Looking At Ryan's Budget Blueprint

Melissa Block speaks with Paul Krugman — economics professor at Princeton University and a columnist for the New York Times — and Douglas Holtz-Eakin — president of the American Action Forum and former chief economist for the President's Council of Economic Advisers. Krugman and Holtz-Eakin discuss Republican Rep. Paul Ryan's budget proposal, which suggests turning Medicare and Medicaid into state block grants to address the federal budget.

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MELISSA BLOCK, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.

ROBERT SIEGEL, host:

And I'm Robert Siegel.

Tomorrow, President Obama will lay out some long-term ideas on how to cut the deficit. Among other things, he's expected to call for raising taxes on the wealthy.

The president's speech follows the Republican plan unveiled last week. Its author is Paul Ryan, chairman of the House Budget Committee. And Congressman Ryan's 2012 budget blueprint would radically restructure Medicaid and Medicare. It would slash government spending by nearly $6 trillion over 10 years. And, it would cut taxes.

BLOCK: We're going to hear now from two economists with very different views of the Ryan plan. One economist calls it commendable: a vision of small, contained government that supports rapid economic growth and restores America's exceptionalism.

That's Douglas Holtz-Eakin, president of the American Action Forum. He was chief economist for President George W. Bush's Council of Economic Advisors.

Douglas Holtz-Eakin, welcome to the program.

Mr. DOUGLAS HOLTZ-EAKIN (Former Chief Economist, Council of Economic Advisors): Thank you very much.

BLOCK: And our second economist calls the Ryan plan: voodoo economics with an extra dose of fantasy and a large helping of mean-spiritedness.

That's New York Times columnist and Princeton economics professor Paul Krugman. Paul Krugman, welcome to the program.

Mr. PAUL KRUGMAN (Columnist, New York Times): Hi there.

BLOCK: And Douglas Holtz-Eakin, I want to start with you. You see a path toward what you call fiscal sobriety and fairness in the Ryan plan. I want to ask first about tax cuts. Congressman Ryan would lower individual tax rates to 10 percent and 25 percent, corporate tax rates down to 15 and 25 percent. You favor those tax cuts? And if so, why?

Mr. HOLTZ-EAKIN: Yes, I do. And they are not tax cuts. The plan's revenue neutral, and so it responds to one of the four things that the president's fiscal commission, led by Erskine Bowles and former Senator Alan Simpson point out, which is that we have a large problem and have to control the debt.

The bulk of the problem is spending, and all spending has to be considered. But number four, the route to the future is through tax reform. And so the Ryan plan is a revenue-neutral tax reform. It does call to lower the top corporate rate and top individual rate to 25 percent, but in the process, it should broaden the base so as to raise the same tax dollars as it did before cutting those rates.

BLOCK: Paul Krugman, we just heard Douglas Holtz-Eakin say that the Ryan plan is revenue-neutral. Your take on that?

Mr. KRUGMAN: Yeah, I'll give you my five-point description of the plan.

BLOCK: Uh-oh.

(Soundbite of laughter)

Mr. KRUGMAN: And two of the points are real. One is there's a huge cut in spending on programs that help Americans in need, cuts to Medicaid, food stamps and so on over the next decade.

The second thing that's real is a huge cut in taxes on corporations and the wealthy, which as it happens is just about the same size, about $3 trillion over the next decade.

Then there are three pieces of it that are fantasy. Making those tax cuts revenue-neutral, which is supposed to be done by closing loopholes. And actually, Paul Ryan was asked over the weekend which loopholes would he close in particular. He said: Well, I'll have to leave that to the Ways and Means Committee. So they say it's revenue-neutral, but there's no indication that they're going to do anything specific to make it revenue-neutral.

The second thing is a cut in other government spending, leaving aside Medicare and all of that, which is supposed to shrink to levels, including defense, by the way, that we haven't seen since the 1920s.

And the third is the Medicare plan, which is to replace Medicare with a system of vouchers that will be well below the actual cost of health insurance for senior Americans. The part of the plan that's real is a plan to take about $3 trillion from the neediest Americans and give it to wealthy Americans and corporations.

BLOCK: On this question of tax cuts, Douglas Holtz-Eakin, what's the evidence for you that tax cuts create jobs, when you think about the record of President Bush, for example?

Mr. HOLTZ-EAKIN: So again, I think the important thing to recognize about the plan is that it is a comprehensive plan. It is common in budget documents, which are outlines, which are then presented to the committees, to not specify the details.

But I think the central thing to recognize is that the entitlement reform is necessary from the point of view of the budget, no question about that. It is absolutely an imperative for the economy.

We are facing an international debt crisis. We are facing a downgrade of our ability to borrow in international markets. It's simply a path that's unsustainable. And it's also unsustainable for the beneficiaries.

And so for those who are unhappy with the specifics of Mr. Ryan's proposals on Medicaid and Medicare, they should be under an obligation to provide their own plan.

BLOCK: And Paul Krugman, what about that challenge from Douglas Holtz-Eakin? If not the Paul Ryan plan, we're looking at $14.3 trillion in national debt. What's your scenario for taking that on?

Mr. KRUGMAN: Let me just say, by the way, notice that Doug began by saying that you're not obliged to supply specifics and ended up by saying this is a specific plan. It's not.

Now, as far as the long-run fiscal thing, yeah, I don't think it's anything close to the kind of immediate crisis that a lot of people are trying to portray it as. There is no sign in the bond markets or anything else that the markets are losing faith in America just yet. But yes, we need to do something.

Now, one thing you need to do is you need to make real plans to rein in the growth of Medicare costs. There's quite a lot of that in last year's health reform.

You know, if we're going to use CBO scores, we're going to use estimates from the Congressional Budget Office, Congressional Budget Office says that the Affordable Care Act will reduce the deficit by a couple of hundred billion this decade and by about a couple of trillion next decade. And a lot of health care experts I speak to think that it actually does better than that.

But there's other things we can do. I would say, actually, you know, we have one health care system in America that has been extremely good at containing costs. That's the Veterans Administration. Why don't we have an option for Medicare recipients to buy into a VA-type system, which would be a major cost saving?

BLOCK: I'd like to ask you both, looking ahead to President Obama's speech tomorrow, it's unclear how specific he's going to be, or if he'll just be laying out broad principles of reform.

Douglas Holtz-Eakin, what would you want to hear from the president?

Mr. HOLTZ-EAKIN: I would like to see the president engage in some leadership on this issue. I mean, his own commissions have identified this as a national moment of truth. I believe there is every reason to be concerned about the welfare of the next generations if we continue down this path.

He's the president of the United States, and so I think he has an obligation to identify specific entitlement reforms that he would be willing to push in a bipartisan way through the Congress. I know he's going to want to change the national conversation from spending to taxes, but he can't do that too much.

His own commission has said the problem is on the spending side. They tried to come up with plans had the dominant correction on the spending side.

So he's been silent on spending, and I think it's time for him to be specific about what he'd do.

BLOCK: Paul Krugman, what will you be listening for?

Mr. KRUGMAN: I think he needs to talk about two things. He needs to explain to the nation that the problem of health care cost is not actually a problem of government spending on health care. It's a problem of health care costs. Talk about what he's done, but talk about what more we can do about really addressing the issue of health care costs, which is every bit as serious for private insurance as it is for Medicare and Medicaid.

And he does have to say, frankly: Look, there is really no way we can make this thing work without more revenue. Some people are going to have to pay higher taxes. I think he needs to refocus this discussion away from cutting government spending as the whole story to we need true health care reform, and actually you have to pay for government, too.

BLOCK: Paul Krugman and Douglas Holtz-Eakin, thanks for talking with us.

Mr. KRUGMAN: Well, thank you.

Mr. HOLTZ-EAKIN: Thank you.

BLOCK: Paul Krugman is a Nobel Prize-winning economist at Princeton University and a New York Times columnist. Douglas Holtz-Eakin is president of the think tank American Action Forum, and formerly the head of President George W. Bush's Council of Economic Advisors.

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