Paul Ryan’s Medicare “Cuts” And Washington Math

Now that Paul Ryan is the VP pick for Romney, the Democrats are revving up the demagoguery machine on the “Draconian” Medicare “cuts” from Paul Ryan’s 2011 budget proposal.  However, to come to this conclusion, a unique form of Washington math called “baseline budgeting” is required.  For the uninitiated, let’s explain how this works…

When Washington creates a budget (which is supposed to be done annually, but hasn’t been done by the Senate in over 1200 days now), they do not simply budget for that fiscal year.  They project the budget out for 10 years, and set spending rates for each government program for that length of time.  If the budget is done every year like it is supposed to be, then the only year that truly matters is the first year, since the following years will be adjusted the next year, anyway, but the long-term planning needs to be done to ensure stability down the road.

When these budgets are done, most government programs are projected to grow at roughly six percent per year.  One could argue that doing this provides a buffer zone against the rate of inflation, which is usually less than that, in order to present a worst-case scenario for keeping the spending on that program the same relative to inflation.  If it actually worked that way, it would make sense, but it doesn’t.  What invariably happens is that these numbers become the baseline for next year’s budget (hence the term “baseline budgeting”):  that six-percent increase is assumed whether it is actually needed or not, and that six-percent increased number becomes the baseline for comparison instead of the amount of money actually spent on the program the year before.

This has multiple consequences.  This allows politicians to make “cuts” to programs without actually cutting anything. They simply reduce the rates of increase in the latter years of the budget and say they reduced the deficit, when in fact, those “cuts” never actually materialize.  The original spending plan is magically restored when the “future” becomes the “present”, and further down-the-line “cuts” occur.  This is not a trick unique to the Democrats by any means, as this strategy is one of the primary tools for establishment Republicans to say they upheld their promises to cut spending without actually doing so.  Most of the Tea Party is quite wise to this trick by now, though, and it is why so many incumbent Republicans have been losing primaries in the last couple of cycles.

However, it also allows for opportunities for demagoguery by Democrats when Republicans make earnest attempts to actually cut spending.  The most famous example was the Republican attempt to reduce spending on the school lunch programs in the mid-1990’s.  The Republican budget called for a four percent increase in the program from the previous year, which was still well above the rate of inflation, but because the previous budget had called for a six percent increase, this was called a “cut” and Republicans were accused of trying to starve children.  Sadly, people who weren’t aware of how Washington math works (and rely on the media to tell them the truth–ha!) bought it.  The difference between this scenario and the above paragraph is that the “cuts” weren’t intended for down-the-line; the change was for that particular fiscal year.

Look at it another way:  If you were expecting a six percent pay raise at your job, but only got a four percent raise instead, would you say that you took a pay cut?  Of course not.  But this is how Washington thinks, which — not coincidentally — also requires thinking that the masses are idiots who won’t figure this out eventually.  More and more people are on to this game, though.

Studies have shown that Medicare will become insolvent in the next twelve years if nothing is done.  So Paul Ryan created a plan to fix Medicare which involves much the same thing:  attempt to reform Medicare so that we can slow the cost curve and reduce the rate of increase in spending on the program.  The Democrats then claim that Ryan is “cutting” Medicare.  The Democrats plan for Medicare appears to be to simply let it fail and then blame Republicans for not wanting to raise taxes.  (Note that I didn’t say it was a plan to fix Medicare.)  They demagogue Ryan’s plan simply because they don’t actually have one of their own, and do the exact same thing with the budget overall.

In short, the concept of “baseline budgeting” is a Washington magic trick to turn spending increases into spending “cuts”.  Don’t be fooled.


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