in particular, appeals to you?

Ms. FRASER: Well, I think what is so stunning to me about this proposal is for the first time in decades, what chairman Ryan has done is to fundamentally lay out a vision not just for this year or next year but a timeless vision about what the country needs to do to correct the fiscal path that we're on, and he touches every area of the budget with serious, robust proposals.

CONAN: Every area? It doesn't touch Social Security.

(Soundbite of laughter)

Ms. FRASER: Every area except one.

CONAN: Okay. And there's another area he doesn't touch, and that is taxes. No new taxes.

Ms. FRASER: Well, I think that was a critical decision that he made as far as what to do with tax policy. And under his vision, he wants to keep taxes where they are today, more or less, at the historical average. He doesn't want to raise taxes. And one of the things that is important right now as we go into solving this fiscal crisis, this budget crisis that we have, is maintaining a strong economy.

CONAN: You say this historic - taxes, we're told, are at historic lows.

Ms. FRASER: Yeah. He's looking out towards the long term. So if you look over 10 years of his plan, they get up as they - you know, as they are projected to do anyway under current policy, to return to their historical average. The reason that they're at lows right now - and they are recovering - is because we had a major recession...

CONAN: You're talking about tax revenues. Tax rates are at historic lows too.

Ms. FRASER: Tax - no, tax rates aren't at historic lows. They have been lower in the past, but they are not as high as they have been in the distant past. You're correct there.

CONAN: We were told that as a measure of GDP they are lower now than they have been since before the Second World War.

Ms. FRASER: Yeah. And we've had a major recession. So we're really talking about two things. If we want to talk about tax rates, they're not as low as they have been. If you want to talk about taxes as a share of the economy, yes, they are very low today, and they are in the process of recovering.

CONAN: And so to some degree, do you think that recovery, economic response and, you know, resumption of revenues because of tax - more people working, more companies making more money, bring more money in the state and federal level as well - that that is part of what we're talking about here in terms of a recovery?

Ms. FRASER: Right. Right. As that happens, as we get into a stronger recovery, as more people go back to work, as we have more businesses doing, you know, greater business, level of business and hiring more people, then our tax revenues as a share of the economy are going to come back up towards their historical level.

CONAN: I see.

Ms. FRASER: I think what Congressman Ryan was looking at in his actual policy proposals is preventing a tax increase that would happen, you know, in two years when the current tax rates that we have are due to go up.

CONAN: (Unintelligible) Bush tax proposals expire.

Ms. FRASER: Correct. The Bush tax cuts, right.

CONAN: Yeah. There's also the shift, as you mention, of Medicare and Medicaid. These are - right now, the federal government guarantees certain levels of service. This would change that. It would put control over the programs for Medicaid, that's for the poor, to the states. And Medicare would go to a vouchers program. And some people would say, wait, you know, health care costs are going to continue to spiral up. It's just that the percent that the federal government is going to be paying in these vouchers is going to be smaller.

Ms. FRASER: Yes. So if you want to talk about Medicare first...

CONAN: Yeah.

Ms. FRASER: ...you know, there's a couple of things going on, and you touched on one, which is obviously the really high growth in health care costs. We also have a demographic situation. We've got baby boomers who are starting to retire in Medicare and Social Security, which we - you know, Ryan didn't do anything with. And that's driving costs up in entitlements, as well we are living longer, which I personally think is a great thing.

CONAN: Me too.

(Soundbite of laughter)

Ms. FRASER: And I feel more and more strongly about that with each passing year.

(Soundbite of laughter)

CONAN: Indeed.

Ms. FRASER: But if we talk about Medicare, really what Congressman Ryan is proposing is something that's been discussed widely, which is changing sort of the market incentives for how the Medicare program works from something that is highly governed by Washington, D.C., in terms of what kinds of services will be reimbursed, what the levels of reimbursement to doctors, other health care providers, medical equipment providers and so forth, are - that going to be - all that is decided by Washington.

CONAN: Mm-hmm.

Ms. FRASER: This program really moves away from that kind of centralized decision-making and control into a market-based kind of support. We call it premium support. You say voucher. I think it's really more a premium support for individuals to be able to go out into the private market and purchase their own health care.

And what you hear many people talking about is one of the reasons that health care costs continue to grow is that most of us don't really have skin in the game. Okay? Most of us, not all of us, have health insurance provided by our employers or in the case of Medicare by the taxpayers and the government, where we don't really have to pay for it in full. We're not good consumers of our health care, either insurance or our services.

And when you bring that kind of market base and discipline into the market, you're going to have more competition, so health insurance providers are going to be competing and offering more affordable plans. And one of the things we know is, from past experience, is that this is the kind of model that has been successful in bringing health care costs down.

CONAN: The current system, for example, says chest X-rays costs in your area X dollars, so if you want to get a chest X-ray, we will pay that amount to whoever does it and to a doctor to read the X-ray, to interpret it. This system would change that entirely and say, as opposed to doing it that way, for all the different services that you may or may not need for your health care, we're going to give you X amount of dollars that you can spend on a health insurance program, whichever policy you would like and that fits your needs.

Ms. FRASER: That's right. That's what this does. And in so doing, this is, in essence, this very same kind of health insurance program that members of Congress themselves enjoy today. And if...

CONAN: Would it be the same level as the members of Congress enjoy today?

Ms. FRASER: You know, that's a great question. I don't know the answer to it. It probably would be somewhat different. You're looking at a more elderly population whose health insurance costs, by and large, are much, much more - much higher.

CONAN: You wouldn't think that Congress is exactly a bunch of spring chickens.

(Soundbite of laughter)

Ms. FRASER: I'm not going to comment on that. There's a whole lot of new, young members of Congress.

CONAN: I'm sure there are. There's also the question of, would this be pegged to the rate of inflation in health care costs so that your insurance premium would - the support for that premium would go up as health care costs, if they continue to spiral?

Ms. FRASER: Right. Well, the devil is a little bit in the details. And so how would these - we call it indexing, I guess, in the sort of budget world - how would this premium be indexed? And it's - you know, that's all a function of whatever - however the enabling laws are going to be put together. But there's lots of different ways to index. It can be indexed to inflation, inflation plus one percent. It can be indexed to medical inflation. Obviously, the higher the amount of the index, the more medical costs are going to grow and the more costs to the taxpayers are going to grow.

One of the things I'd like to just step back for a second, if I may, and say is that one of the reasons that Congressman Ryan puts so much attention on Medicare and Medicaid is that these - and Social Security -these are the largest drivers of the federal budget today, and certainly that's true in the future. And so that's why so much attention needs to be paid to these kinds of programs.

CONAN: And again, it's interesting you included Social Security there because his plan does not touch Social Security.

Ms. FRASER: It is. I mean, in my view I think that's one of the things that's missing. He does devote some time to it, explaining that there are truly problems with Social Security from a financing perspective as well as the way that the program works. And he basically has opted to do that outside this budget process by, you know, setting up a procedure that would require the president and the Senate and the House to put forward proposals to fix Social Security should certain things happen.

CONAN: In other words, lob the ball in somebody else's court.

Ms. FRASER: Well, yeah, including his own. But he - yeah. He opts to take care of this outside this budget.

CONAN: Okay. And a lot of people who would say, well, to some degree that may make political sense because if you're going to be talking -going to be tough enough to do this on its own, Social Security would add to the difficulties of the problem, if you're going to adopt some of the Simpson-Bowles, for example, proposals. That was the chairman of the president's commission.

And they said, well, to do this sensibly we have to, you know, raise the retirement age - not for people about to retire, but down the road - and do some other adjustments to Social Security. And that would take care of it, but it would make it obviously more politically difficult.

Ms. FRASER: Yeah. And I think that - I think some of that certainly was a political calculation on his part. And he'll - you know, he may even say that. I don't know. You know, and there is some element of sense to that. I'm not really a, you know, a political strategist here.

But you know, certainly one of the concerns that we saw being raised during the deficit commission's deliberations, and after their report, is a large segment of Americans who are concerned about solving Social Security's problems and using it to pay down the deficit. So there are -indeed there are a lot of difficult political elements to Social Security. And I think that is probably one of the reasons that he just opted to deal with it in a different way.

I kind of call it sort of a trigger, that basically when the Social Security trustees put out a report and it says, you know, they are unsustainable or that the program is unsustainable, that everybody has to put together a specific report, make proposals for how to fix the fund.

CONAN: We're talking with Alison Acosta Fraser, director of the Thomas A. Roe Institute for Economic Policy Studies at the Heritage Foundation, one of a series of conversations on the long-term federal debt. You're listening to TALK OF THE NATION from NPR News.

I just want to - yesterday we spoke with Steve Bell from the Bipartisan Policy Center, a longtime staff director for Senate Budget Committee, and a Republican. He says there's no way you can do this on cuts alone. You need to raise revenues.

Ms. FRASER: Well, you know, I guess I would ask him, well, what's the this? So I think that Chairman Ryan's plan does it on cuts alone. Now, does he raise revenues? He does through economic growth. He doesn't raise tax rates. In fact, he lowers them, including the corporate income tax, which is soon to be the highest in the industrialized nation - or among industrialized nations.

And you know, I think this clearly shows that you can do it without raising taxes and on spending cuts alone. And from my view, over the long term - and we started out talking about taxes and levels of revenues - this is a spending problem. And going forward, it's all a spending problem. So I think that's certainly the place to start. And for my perspective, it's the only place to focus.

CONAN: Would you regard this and don't say - you say you're not a politician, but would you regard this as an opening gambit? In other words, this is the floor from which Republicans and Chairman Ryan will negotiate upwards? In other words, they're thinking this is our maximal position, and then we'll compromise here and there if we have to.

Ms. FRASER: Well, I think you have lots of different things going on. You know, I think that there are some members of Congress who are wanting to see even more cuts and even more spending reductions happen. I think they want the budget to - the deficits to be smaller sooner. So there is that pressure in the House of Representatives. And then I think that there are those who are very sensitive. That's probably one of the reasons that Social Security is handled outside of this proposal.

So I think there's a lot of different tensions. I don't know what's going to happen. I would say that it's extremely interesting to me to hear the lack of conversation coming from the Senate Budget Committee. To my knowledge, they have no plan to put - they have no plans to put together a budget resolution. And you know, what I would say is what Chairman Ryan says: Put out your plan and it's time for an adult discussion on what we want America to look like.

CONAN: A centrist group called the Third Way criticized Congressman Ryan's plan today, issuing a statement that said: This is Chairman Ryan's second opportunity to move the fiscal debate toward a bipartisan common ground set of solutions, the only hope to control our debt. The first time up, he swung and missed. He voted no on Bowles-Simpson as a commission member. Unfortunately, his 2012 budget is another whiff at bat, as he knows very well there's no chance that Congress will block-grant Medicaid, voucherize Medicare, or cut the top income tax rate to 25 percent. In other words, this is an ideological proposal to please members of his own party, to stake out a position, but one that's not going to actually get enacted.

Ms. FRASER: Well, you know, it's not going to get enacted if the Senate doesn't put together a budget resolution of their own. And I think that this is a vision of what, you know, the chairman would like America to look like. I think it's a very important one. I think it puts some very, very critical questions for conversations and debate that the nation has to have on the table, in a way the Senate's not doing. And in my view, the president is not doing that either. So he had his - you know, his deficit commission. He did not include any of the major recommendations of the commission in his own budget. And he essentially punted on solving this problem.

So what I would say is, okay, let's see what the Senate plan is going to be and let the president put forward a serious plan of his own and let's talk about what we want it to look like. Personally, I would go even further than Paul Ryan did. But you know, I'm not chairman of the House Budget Committee.

You know, I think it's important to put views out there. I think this is a fabulous job at it. I think that it changes in a fundamental way the course that the nation is on. And it must change sooner rather than later.

CONAN: Alison Acosta Fraser, thank you very much for your time today.

Ms. FRASER: Thank you.

CONAN: Alison Acosta Fraser, director of the Thomas A. Roe Institute for Economic Policy Studies at the Heritage Foundation. Another view tomorrow on how to solve the debt problem. All this week, different perspectives for the long-term debt. We hope you're going to listen. And save your questions till Thursday, when well devote most of the hour to that subject.

Tomorrow, the Political Junkie returns. It's TALK OF THE NATION from NPR News.

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