The recent agreement between the Republican House leadership and President Obama to cut $38.5 billion from the federal budget during the rest of the year is a small step in the right direction of bringing federal spending under control. Since spending skyrocketed during past several years from about 20-22% of GDP to its present level of 25% of GDP, much more has to be done to bring federal spending back to its longer term share of GDP (for a way to approach this problem during next few years, see the Wall Street Journal April 4th op ed “Time for a Budget Game-Changer” by George Shultz, John Taylor, and myself).
A much bigger problem is presented by the expected growth in government spending on medical care and retirements during the next several decades. This growth is the main subject of Representative Paul Ryan’s recently released over 70 page “Roadmap” for entitlement control,and to a lesser extent tax reform. The report also includes cuts in defense spending and domestic discretionary spending that would help in taming the budget during the next half dozen years. Ryan's Roadmap is bold, creative, politically risky, and clearly highly controversial. On the whole, the Roadmap contains excellent proposals that, if enacted, would greatly improve the long-term budgetary situation of the federal government of the United States, and the long-run prospects for the American economy. I will briefly evaluate the main changes in health care spending.
(photo credit: Gage Skidmore)