A year ago, House Budget Committee Chairman Paul Ryan’s political career was on an awesome upward trajectory after he rocked Washington with a budget blue print designed to slash entitlement spending and shrink the federal deficit. But Ryan’s stock began to tumble after Democrat Kathy Hochul won a special House election in a predominately Republican district in upstate New York by warning voters that Ryan’s plan would destroy Medicare as they know it.
After that, many nervous Republicans began to distance themselves from Ryan’s budget and entitlement reform plan, and for a while, the Wisconsin Republican practically went into hiding.
This year Ryan is back, stronger than ever, leading the charge for a new House-passed Republican plan calling for deep spending cuts, a restructuring of Medicare for those under the age of 55, a major overhaul of the tax system and a balanced budget by 2040. In the wake of a new focus on the European debt crisis and polls showing the deficit ranks among the top concerns of American voters, House and Senate Republicans and presidential candidate Mitt Romney have eagerly embraced the Ryan plan. Ryan, the budget leader, is now in the running to become Romney’s running mate.
DEF ICIT DECISIONS
A new Wall Street Journal/NBC News poll shows that while President Obama holds a slender four-point lead over Romney in the presidential contest, Americans by a sizable plurality say Obama has worsened the nation’s budget deficit and health-care problems. Asked which candidate would be better equipped to handle the deficit, voters chose Romney over Obama, 57 percent to 38 percent, according to a Pew Research Center poll released last month.
“Our goal is to get the trajectory of our debt on a downward slope . . . so that we can avert a debt crisis entirely,” Ryan said last week during a Washington conference on a looming fiscal crisis or “fiscal cliff’ at the end of the year. “Now as we do this, we have to acknowledge that the status quo of these entitlement programs, which are the primary driver of this debt, needs to be reformed so that we can still fulfill the mission of these programs. That’s the awkward conversation we’re having right now.
That “awkward conversation” is between Romney and congressional Republicans on the one hand, and Obama and congressional Democrats on the other. Each side has a profoundly different notion of what needs to be done now and in the long term to get the economy back on a sustained growth pattern and to address the deficit problem.
The Obama administration and Democratic congressional leaders have repeatedly called for a “balanced” approach to economic expansion and deficit reduction -- including targeted stimulus spending, overall government belt tightening and an increase in taxes on the wealthiest Americans -- to help contain the deficit in the coming decade. While Democrats say they are open to discussing changes in Medicare, Medicaid and other entitlement programs for the elderly and poor, they are highly critical of anything that would alter the fundamental structure of the costly health care programs.
Obama insists that while the long-term reduction of the deficit is important, the top priority should be growing the economy and getting more people back to work in the coming months. Last week, Obama pressed European leaders attending a G-8 summit in Washington to shift toward a more pro-growth policy and away from austerity to tackle a crisis that threatens to force Greece out of the eurozone and send economic shockwaves worldwide.
EURO CRISIS DILEMMA
Obama strongly indicated he was siding with Françoise Hollande, the new socialist French president, who is pushing for more economic stimulus in the recession-plagued EU instead of emphasizing belt-tightening programs spearheaded by Germany.
The Republicans, in contrast, see the Greek crisis as a wake-up call for the U.S., believing the key to renewed economic prosperity is getting the debt and deficit under control now, coupled with additional tax relief and elimination of government regulations.
Sensing that swing voters and independents in many battleground states see it their way, Republican voters are demanding much deeper cuts in domestic programs than Obama and the Democrats find acceptable. They also want to extend all the expiring Bush personal and corporate tax cuts, and provide for even more tax relief as part of an overhaul of the federal tax code, while eliminating costly tax deductions and other loopholes.
House Speaker John Boehner last week renewed a GOP demand that Obama and the Democrats agree to additional cuts in domestic programs – but not the massive defense budget – to match any future increase in the Treasury’s borrowing authority. Although last summer’s debt ceiling debacle brought the Congress and White House into disrepute and led to a downgrading of the government’s AAA bond rating, Boehner said he was willing to risk another battle with Obama and the Democrats to prevent the country from following in the footsteps of Greece’s profligate spending and reckless fiscal policies.
“I am not threatening default,” Boehner insisted in a meeting with reporters at the Capitol. “Let’s remember something: The issue here is the debt – almost $16 trillion worth of debt, $1.3 trillion budget deficit again this year. One only has to read the publications that many of you write for to realize that the situation in Europe is becoming grimmer every day.”
On the same day that Boehner announced his tough stand on the debt ceiling at a fiscal summit sponsored by the Peter G. Peterson Foundation in Washington, Romney delivered an equally tough speech in Iowa, a key battle ground state, warning of a “prairie fire of debt” and accusing Obama of failing to control the deficit.
“I will lead us out of out of this debt and spending inferno,” Romney declared to a crowd as he stood in front of a banner that read “CUT THE SPENDING.” His ideas for reducing the current $15.67 trillion national debt were familiar, including reforming entitlements, limiting spending and not raising taxes.
THE GOP PLATFORM TAKES SHAPE
Romney, Boehner, Ryan and Senate Republican Leader Mitch McConnell are all singing from the same hymnal on deficit reduction and government austerity, with very little daylight between them on any of the key issues. “Too much spending, too much debt and borrowing and a very, very sluggish economy is all we have to show for this administration after almost four years,” McConnell told reporters on Tuesday after conferring with his caucus.
In short, the GOP has become the unabashed party of austerity. From a global perspective, their sympathies are totally with German Chancellor Angela Merkel, who has relentlessly pressed Greece and other debt-ridden European countries to trim back spending to reduce indebtedness and who this week opposed a plan floated by Hollande to expand borrowing through new Eurobonds.
The United States ranks second only to Ireland in the ratio of its budget deficit to its Gross Domestic Product, and only slightly ahead of Greece and Spain, according to the Organization for Economic Cooperation and Development. While there are huge differences between the economic and financial challenges of the U.S. and southern European countries – including the fact that the U.S. can borrow on much more favorable terms than can European countries – Republicans insist there are enough similarities to be alarmed.
“If you look at all the problems they’re having over there [in Europe], that’s our future if we don’t fix it,” Sen. John Thune of South Dakota, a member of the Senate GOP leadership, said this week. “You’ve got to have that austerity, and I think you’ve got to have policies to promote economic growth, but I don’t think those are mutually exclusive.”
With U.S. unemployment still hovering above 8 percent and the economic recovery moving in fits and starts, it is far from clear whether voters this fall will be more receptive to the Republican emphasis on austerity and deficit reduction or the Democrats more balanced approach.
Alan Blinder, a top economic adviser to Democratic President Bill Clinton and Vice Chairman of the Board of Governors of the Federal Reserve System, this week proposed a “rehab program” for U.S. fiscal policy that reflects many of the Democrats’ concerns. The Princeton University professor of economics wrote in the Wall Street Journal that Congress and the White House should agree to a modest stimulus package sharply targeted to job creation, followed by a ten-year deficit reduction plan similar to the one proposed by the presidential Simpson-Bowles fiscal commission – but only after the economy “is ready” for it.
Senate Budget Committee Chairman Kent Conrad, D-N.D., contends that Boehner and other Republicans are making a huge mistake by pushing for a new debt ceiling deal and more spending cuts before the November election. He pointed to Great Britain as an example of a country that moved too quickly and too severely to impose austerity measures.
“We see Great Britain doing exactly what our Republican colleagues here call for, which is immediate austerity, and I think the evidence is really quite overwhelming that if you do that, you put this country back in recession,” Conrad told The Fiscal Times. “Job one for deficit reduction is a growing economy.”
