TightWind is written by Kyle Baxter. Stay Hungry. Stay Foolish.

Paul Ryan, Chairman of the House Budget Committee, released his 2012 budget proposal earlier this week.

Ryan deserves credit for his proposal, if only because it actually addresses the main driver of our debt: entitlement spending. Before I give my thoughts on it, though, I’ll briefly summarize what his plan would do.

Entitlement Reform

Ryan’s proposal would radically change Medicaid and Medicare.

Currently, the federal government matches Medicaid spending by states; this allows states to expand their Medicaid programs without paying for the full cost, and thus automatically expands federal Medicaid spending along with it. Ryan’s proposal would eliminate this; rather than match Medicaid spending by states, the federal government would instead provide a block grant to each state for their Medicaid program.

This would give the federal government greater control over their Medicaid subsidies, and would encourage states to control costs much more than they currently do.

For Medicare, Ryan’s proposal would provide each individual with what amounts to a voucher to purchase a private health insurance plan through a Medicare plan exchange, with lower-income individuals receiving a greater subsidy than higher-income individuals. The voucher—how much each individual on Medicare received for their health insurance costs—would rise with inflation each year. That’s incredibly low; for example, health care costs rose by about 6 percent in 2010, while inflation was about 2.3 percent. That’s good for the government, of course, as it means they will be spending less on Medicare and Medicaid, but bad for the individual—individuals will bear a greater share of health care costs than they currently do.

Ryan’s proposal also eliminates Obama’s health care reform, which expanded Medicaid coverage, added new subsidies for individuals, and used changes in Medicare to fund it. Ryan’s proposal would repeal ACA while retaining its Medicare changes, but does not replace it.

Tax Reform

Ryan’s proposal would keep tax revenues between 18-19 percent of GDP, where it has been historically, but will consolidate tax brackets and drop the highest bracket to 25 percent from 35 percent (where it is today—if Bush’s tax cuts expire, it will increase to 39.6 percent). Moreover, the corporate tax rate will drop to 25 percent as well.

It’s scant on details on how precisely it will decrease rates while maintaining tax revenues at their historical rate, but it likely means eliminating current tax deductions like the mortgage interest deduction.

Thoughts

This is far from a comprehensive plan—it’s more of an outline than a plan. While his proposal makes positive changes to entitlements and the tax code, changes that should be made, it also fails to address issues that will have to be addressed. The proposal will control federal government entitlement spending, but it fails to address a central driver in rising entitlement spending: health care costs. Ryan has proposed in the past a way to help do this—eliminate the employer-provided health insurance deduction and provide individuals with a tax credit for health insurance, which would simultaneously eliminate a pressure for rising health care costs and encourage individuals to control their own spending—but it’s absent from this proposal.

This proposal will not be passed and should not be passed. What it should serve to do, however, is show that entitlement spending cannot continue on its current path and that we must find a way to responsibly reduce it. Ryan’s proposal, if anything, forces serious entitlement reform to be a central point of discussion, which Democrats have fastidiously refused to address.