The battle of the budgets
Say you're running a business, and you find yourself awash in red ink. You realize it's time to retool your approach, and fast. So you ask two different employees to each come up with a budget. You'll go with whoever writes the better plan.
What are the chances that one of them will submit a budget that never puts you in the black, that suggests you raise prices and spend still more money? Practically nil.
Yet that's exactly what the Senate expects the federal government to do. Spending would go up right away. So would taxes. And it doesn't even touch entitlement programs such as Medicare — which, along with interest on the debt, will take up all tax revenues by 2025.
It's easy to shrug such warnings off. But doing so raises the very real risk of a debt crisis that can hurt all Americans, especially the poor and middle class. Growing inflation is one danger, as is higher interest rates. Mortgages, credit cards, consumer loans and business loans would become more expensive for millions of Americans.
Higher interest rates would make it more costly for families to borrow money. That means they'd have to delay purchasing their first home. Their ability to build financial security would be compromised. The economy would weaken, leading to fewer job opportunities and lower wages for workers.
Fortunately, the “other employee” in the scenario laid out above has come up with a smarter approach. The House plan, spearheaded by Rep. Paul Ryan. R-Wisc., would balance the budget in 10 years and cut the annual growth in spending from 5 percent to 3.4 percent. Even better, it would repeal ObamaCare. And it dares to reform Medicaid and Medicare.
The Ryan budget also prevents a series of damaging cuts to our military set to occur under the “sequestration” budget ax. At a time when North Korea and Iran are racing to acquire nuclear missiles, cutting defense is the last thing we should be doing.
Its chief failing? Taxes. True, the Ryan budget lays out important principles for tax reform and rightly rejects closing tax preferences (“loopholes”) just to raise revenue. Despite repealing ObamaCare, however, it keeps the program's higher tax revenues. All of the president's signature health care law should be repealed, including its tax increases.
Still, this is a strong plan that deserves serious consideration.
There are six things that each budget from the House, Senate and president should accomplish (laid out in Heritage's plan “Saving the American Dream”):
• Balance the budget in less than 10 years, without raising taxes, and keep the budget in balance thereafter.
• Swiftly overhaul entitlement programs, including Social Security, to guarantee economic security to seniors while making the programs affordable.
• Repeal ObamaCare in its entirety.
• Fully fund defense.
• Roll back discretionary spending.
• Roll back recent tax increases with a sweeping, growth-oriented tax reform plan and cap taxes at the historical average of 18.5 percent.
The Senate budget is a nonstarter. The Ryan budget is a vast improvement. In a time of economic uncertainty, replete with unsustainable budget increases, we need to stop dodging hard choices. We know what needs to be done. It's time to do it.
Ed Feulner is president of The Heritage Foundation (heritage.org).