TIME’s Jay Newton-Small talked to House Republican Budget Committee Chairman Paul Ryan in his Longworth office Tuesday about his 2012 budget, an ambitious package that includes drastic changes to Medicare and Medicaid, new tax reforms and deep spending cuts. A lightly edited transcript of the conversation follows:
TIME: How does your newly released 2012 budget differ from the “Roadmap for America’s Future” you put out last year?
Paul Ryan: The Roadmap wasn’t a budget. They’re not written in the same way. You know the budget functions – the categories, all that stuff, the mandatory programs. So, the Roadmap was a fiscal plan that dealt with the big drivers of our debt and proposes to reform those. This is more comprehensive. This has got a lot more detail to it because it deals with sort of all aspects of government. It deals with, well, we call them budget functions, but it deals with all categories of government. The Roadmap didn’t do that. It wasn’t a budget. It was just a fiscal plan. This is an actual budget that sets spending levels in all the budget categories for government for the 10-year window and then it gives the [Congressional Budget Office] the ability to carry its numbers out on a trajectory to see what it does. They did the same thing on the Roadmap, on a trajectory. Just like they did with this [deficit reduction plan] I did with [former Clinton Office of Management and Budget director] Alice Rivlin, you know she and I put this thing together on just that part of government – that was Medicare, Medicaid – they can carry these things long term out. So that’s why it looks like a Roadmap because it shows you the long term consequences but this actually has lower debt than the Roadmap – it has better debt numbers. We pay off the debt faster because I involve other aspects of government in the reform.
Are there any tax increases in this?
No. So the way budgeting works is you chose your revenue baseline and there are certain assumptions on that revenue baseline and our assumptions are: we make the tax cuts permanent and we get rid of the Obamacare taxes. So, that means no tax increases. Our tax reform targets that revenue baseline. So our instructions to the Ways and Means Committee are – well, actually, they gave us the plan and we sort of instructed it back to them – are: reform the tax code, consolidate the brackets, draw in the tax rates which result in a top rate of 25%, broaden the tax base and hit this revenue target. So that’s what they did. So it assumes no tax increases.
Some liberal bloggers have been saying that your plan would shift the tax burden off of the rich.
There’s no way of knowing that until you actually see the tax bill that Camp would write. First of all, the commission basically did the same thing and they argue that it’s distributionally neutral. So we could just do the commission framework and it’d be distributionally neutral. You’ve got to remember that the high-income earners are the people who enjoy the deductions. People who itemize their tax returns are the people in the top two tax brackets. You take away that, you’re raising their taxes. You lower the rates in exchange and it’s a wash, depending on how much you do in broadening and lowering. So, that’s unknown. Ways and Means will have to fill in those details. But this framework could still clearly result in a distributionally neutral tax system.
Why not include the President’s deficit commission’s recommended tax increases?
My fear is, if you raise revenues you take the pressure off of spending. The money always comes in for spending. And more importantly if you’re taking more of a tax burden out of the economy that’s hurting growth. We have historically had a revenue of about 18.3% GDP when we try to go above that we can slow down the economy. Nominal revenues come in at a higher clip if you have economic growth. So, I do want higher revenues but I want to get them through economic growth. I believe this (waving to his plan) and the Heritage analysis shows us, will result in higher economic growth and it will give us better revenues. The Heritage model shows us getting higher revenues in through income taxes with this plan in place and that will help us with our deficit reduction. Economic growth is the key. Get us spending cuts, spending controls, economic growth is the key. So, I’m not saying that all tax cuts pay for themselves but I’m saying the right kind of tax policy helps grow the economy which gives us better revenues and I think this was a better way to do that.
Your plan claims $1.4 trillion in savings from repealing the Democrats’ health reform law. How did you calculate that figure?
The way the Medicare policy in Obamacare works in they take money from Medicare and then use it to spend on this other government program. So they raided Medicare to pay for this other government program. We keep those Medicare savings but we dedicate them to Medicare. So we get rid of the IPAB, the independent medical advisory board, because we think that that’s really bad policy. But we keep the Medicare savings and rededicate it to Medicare to extend its solvency instead of paying for this other thing. So, if you keep the Medicare savings and repeal all the Obamacare spending that gives you the $1.4 trillion number. CBO says that if you get rid of Obamacare and you get rid of the $682 billion in Medicare savings, meaning spend it back, and do this then it costs you money. So, we repealed it in a way that it doesn’t cost us money. We stopped the raid of Medicare money and redirected it back to Medicare and it extends the Medicare solvency.
How does your 2012 budget affect the ongoing 2011 negotiations?
I didn’t pick the time [laughs.] It wasn’t my choice. We’ve been planning this week for months. Because the 1974 Budget Act says that you’re supposed to submit your budget by April 15. I need two weeks to do a budget: one week in committee, one week on the floor. Then it’s April 15. So I was always going down the path planning this time and low and behold: short-term [continuing resolution], short-term [continuing resolution], short term CR, boom here we are in the middle of all this. Leadership asked me if I wanted to delay it but that means that I’d have had to delay it until May and KI just didn’t want to do that. You know, I like following the rules. You know, if you’re going to criticize people for breaking the budget rules we shouldn’t break them ourselves. So, we’re going. It’s less than ideal for sure. It’s a little confusing to people, Oh CR and budget. It’s definitely creating some confusion. But I don’t know what else to do.
In terms of coordinating your message with outside groups, Tuesday’s roll out seemed to be a great success. What was your process with them?
Yeah, I met with those groups yesterday. I didn’t go through the details of it but I just basically gave the contours of what we’re trying to achieve. The rough sketches of what we were doing. McCarthy put them all together. It was during the day – in the afternoon — in McCarthy’s capitol conference room. Tax payer groups were there – I didn’t even recognize many of them. Coalition tax payer groups. I just said here’s what we’re trying to do and then I left. I was there for 20 minutes before heading to a member meeting.
Is there political risk in this?
Of course there is.
Aren’t reforms on this scale usually done when everyone holds hands and jumps together?
Everyone says that, but no one ever goes. This debt literally is going to get out of our control pretty soon. And so if you get into these numbers and see what’s happening it’s truly scary. And, I’m not trying to be critical of Democrats for partisan sakes, but they’ve decided not to do anything and the President, when he decided not to do anything in his budget, that’s when I made my mind up. We’ve got to do something. You know, I talked to some economists.… I won’t tell you who, I’m not at liberty to say, but he’s a very well known economist… He said, “Look, the Democrats clearly aren’t taking up this challenge, they decided not to deal with this.… There’re two political parties in America and at least half of them – meaning the Republican half – has to do something because if you guys don’t ,the bond markets are going to throw in the towel on you. You’ve got to put something out there that’s credible and real and addresses the situation so that the credit markets have some confidence that the Americans are going to fix this problem before it gets out of their control.” And that really sunk in with me.
When did the economist say this?
A couple of months ago. You know, the way I look at it is, we don’t really need to have these jobs and if I lose my election over this – fine. If we know that this is such a problem that it has to get fixed then in good conscience we can’t not try and, yeah, they’ll use it against us – of course they will.
Because I’m the budget chair, it’s my job.
Sure, but what drove an Irish Catholic guy from Wisconsin to get so involved in this?
I have a knack for numbers. I like economics. I love the field of economics. I have a knack for numbers. And I’ve just delved into this issue for my adult life, basically. And TARP – and the ’08 crash really scared me. A lot of people lost their wealth, a lot of people lost their jobs and that financial crisis was pretty scary to me and I really worry that we could have something much worse than that if we don’t fix this problem.
But the solution to that problem was spending?
Well, we were in a deflationary spiral. We were in the midst of a crisis. And the solution to this one, would be the reverse. The solution to this one would be deep spending cuts to current recipients. Big tax increases. It’s like what Britain’s doing, what Greece is doing. What Ireland’s doing. That’s what you do when the bond markets are at your doorstep, you know, coming after you. The bond market vigilantes turn on you. So, I know what kind of really painful medicine we would have to force down the nation if we get to a debt crisis. So let’s prevent the debt crisis, preempt it from happening.
What about the argument from some on the left that if you start reducing spending now, it hurts the fragile recovery?
I totally disagree. It’s an economic model that is totally discredited. If that were true than the stimulus would’ve worked. Those outlier Keynesian models have been totally discredited by the guys at Harvard, the guys at Stanford – they’ve all pretty much discredited that school of thought. It’s quite the opposite, I think, actually. Today’s deficit is tomorrow’s big tax increase and interest rate increase. It’s just deferred taxes. If we actually get spending down and under control, that will help the economy and I’m convinced of that.
Will your budget expose a rift between those who really are committed to cuts and marginalists?
I think we’ll find out. That’s a good point. What I find is that some people like to hide behind process controls. You know, “I’m for the balanced budget amendment, or spending caps, or whatever,” but they’re not actually in favor of doing what it takes to get within those caps – to rewrite the laws that are driving the spending that you would have to change to live with it. So what we’re proposing is: “Yeah, I’m for caps, I’m for controls. But not actually for a substitute to actually fixing the problem.” And so what I find is that a lot of people in politics find it easier just to embrace some sort of artificial control. I think we need to begin embracing the actual solutions.
The deficit reduction plan in 1997 never really worked — those caps never really came into place.
Yeah, and that’s my whole point for Medicare reform. Price controls for Medicare don’t work. They never sustain themselves. Providers go out of business. So you’ve got to fix the way Medicare works. 1997 was basically a Medicare price control plan and we did two bills subsequent to it to give the money back because it just didn’t work, so that’s why IPAB won’t work. IPAB would basically do what 1997 did but by a bigger magnitude and have bureaucrats do it instead of members of Congress do it. It doesn’t work, so you’ve got to fix the inherent flaws in the Medicare system itself.
How do you address concerns about cuts to Medicare services?
So this doesn’t happen to seniors or effect seniors because we grandfather people in. There’s only so much money that the taxpayer can put into these programs. Medicare literally at the end of the century takes over the entire federal government. I mean it crowds out all federal revenues. By the time my kids are my age, three programs take all federal revenues up. It’s unsustainable – it can’t grow at that rate. So, you’ve got to change how these programs work and you’ve got to have some reforms, so that they work better and more cost effectively than they do now. So that when you and I retire at our age you’ve got to have a better more efficient health care system that stretches our dollar more and that’s the kind of thing that I’m trying to get to.
Will a new budget need to be passed under reconciliation rules this year?
That’s a good question. Ask me in a few weeks, I mean I just rolled it out today [laughs]. Well, reconciliation doesn’t matter to the House – we don’t need that, we have the Rules committee. We don’t care about reconciliation in the House – it’s not a function we need. The Senate needs reconciliation. That question can only be answered by [Democratic Senate Budget Committee Chairman] Kent Conrad. And whether or not he’s going to do a budget. If he passes a budget then we can go to conference and we can do reconciliation stuff because they need reconciliation.
But let’s be fair: There’s no way this plan passes the Senate.
No, but let’s say Conrad passes a budget…
But you’d be miles apart…
Yeah, yeah. You’ve got a good read on the situation. But let’s say that we agree on something that needs to be reconciled. We could come together and do a conference and reconcile something and not the whole budget. We can reconcile this category of government – the Ed[ucation] and Labor Committee to do whatever, the Commerce Committee to do whatever and then we can pass that bill with reconciliation instructions and send it to the Senate. It doesn’t matter to us, but for them… So we can do that but you only do that if the Senate wants it, needs it, asks for it and is in favor of it. We’ll see.
Have you been talking to Conrad about his Gang of Six, the bipartisan group of Senators working on a long-term deficit reduction package?
No, I haven’t been talking to Kent but I’ve been talking to Republicans. I haven’t actually talked to Saxby [Chambliss] but I’ve talked to Lindsey [Graham] and some others. I’ve talked to [Tom] Coburn quite a bit. Mark Kirk. But not Kent. I like Kent, we know each other pretty well but I haven’t talked to him about this lately. I’ve been busy writing my budget, I haven’t had a lot of time to just shoot the bull.
Does the looming debt ceiling vote present an opportunity for a grand bargain?
I think the debt ceiling is an opportunity to get something done for sure. I think there has to be something on fiscal policy on the debt ceiling or it might not pass the House. So, I don’t know if I’d say grand bargain that’s comprehensive and government-wide. My reason for saying that is that I highly doubt that Democrats are willing to unravel Obamacare. I highly doubt they’re willing to do that.
So if you can’t touch Medicare and Medicaid, what is there?
Well, Obamacare already deals with all three of these things. Because the [President's deficit] commission, they wouldn’t touch it. Alice Rivlin tried getting something together on health care and they wouldn’t touch it because they didn’t like going back into that area of law that they just rewrote. So, when you say grand, it has to include all the health care entitlements and I don’t think they’ll do that. That message was given to me very clearly on the fiscal commission. So, hopefully on the other areas. On Social Security, I think there’s a shot – I think there’s room – and that’s why the way that we did this we’re trying to carefully advance a climate to do something on that.
But the White House has been adamant that Social Security is dealt with separately because it doesn’t contribute to deficits?
Well, it does deal with debt. It doesn’t deal with deficits. I mean, it does with debt, but I don’t want to get into the technicalities of it all. But… So that’s why we put this process out there that doesn’t offend those sensitivities at all so we have this trigger, which says separate track, separate legislation; here’s a separate, outside-of-the-budget procedure for Social Security and so we’re trying to advance that conversation and set the stage for that. I think it will help us with the credit markets if we get an agreement on it and it’ll obviously make Social Security solvent which is really important.
What do you think of the potential 2012 Republican presidential candidates coming out in support of your plan?
I haven’t seen that. I’ve been busy. But, great. Romney called, but I was gone. Didn’t see that.