The Problem With Paul Ryan’s Roadmap For America’s Future
New and interesting ideas are important in politics. All too often voters are stuck with candidates who mindlessly pander to whatever audience may be in front of them at any given time. Between the time split between pandering and attacking the other side we the public rarely are given any serious ideas for solving this countries complicated problems. However, on occasion a politician separates him or herself from the pack and comes to the American public with solid ideas that are actually within the realm of possibly working. But even when we are given fresh ideas, that does not mean said ideas should be accepted without sufficient scrutiny.
This brings me to Paul Ryan’s Roadmap for America’s Future. While Paul Ryan has recently ruled out a run for the presidency in 2012, establishment conservatives are pointing to his ideas and this very Roadmap as a proper platform to run on.
Fred Barnes of the “The Weekly Standard” recently said of the Roadmap, “It’s not only the freshest, boldest, and most comprehensive Republican thinking, it’s also the most relevant. If Republicans adopt the Road Map as their basic ideological blueprint, it offers them the prospect of a landslide in the midterm election this year, followed by victory in the presidential election in 2012.”
Those on the left including President Obama have criticized the Roadmap for any number of reasons. The problem there is that no conservative will listen to criticisms about anything conservative that comes from the left. Also there are those on the right who are covetous of their leadership positions and don’t want to see the Roadmap propel Paul Ryan into their spot. The unfortunate thing is that there is plenty to criticize about the Roadmap but hardly anyone to do as such as so many in and around Washington DC have some sort of investment in either seeing him prosper or fail. But the Roadmap does need serious independent analysis for voters to take it seriously, regardless of your political philosophies.
The Roadmap has five policy sections to it: Health Care Security; Retirement Sec; Federal Tax Reform; Job Training; Budget Process Reform.
Health Care Security
The first law Ryan wants to pass is the:
▫ Refundable Credit for Health Insurance Coverage. Provides a flat, refundable income tax credit for individual and family purchase of health insurance. The credit may not be used by those enrolled in Medicare or a military health coverage plan.
- Credit Amount. The tax credit equals $2,300 for individual tax filers and $5,700 for joint filers and families.
- Refundable and Advanceable. The credit is refundable, and therefore available to low-income persons with no tax liability. Credit also is “advanceable,” enabling individuals to purchase coverage at the beginning of a year, rather than waiting for their tax returns.
- Assignable. The credit would be forwarded directly to the insurer of the tax credit recipient’s choice, leaving the balance, if any, refunded or billed to the recipient.
- Inflation Adjustable. The credit is adjusted for inflation: specifically, by an average of consumer price index and the percentage increase in the medical care component of the consumer price index.
Ryan’s Roadmap states that, “Equalizing the tax treatment of health care and coverage will give workers and families much more freedom to acquire a plan that best suits their needs. Making health insurance portable means an individual no longer will live in fear of losing his or her health care along with a job. As the marketplace begins to respond to this new patient-centered control, the resulting increase in competition will improve the quality of services and provide more options to meet the diverse needs of Americans, while lowering costs.”
In other words, Ryan is that instead of the emploer buying buing the healthcare the worker will. The benefit of this is that if said worker leaves the company, they will still have their health plan because they bought it separate from the company. However, the cost of most health care plans is much more than the tax credit one receives from the above law, so without income to supplement payments toward the premiums, how does one continue to afford said health plan? In many ways this is the current situation with COBRA. Your old employer has to offer the health care plan for a period of time at their rate. You must also ask yourself, how do you pick the right plan? Do you pick one that covers pregnancy and if not what happens if the wife accidentally gets pregnant after open enrolment? Either way, this will actually make plans more expensive since the risk pools will be smaller. The risk pool will be smaller because the amount of people purchasing a variety of health plans will be too widely stratified.
Ryan purports that competition will lower the cost of health care plans. Even if you could get transparency in pricing most people don’t shop for doctors and procedures on the basis of cost. Most people shop for health providers who they perceive to be fully competent and able to perform the medical service being offered. Think of end of life treatment. How many people say, “Keep me alive no matter what the cost,”? Then there is the case of children born with severe medical problems. Exactly how many people do you know who say it cost too much to save my child from whatever their complex ailment may be? Ryan is applying free market principles to an area that typically has little or nothing to do with the free market. Health care rests on the principle of access and competency, not the price of services rendered. And unlike life insurance and car insurance, health insurance is in fact a necessity, possibly even life or death.
The next law Ryan wants to pass deals with Social Security.
Creation of Personal Accounts. Beginning in 2012, provides workers under 55 the option of dedicating portions of their FICA payroll taxes toward personal accounts, or remaining in the current Social Security system. Individuals retain the ability to choose shift in or out of their accounts as their tax filing status changes.
The public overwhelming rejected creating private retirement accounts in lieu of social security at the beginning of the second George W. Bush term. Now that we are still dealing with the aftermath of the 2008 economic collapse and recession, most people refer to their 401k as a 201k, that is to say that their investments either have halved or disappeared entirely. One can safely assume that the general public will not be bullish on investing their personal retirements in a dodgy investment market, regardless of any Wall Street regulatory bill or guarantee’s of initial investment. But putting aside the support or lack thereof for private retirement accounts, there is the issue of whether or not the mechanics of this bill are even plausible. Defined benefits usually work better than defined contribution plans. One reason for this is that large numbers of people are in the plan and when there is a downturn the continued influx of money can tide the plan over. When you have a single account the money may not be there when you need it. Then there is the fact that most of us are not financial geniuses and don’t want to spend our days deciding how to invest our money. We all can’t be like JBL from the WWE, watching the stock ticker during the day and wrestling at night.
Ryan wants you to buy annuities with your Social Security account. The end result of that would mean that to just earn a retirement income that equals 150 times the poverty level you would need $200,000 minimum for a lifetime annuity at age 67. For a single person this is $16,350, so for a 67-year-old man this would require the social security account to have $200,000 in it. This would require ( without any capital gains or interest) 16 years at the current maximum wage that is taxed. For someone earning $40,000 a year this would require 41 years. In other words, you’d have to work for 41 years at $40,000 to achieve the minimum retirement benefit. Given the tenuous job market out there it may be unlikely that most individuals will earn $41,000 a year for 40 years or more. So unless this works out perfectly for you, most of us will be shafted come our golden years under Ryan’s plan. This obviously would affect early retirement since Ryan would require that you buy the annuity of 150% of the poverty line.
He also wants to raise the retirement age by indexing it to life expectancy. In other words, if you are around my age (34) the full retirement age is 67 but if life expectancy increases, the retirement age potentially shoots up another 10 years or less. This is the opposite of what the average Republican wants because it amounts to a tax increase. The reason being is that for the same amount of money you invest in Ryan’s Social Security plan you will get less in benefits than you would with the present Social Security plan.
Federal Tax Reform
The two biggest changes in the tax code Ryan proposes deal with revenue projection and taxpayer choice in how they pay their taxes.
Revenue Projections. In combination with [Business Consumption Tax], holds total Federal revenue to no more than 19.0 percent of gross domestic product [GDP] for the foreseeable future.
Offers Individual Taxpayers a Choice. Provides individuals the choice of paying income taxes in either of two ways: 1) under a new Simplified Tax, or 2) under the existing tax code.
Revenue projection says the government will be limited to 19% of the GDP. This is much like Proposition 13 in California (limits property tax to 1% of the value of the home). It is too much of a straight jacket that does not allow the government to do what it needs to do especially in an emergency. Take the current recession; in the year 2009 the GDP had dropped 2.1%. Assuming that we were at 19% in 2008 that would mean we would have had to cut the budget 60 billion dollars. In non-mandatory spending this is the equivalent of the Department of Health and Human Services or the Department of Transportation. We have been spending above 20% since 1950 and have been above 30% since 1980. To cut to 19% we would have to cut $1.4 trillion. This is equivalent to the entire 2010 discretionary budget. Social Security is presently 25% of government revenues and is increasing its share of the budget. This will continue to squeeze the government if the 19% limit is set. In other words, pegging revenues to 19% regardless of the circumstances prevents the government from working effectively. In the event of a crisis, the government would have to figure what it is going to cut before a plan to deal with situation can be formulated (assuming revenues were at 19% already). This is not realistic.
According to Ryan, “The new Simplified Tax broadens the tax base by clearing out nearly all of the existing tax deductions and credits, compresses the tax schedule down to two low rates, and retains a generous standard deduction and personal exemption.” He also wants to repeal the Alternative Minimum Tax, regardless of how you pay your taxes.
By doing this he will shrink the tax base not broaden it. You will lose all those who are presently paying the AMT but more importantly you will lose all those whose only income is a combination of interest, social security, dividends, or capital gains. So if you have $5,000,000 to invest and earn 5% in dividend income ( earning $250,000) you would pay no taxes. So the only people who would be paying taxes are individuals who get a W2, in other words, working people. This is not only patently unfair but also disastrous when it comes to funding the government. Those who currently pay the AMT represent 18 million taxpayers who would be paying less or no taxes with the abolishment of the AMT. With such a large portion of the total revenue now gone, one has to ask, how does Ryan think we’re going to make up all of that lost revenue? There are only two answers to that question; tax increases elsewhere or more deficit spending. I realize he’s depending on non-taxed investments to grow the economy and therefore increase tax receipts but how many times are we going to splay ourselves on the alter of supply side economics only to wind up bleeding on the floor?
In addition, giving the taxpayers two options as to how to calculate their taxes will only increase the complexity of the system while decreasing the forecast ability of the government. This is a sure fire way to increase the cost of filing and increase the cost of government borrowing. In either case, Ryan’s plan will end with a heavier financial burden on the middle and lower classes.
There’s more in Ryan’s Roadmap to look at but these are the most glaring problems. The summation of all of these criticisms is that his solutions are more of the same nonsense that has already been proven not to work or unpopular with the voting public. When the GOP can offer solutions that don’t involve cutting spending back to pre-New Deal levels or reducing tax receipts to unsustainable levels, then maybe the GOP will have platform the average voter can take seriously.