The Republicans have been targeting short-term discretionary spending as their method of choice to address (or at least say they are addressing) concern about the deficits and the long-term fiscal gap. Many have noted that this is really not a significant source of budgetary savings in the long run. Thus, as Howard Gleckman at the Tax Vox blog said about President Obama when he was doing a version of the same thing, they are being anti-Willie Suttons, looking for budgetary savings where the money isn't.
Now word has it that Paul Ryan actually is going to propose (with the Republican Congressional budget leadership) a plan offering significant long-term fiscal improvement. The piece he apparently plans to add the chopping block is Medicaid.
I believe that any sensible long-term budget plan has to include tax increases as well as reductions in the projected path of government outlays. And this includes not only tax expenditures (the repeal of which would formally be tax increases but in substance more like spending cuts), but also "actual" tax increases. These in turn could involve one or more of at least the following: increasing individual income tax rates, enacting a value-added tax, enacting a carbon tax, enacting a financial transactions tax (although this I happen to think is a bad idea), and enacting a financial activities tax that addresses undue risk-taking by our financial sector overlords.
But looking just at the spending side, it's useful to examine more fully the Willie Sutton issue of where the money is.
How to define the source of long-term revenue shortfalls is a tricky question. The best source I can find in the literature is unfortunately not very current. In May 2004, Alan Auerbach, William Gale, and Peter Orszag published an article in Tax Notes, entitled Sources of the Long-Term Fiscal Gap, that is available on-line here.
They use a number of different methods to examine where the fiscal gap really comes from if you look at the projected paths of various parts of the budget on the spending side. The method I find most illuminating is that presented in Table 6 on page 1055, entitled "Fiscal Gaps by Program, Alternative Baseline, Present-Value Allocation Method." It assigns infinite-horizon projected general revenues among various program categories, proportionately to projected infinite horizon expenditures in those programs. (Some experts might prefer the "current allocation method" in Table 7, which shows faster-growing programs as having large fiscal gaps, but the choice makes little difference for the main point I am going to emphasize.)
What I have done is the following. I've taken the infinite horizon fiscal gap for each program in Table 6, and converted it to a percentage of the overall infinite horizon fiscal gap. Results are as follows:
Social Security 6.7%
Medicare 33.3%
Medicaid 18.1%
Other entitlements, 8.6%
Discretionary: defense & homeland security, 18.1%
Discretionary: non-defense, non-homeland security, 15.2%
To be fair to Ryan and the Republicans, they appear to be interested in going after the last item on the list, which clocks in at 15.2%. And perhaps they'd really like to go after Social Security and Medicare, which add up to a respectable 40%. But because that is politically dangerous (and keep in mind that healthcare reform's Medicare cuts were a huge source of Republican demagoguery in the 2010 election), Ryan et al apparently are planning to take a meat cleaver just to the Medicaid piece, which is only 18.1%.
Admittedly this is not entirely trivial. And indeed the overall healthcare piece is fundamental - over 50% with Medicare alone added, and this doesn't include the cost of excluding employer-provided health insurance from both the income tax and the payroll tax. What's more, the Medicare and Medicaid fiscal gaps add up to more than 100% of the total fiscal gap under the "current allocation method" in Auerbach et al's Table 7, although in this rendering the Medicare fiscal gap is almost triple that from Medicaid.
So attacking Medicaid is genuinely a start in a pure arithmetic sense - unlike the shenanigans around discretionary spending in current year budget wars. But I'm really forced to ask what sort of human beings would view healthcare for poor people as the right place to focus so disproportionately when addressing the long-term fiscal problem.
This is not just a comment about Ryan and the Republicans, but about the increasingly plutocratic character of Washington politics (to which the Democrats respond as well), under which, as Martin Gilens has shown, policy "outcomes are fairly strongly related to the preferences of the well-to-do ... but wholly unrelated to the preferences of the poor."
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