April 18, 2011

The Economist's View of U.S. Fiscal Policy

Paul Ryan's plan makes a better start point for resolution of America's love affair with deficit spending. Will Americans wake up to the crisis facing the country? I'm waiting eagerly for the proposal from the Senate's 'Gang of Six."


From the Economist: “Unlike Mr Obama, Mr Ryan puts fiscal responsibility at the centre of his plan: it aims to bring the budget into primary balance as early as 2015 and federal government spending down to below 20% of GDP in 2018. He also outlines a simplification of America’s mad tax code, bringing the top rate for both individuals and businesses down to 25% by eliminating loopholes. Above all, he aims at the core of the problem, the ever-rising cost of health care for the elderly.At the moment, retirees in America are entitled to Medicare, an all-you-can-eat buffet of care provided by the private sector but paid for by government-run insurance. Under Mr Ryan’s scheme, future retirees would have to take out private insurance plans, helped by a government subsidy. The effect would be a bit like changing from a defined-benefit pension to a defined-contribution one. The savings come because the subsidy would not cover everything that is currently provided: people will either end up with less lavish care or have to pay more.Mr Ryan also wants to turn Medicaid, government-financed health care for the poor, over to the states in the form of “block grants”. This would force them to manage their budgets more responsibly than they have needed to when they have been able to send much of the tab to Washington.”

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