A Choice of Two FuturesRarely before have the alternatives facing America been so starkly defined.For the past year, Washington’s leaders have taken an already unsustainable budget outlook and made it far worse. They have exploited Americans’ genuine economic anxieties to justify an unrelenting and wide-ranging expansion of government. Their agenda has included, among other things, a failed, debt-financed economic “stimulus”;  an attempt to control the Nation’s energy sector; increasing domination of housing and financial markets; the use of taxpayer dollars to seize part ownership of two nearly bankrupt auto makers; and, of course, the planned takeover of Americans’ health care, already heavily burdened, manipulated, and distorted by government spending and regulation. This domineering government brings taxes, rules, and mandates; generates excessive levels of spending, deficits, and debt; leads to economic stagnation and declining standards of living; and fosters a culture in which self-reliance is a vice and dependency a virtue – and as a result, the entire country weakens from within.
Increasingly, Americans are rejecting this approach, and for good reason. But the status quo is not acceptable either. The Federal Government’s current fiscal path is unsustainable: it leads to unprecedented levels of spending and debt that will overwhelm the budget, smother the economy, weaken America’s competitiveness in the 21st century global economy, and threaten the survival of the government’s major benefit programs. The President and congressional Majority are only hastening America’s march toward this reckoning, adding to trillions of dollars worth of unfunded liabilities, and accelerating the erosion of Americans’ health care and retirement security. Their “progressivism” ironically points backwards – to a future in which America’s best century is the past century.

There is another choice, as reflected by the proposal described in this report: A Roadmap for America’s Future. It is a comprehensive, alternative approach to the Nation’s most pressing domestic priorities. Specifically, the plan addresses the following:

▫ Health Care. It provides universal access to affordable health coverage, not by expanding government, but by reinforcing the role of consumers – patients – in a truly competitive marketplace. In conjunction with this, the plan takes on the necessary task of restructuring the government’s medical entitlements, making them sustainable for the long term.

▫ Retirement Security. It saves and strengthens Social Security, making the program sustainable for the long run, and helping expand investments needed for economic growth.

▫ Tax Policy. It offers an alternative to today’s needlessly complex and inefficient tax code, providing the option of a simplified mechanism that better promotes and rewards work, saving, and investment.

▫ Job Training. It helps the Nation’s workforce prepare for success in the global economy by transforming 49 job training programs, scattered across eight agencies, into a flexible, dynamic program focused on results, and accompanied by clear measures of transparency and accountability. The plan requires the development of performance measures, and gives each State the option to consolidate funding into one program, if such an approach can be shown to improve outcomes and achieve job training goals.

This plan is not simply a slimmer version of the “progressive” ideology. It is a true alternative, and a complete legislative proposal consisting of specific policies supported by Congressional Budget Office estimates of its fiscal and economic consequences. More important, it is based on a fundamentally different vision from the one now prevailing in Washington. It focuses government on its proper role; it restrains government spending, and thus limits the size of government itself; it rejuvenates the vibrant market economy that made America the envy of the world; and it restores an American character rooted in individual initiative, entrepreneurship, and opportunity – qualities that make each American’s pursuit of personal destiny a net contribution to the Nation’s common good as well. In short, it is built on the enduring truths from which America’s Founders established this great and exceptional Nation.

This proposal does not attempt to abandon commitments Americans established over the past century, or to dismantle government. It recognizes that government has a necessary role in supporting the institutions through which Americans live their lives, and in providing a safety net for those who face financial or other hardships. But it rests on the conviction that government’s principal role is to maintain the freedoms through which individuals can pursue their own destinies. As Jefferson put it: “A wise and frugal government, which shall restrain men from injuring one another, which shall leave them otherwise free to regulate their own pursuits of industry and improvement, shall not take from the mouth of labor the bread it has earned. This is the sum of good government.”

The balance of this introduction describes these two futures in detail. The remainder of the report describes the principal domestic challenges through which this choice appears at present, and then presents a full description and explanation of the policies embraced in this legislation.

AN EXPANDING CULTURE OF DEPENDENCY

In 1930, just after the great stock market crash, Federal Government spending totaled just 3.4 percent of gross domestic product [GDP]. As late as 1935, the cumulative spending of State and local governments still exceeded total outlays from Washington. The New Deal created programs designed to aid an economically devastated country, and to try to put people back to work. Some were significant achievements. Some longer-term administrative measures have led to a growth of bureaucracies that over time weakened Americans’ control of the Federal Government. They also planted the seeds for a gradual change in thinking about the government’s limited powers and mission in its relationship with the people. The effect has been to increase, step by step, the extent to which Americans depend on their government – not only for assistance during temporary hardships, but for their livelihoods, housing, savings, and means of retirement.

These so-called “progressive” reforms had well-intentioned aims as they unfolded in the Great Society programs of the 1960s. But addressing the challenges of modern society with a steady expansion of government brought its own unintended burdens – and they are looming larger every day. One is that public programs have extended their reach into America’s economy and Americans’ lives. Further, the government’s largest entitlement programs, now deeply entrenched, are driving an unsustainably rapid rate of spending growth – one that threatens to overwhelm the Federal budget and smother the economy.Equally troubling has been the effect on national character. Until recently, Americans  were known and admired everywhere for their hopeful determination to assume responsibility for the quality of their own lives; to rely on their own work and initiative; and to improve opportunities for their children to prosper in the future. But over time, Americans have been lured into viewing government – more than themselves, their families, their communities, their faith – as their main source of support; they have been drawn toward depending on the public sector for growing shares of their material and personal well-being. The trend drains individual initiative and personal responsibility. It creates an aversion to risk, sapping the entrepreneurial spirit necessary for growth, innovation, and prosperity. In turn, it subtly and gradually suffocates the creative potential for prosperity.

Now America is approaching a “tipping point” beyond which the Nation will be unable to change course – and this will lead to disastrous fiscal consequences, and an erosion of economic prosperity and the American character itself. The current administration and Congress are propelling the Nation to the brink of this precipice.The consequences of this growing culture of dependency, and its implications for America’s future, are described from four perspectives: 1) public policy; 2) fiscal policy; 3) economics; and 4) the American character.Public Policy: A Larger and More Intrusive GovernmentThroughout 2009, the President and Congress pursued another great surge of “progressive” government expansion – one comparable in size and scope to the New Deal or the Great Society; and they exploited a genuine economic crisis to justify this ambitious program. Among its principal components have been the following:

▫ Fiscal 'Status.' With the slippery promise of “saving or creating” three-and-a-half million jobs, the Majority passed a $787-billion “stimulus” bill that failed to halt the rise in unemployment, but did include numerous policy changes consistent with the big-government agenda. By expanding Medicaid – a program in desperate need of reform – and launching a new “comparative effectiveness” health program, the bill started the movement away from patient-centered medical care and toward the planned government takeover of the health care sector. The “stimulus” also heaped another $1 trillion in debt onto the taxpayers’ already large burden.

The legislation rested on the Keynesian-inspired notion that government can somehow “manage” a free-market economy, commanding it to grow with heavy doses of borrowed money. All the measure really did was set off a weak and temporary spike in consumer spending, while unemployment continued to rise. Worse, the heavy borrowing used, unsuccessfully, to “prime” the economic pump drained resources the economy will need for sustained growth. Yet the House refused to accept reality, and in December 2009 poured another $150 billion into this failed economic doctrine.

▫ TARP extension. The Troubled Asset Relief Program [TARP] was intended to thaw credit markets that seized up during the financial crisis – and it succeeded in its short-term objective. But it has now morphed into a $700-billion fund for whatever interventions the administration desires. These have included buying shares of two U.S. auto companies, launching new housing programs, and bailing out large insurance companies – in other words, effecting further transformation of America’s free-market economy.

In the latest version of the administration’s exploitation of TARP for purposes other than stabilizing financial markets, the House – with the President’s blessing – claimed to offset $75 billion in additional “stimulus” spending with a reduction in TARP authority. This move ignored carefully wrought statutory instructions to protect the taxpayer and not use authority to offset new spending. The package further enshrined TARP as Washington’s latest slush fund.

▫ Cap and Trade. This proposal effectively establishes a government takeover of most of the energy market. The legislation requires companies responsible for more than 86 percent of U.S. energy resources to obtain new emissions permits from the Federal Government to stay in business, includes a series of new mandates on the production and use of energy, and expands bureaucracies – or creates new ones – to oversee this program. Yet it fails to boost two of the most reliable sources of clean energy: nuclear and hydro-power.
By sharply increasing the cost of energy, the bill imposes substantial tax increases that will be absorbed largely by middle-income earners – breaking the President’s promise not to raise taxes for those making less than $250,000 per year. Although the measure contains a complex scheme of allowances, tax credits, and tax rebates that attempt to reduce the impact on households, the bottom line is inescapable: the higher energy costs will have to be absorbed by someone; and the “someone” will be the U.S. taxpayer. Meanwhile, in contrast to the President’s pledge to “change the way Washington works,” the legislation gives away 83 percent of its carbon allowances to energy- and climate-related special interests, at the expense of U.S. taxpayers.

Yet after all this, the benefits of cap-and-trade remain highly doubtful. Some studies show the scheme might move temperatures by no more than a fraction of a degree by the end of this century – which would make little difference on whatever climate effects result from greenhouse gas emissions. There are no effective limits on emissions by foreign countries, such as China and India, that are responsible for the fastest current growth in greenhouse gases.

▫ Financial Market Legislation. In a single stroke late last year, the House passed the most significant overhaul of the Nation’s financial system since the creation of Depression-era banking and securities laws.The new legislation expands the role of government in the financial arena on multiple levels for institutions and individuals. Instead of forcing insolvent banks to close down, and allowing market discipline to deter imprudent decisions, the bill further enshrines the notion of “too big to fail,” and insulates certain firms from the fear of bankruptcy resulting from poor management. It gives a new government council the power to designate which large, interconnected institutions fall into this category. It also establishes a permanent bailout fund of up to $200 billion – in essence, a “TARP II” – which will exaggerate market distortions, artificially lowering the price of risks taken by large firms and by those who invest in them.  Such protection given to big banks creates further disadvantages to the smaller banks – leaving them “too small to succeed.”The financial bill creates a new government agency designed to safeguard consumers from risk-taking for a broad array of products, from mortgages to credit cards. But ironically, the new bureaucracy will harm the very consumers it seeks to protect: by writing far-reaching rules and restricting risk, it will limit consumer choices, ration credit, and hamper individuals’ ability to make investment decisions. Another provision in the bill would limit institutions’ ability to issue debt to raise capital, and would disrupt bond markets by requiring senior, secured creditors to take a 10-percent “haircut” on the short-term bonds in the event of failure, disrupting a key tenet of debt financing, and making it more expensive and difficult for institutions to raise capital.

▫ Housing Markets. For years, the Federal National Mortgage Association [Fannie Mae] and the Federal Home Loan Mortgage Corporation [Freddie Mac] enjoyed the special status of “Government-Sponsored Enterprise” [GSE] – a title carrying the implicit guarantee that Washington stood behind every loan they securitized. When in 2008 they were taken into conservatorship – along with their $5.3-trillion portfolios – the taxpayer guarantee became explicit. Private sector participants in the market, most unable to compete after the housing bubble burst, were squeezed out. 
Mortgage origination has now become a public oligopoly, with the government controlling 94 percent of the market. Fannie’s and Freddie’s market share has grown from 39 percent in 2006 to 72 percent in 2009, while that of the Federal Housing Administration’s has leapt from 3 percent in 2006 to 22 percent in 2009. In addition, the Federal Reserve has been a major force in suppressing interest rates and providing liquidity in the housing market. In 2009, it agreed to purchase up to $1.25 trillion in agency mortgage-backed securities [MBS], or at least 80 percent of Fannie’s and Freddie’s new MBS issuance.Instead of shrinking the housing giants and reducing the risk on the Federal Government’s balance sheet, the administration, on 24 December 2009, increased  Treasury’s commitment to Fannie and Freddie to unlimited amounts for the next 3 years – and has allowed for expansion of the firms’ trading portfolios. The administration also has placed Fannie and Freddie at the center of its loan modification and refinancing efforts, further deteriorating the GSEs’ financial health at taxpayers’ expense.▫ Health Care. The most ideologically driven policy the President and Congress have pursued threatens to further encumber and distort America’s health care sector, and intrude even more deeply into this most valued, most sensitive, and most personal of services. It is the clearest and most pervasive manipulation of Americans’ individual lives; and its overbearing nature is reflected by its more than 2,000 pages of legislative text.

The legislation increases government’s leverage in deciding which medical treatments are worth paying for and which are not. It imposes government control over physicians’ medical decisions, and causes private-sector insurers to limit coverage in line with the government’s choices. Whether directly or not, it will effectively bind all Americans to a “one-size-fits-all” national managed care program that disregards personal choice and compassionate care.
If enacted, the bill’s rating restrictions, coverage mandates, and benefit requirements will halt innovation and drive individualized health products out of the market. It will disqualify Health Savings Accounts, which provide more than eight million people with access to low-cost health care. It will cause 64 percent of seniors in Medicare Advantage to lose their coverage over the next 5 years, and would subject plans to approval by a new health care bureaucracy, with the authority to audit, review, and penalize any health plan that does not comply with the rules set by this Washington-based office.The health bill activates the “Comparative Effectiveness Research” program, giving the Federal Government even greater leverage in deciding which medical treatments are worth paying for and which are not. This will inevitably impose government control over physicians’ medical decisions, and cause private-sector insurers to limit coverage in line with the government’s choices. Further, while proponents assert that providers will be able to negotiate rates with the government, they will do so under a heavily regulated regime; and there is nothing to prevent this from becoming a take-it-or-leave-it, price-setting system. Put simply, prices will be dictated to health care providers at rates determined by a cost-wary Federal Government.These are some of the major elements of the government expansion envisioned by Washington’s current leaders. Put simply, they all contribute to an extensive and deliberate power grab in which government seizes ever more of the economy – and controls more of Americans’ lives.

Fiscal Consequences: An Unsustainable Path
The fiscal impact of the President’s policies – which he and the Congress are seeking to implement step by step – is a level of spending, deficits, and debt unprecedented outside of wars. According to the Congressional Budget Office [CBO], the President’s policies will increase spending to $5.1 trillion by 2019, nearly a full quarter of the Nation’s economic resources. His deficits never fall below $633 billion in the next 10 years, and exceed $1 trillion by the end of the decade.Debt as a share of the economy is projected to exceed 60 percent this year (2010) – greater than the 2009 level, which was the highest in 50 years – and will reach 82 percent of GDP by the end of the next decade under the administration’s policies. (In nominal dollars, debt held by the public will triple over the next 10 years.) The U.S. has not seen debt at these expected levels since the end of World War II. Even the countries of the European Union, hardly exemplars of fiscal rectitude, are required to keep their debt levels below 60 percent of GDP. 
All this would be bad enough on its own. But it only adds to a fiscal crisis already well under way. The status quo is unsustainable and unacceptable.

For several decades, fiscal experts have warned of the untenable and overwhelming nature of the Federal Government’s budgetary trends. The threat comes entirely from domestic entitlement programs, as clearly reflected in CBO’s biennial report, The Long-Term Budget Outlook, the most recent of which was released in June 2009. The report, looking forward 75 years, shows that within the next several decades, the government’s current fiscal path will lead to catastrophic levels of debt, even if Congress imposed substantial tax increases.

Extension of Current Fiscal Policies. In a scenario that essentially extends today’s underlying fiscal policies, CBO assumes the 2001 and 2003 tax relief provisions and alternative minimum tax [AMT] “patches” are permanently extended. As a result, revenues grow slightly faster than the economy and equal 22 percent of GDP by 2080.
The projection also assumes Medicare physician reimbursement payments will track the historic growth of Medicare rather than the “sustained growth formula” [SGR], which has in recent years called for steep reductions in those payments. (Congress has repeatedly boosted physician payments, an action called the “doc fix.”)

The scenario projects that Social Security, Medicare, and Medicaid will grow faster than the economy. But CBO also makes an artificial downward adjustment in the future growth rates of the two health entitlements. Without this adjustment – applying historical rates of health care spending growth – Medicare and Medicaid spending as a share of the economy (currently 4.9 percent of GDP) would double in 20 years, triple in 30 years, and equal the size of today’s entire government in less than 50 years. Other spending is allowed to grow with GDP rather than inflation after 2011.

It is noteworthy that even without deliberate tax increases, tax revenue as a share of the economy is still projected to grow – rising from 15.5 percent of GDP in 2009, to 19.9 percent in 2050, and to 21.9 percent in 2080. For comparison, Federal revenues peaked at 20.9 percent of GDP in 2000. Yet even with revenues at historically high levels, spending still outpaces revenue by significant amounts, leading to more government borrowing and debt, and still higher interest payments.
For the complete file see:  
http://www.roadmap.republicans.budget.house.gov/Plan/