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Sunday, June 15, 2008

Congressman Ryan’s Road Map for America Is a Dead End

His extreme right-wing proposals will create more problems

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Republican Congressman Paul Ryan has put together a “Roadmap for America’s Future” that addresses the pressing issues facing the United States. The Journal Sentinel applauded it and reported that Republican insiders say it “represents the kind of fresh thinking the party needs.”

Unlike many in Congress, Ryan at least is putting the energy into laying out a plan. But fresh thinking it is not. Unfortunately, Ryan’s road map is the same old far-right-wing agenda that has been promoted by conservative think tanks such as the Heritage Foundation and Club for Growth. The plan is more radically right wing than mainstream Republican thinking and is based on a naive premise that the free market can solve all the problems facing America today. Several decades ago most economists, even most conservative economists, acknowledged that there are many areas where the markets just fail and government intervention and regulation are required.

A prime example is the current recession, which was triggered by the relaxed regulation of the housing mortgage market. Companies like the former Bear Stearns that lobbied the government for more deregulation of the mortgage markets ended up creating their own demise.

Historically, the pendulum swings back and forth between policies that are based on extreme faith in the free market, like Paul Ryan’s road map, to policies that include a more regulated marketplace, like the European model. Fortunately it appears that the extreme free-market ideas of George W. Bush and Paul Ryan are on the wane and we are moving into a period where policies that view carefully crafted government involvement as a positive force are on the rise.

Health Care
In his road map Ryan proposes revamping health care, Social Security and taxes based on discredited, radically conservative ideas. Ryan’s plan for health care could have been written by the major health insurance companies. Ryan proposes that every American not covered by Medicare would receive a refundable tax credit of $2,500 for an individual and $5,000 for a family to buy health insurance in the marketplace. This program does nothing to control costs. It is basically a gravy train for the private health insurance companies, because they would get this big subsidy from the government.

The United States spends almost 16% of its gross domestic product on health care. Measured another way, the United States spends per capita on health care approximately twice what countries such as France, Germany, Japan, Italy, Sweden, the Netherlands and Canada spend per person—and we still have 47 million people who are uninsured. A big part of these higher costs results from our private health insurance companies and their extremely high administrative costs—about 31%. In contrast, Medicare and Medicaid, the government-funded insurance programs, have administrative costs of about 3%. In addition, doctors and hospitals have to hire entire departments of employees to file different reimbursement forms for various insurance companies, and the patients often have to fight their insurance companies because they find reasons to avoid paying for expensive procedures. Unless you have the courage to confront the private insurance companies in this country, you are not going to see serious health care reform. Ryan’s plan does give states more flexibility to redesign their Medicaid plans, however, which is a positive suggestion.

Social Security
Ryan’s Social Security proposal essentially dusts off the Bush plan of private savings accounts and adds a few bells and whistles. For those under the age of 55, the plan offers people the option of investing more than a third of their Social Security taxes in private investment accounts.

Not only does this drain money from the Social Security system and ensure its demise, it also puts a portion of a person’s savings at risk—remember what happened when NASDAQ crashed in 2000? To prop up this flawed idea, Ryan’s plan has the government guaranteeing that if the private savings accounts fail, the government will bail them out.

President Bush proposed a similar plan when both houses of Congress were in Republican hands and he couldn’t get anywhere because even many Republicans opposed it. Ryan is right that the Social Security system will have to start cutting some benefits after the year 2041 unless some changes are made. But he doesn’t look at the fact that if we simply raise the retirement age a few years—since life expectancy continues to rise—and raise the ceiling on the top income that pays the Social Security tax above the current $94,200, the Social Security system would stay solvent through this entire century.

Taxes
Ryan’s plan would lower the taxes on the wealthy even more than Bush’s tax plan did. He cleverly offers the option of the current tax system or one that would lower the top tax rate from 35% to 25%, which means wealthy individuals would save $100,000 in taxes on each additional million dollars they earn. Even the super-rich like Bill Gates and Warren Buffet oppose these tax cuts for the wealthy. On top of the tax rate cuts for the wealthy, Ryan would eliminate taxes on interest, capital gains, dividends and inheritance. Of course almost everyone would benefit a little from this policy, but the wealthy would benefit a lot. For example, the inheritance tax only kicks in for estates worth more than $2 million, which only affects the wealthiest top 1 or 2 percent of us. But Ryan’s proposal goes further and eliminates the taxes on the interest and dividends generated by that inheritance. Quite simply, Ryan’s proposal would allow these heirs and heiresses never to have to pay a single dollar in taxes for their entire lives. That should certainly stimulate the yacht sales market in Newport Beach.

Ryan also proposes eliminating the corporate tax and replacing it with a Business Consumption Tax of 8.5%. A business only pays corporate taxes if it makes a profit. Ryan’s plan would lower the taxes on large, profitable businesses and burden the small, struggling, marginal businesses with a new tax.

One of the main reasons stated by Congressman Ryan for proposing this road map is to lift “the massive projected debt burden from the shoulders of future generations.” He does not discuss the fact that he was in lock step with George Bush on the war in Iraq, a war that was paid for entirely with borrowed money and one that will eventually cost our nation more than a trillion dollars. Ryan claims to be so concerned about future generations, but who does he think will pay off this war debt that he helped to incur? Louis Fortis is a former economics professor and former state legislator.

What’s your take? Write: editor@shepex.com or comment on this story online at www.expressmilwaukee.com.

 

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