Rep. Paul Ryan has a plan.
FORTUNE — I first met Paul Ryan at his office in the Longworth House Office Building on a frigid evening Wednesday in late February 2010. The reception area featured frayed burgundy carpeting and the model of a giant cheese wedge, saluting Wisconsin’s prized product. The reed-thin Congressman appeared coatless with a pen behind his ear, his bright red tie askew. His schedule was even more frenzied than usual, since he was prepping for a debate on health care policy the next day at Blair House — a session that produced the now-famous clash between Ryan and President Obama, and elevated the wonkish, still little-known legislator to the national stage.
So we were meeting for dinner, and Ryan said he’d picked a restaurant we could walk to. We strolled downhill — Ryan still sans jacket, declaring “I’m from Wisconsin!”– to a Thai eatery with a red-and-green neon sign flashing “Open.” The décor included Formica tables, plastic chairs, and neon lighting. Ryan greeted a scarce fellow diner, Father Daniel Coughlin, then chaplain of the House, whose early-morning services Ryan frequently attended. The Congressman dined on “Penang curry” and tap water. When I offered to pay the bill for both of us, Ryan insisted that accepting even a meal, no matter how cheap, from a journalist violated federal rules, and settled his own tab around of $15 in cash.
That unglamorous dinner began a kind of moveable policy feast that I enjoyed with Ryan over the next three years. Our discussions during the two days following our trip to the Thai restaurant moved to his cramped office, where Ryan studied policy papers until 11:30PM and regularly slept on a cot, but not always. The legislator told me he also crashed at his sister’s house in Bethesda, where he suffered even more discomfort — “I sleep on a mattress propped against the wall in the basement, but my feet hang over the ends.” I caught the legislator the morning after the Blair House confrontation in the House Rotunda after at TV interview, downing yogurt and strawberries, poised to head home to Janesville, Wisconsin, as he did every Friday morning. I also frequently spoke to Ryan until just a few weeks ago, reaching him by cellphone installing drywall at his Victorian house in Janesville or camped at his daughter’s soccer games, on topics as diverse as the whether America is destined for a European-style VAT and the details of his bold plan to enable consumers to “own” the health insurance coverage they now receive mainly through employers.
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Through all of these encounters, my overriding impression of Ryan was that of an intellectual with a passionate sense of mission––a highly unusual combination in politics. He believes in small government from the viewpoint that it’s morally right in granting individuals the fullest freedom to recognize their potential, and that it’s the most efficient, dynamic system for creating the opportunity to nourish that potential.
For Ryan, the moral vision and the growth projections point the same way––away from our current path. Whatever you think of his ideas, he presents a consistent philosophy of government. Ryan, even his critics concede, isn’t a tactician or triangulator, but a political crusader. What makes him far more than a free-market proselytizer is his mastery of budget math, and his willingness to propose highly specific, concrete solutions. Because the math is now far too dangerous for either party to ignore, Ryan’s ideas, solutions he’s proposed in obscurity for years, are finally being debated as the alternative to a financial crisis.
Whether the bold details on Medicare and other entitlement reform sink or lift the Romney-Ryan ticket is still unknown. The policies I discuss here were the ones Ryan advocated as a Congressman, not necessarily the ones he backs, or will be allowed to back, as a candidate for Vice President. Still, our talks give a view into one of the most influential thinkers on economic policy in recent memory.
In our conversations, Ryan relished the battle over entitlements, and thus far in the campaign, still does. “Because I’m for entitlement reform, I’m an easy target,” he told me during our Thai dinner in 2010. “But I’m glad they’re hitting me. It brings the debate to the fore. I don’t have to do this, but I’ve been doing it for 12 years, while everyone’s been saying, ‘Don’t attack entitlements!’”
In a conversation just before the mid-term elections in 2010, Ryan presented a manifesto for victory that foreshadowed his approach to this presidential race. “People are saying, make this a referendum on failed leadership, win by default,” said Ryan. “Don’t present bold ideas. But the politicians are misunderstanding the ability of Americans to do basic math.”
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In another talk, Ryan argued that entitlement reform is virtually impossible if it’s sprung on the public after an election, without being championed in the campaign. He cited President George W. Bush’s failure to fix Social Security. Voters, he argued, need to hear all the arguments so that when they choose a Ryan-like candidate, they’re making a clear choice for reform — they expect bold measures and embrace the legislation when it’s introduced.
Ryan also described how the hardships of his youth formed his thinking in Janesville, a town where autoworkers lived in the same neighborhoods as the CEO of the Parker Pen Co. “When I started high school, I was carefree,” he says, “I was flipping burgers at McDonald’s. It was all about girls and fishing for musky in the lakes.”
The four Ryan kids––Paul is the youngest––lived in a disciplined household. “We had a ‘chore-board’ that spelled out who was responsible for garbage disposal, lawn mowing and a lot of other tasks,” says his brother Tobin Ryan, now a private equity executive. “Paul was happy-go-lucky, but he grew up fast.” Tobin recalls that it was Paul who carried his grandmother, who was suffering from Alzheimer’s, from her home for the last time, and cared for her in the afternoons after school.
When Paul was 16, his father died of a heart attack during the night, and it was Paul, the only other person in the house, who tried to resuscitate him. “After that, I became a lot more serious, I did a lot of soul-searching,” Ryan told me. “I read Kant, C.S. Lewis, and Camus.” He was also deeply influenced by Milton Friedman’s 1962 treatise, Capitalism and Freedom. “For a long time, I wanted to be an economist, not a politician,” says Ryan. Indeed, his proposal for reshaping the budget, “The Roadmap for America’s Future, Version 2.0,” unveiled in early 2010, is an unusually philosophical document, referring frequently to the views of both European and American free-market thinkers, citing the confluence of thought between the Founding Fathers and Adam Smith.
In our conversations, Ryan made no effort to leaven his message with charm. His brother Tobin insists that Ryan is absolutely hilarious at rehearsal dinners for his siblings, as MC of rollicking slideshows of set to music and chronicling family misadventures. Surprisingly, his light side is barely present in politics. He’s not about small talk or schmoozing. “Frankly, he isn’t fun to be around,” says his pal and intellectual soulmate, Congressman Devin Nunes (R-Cal.). Nunes, by the way, hates it when Ryan drags him to tasty-but-charmless nearby Thai for dinner.
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It’s important to distill Ryan’s Big Theme from the maze of detail and numbers presented in the “Roadmap.” The overarching idea is that America must both reduce and radically change entitlements for the middle class in order to preserve them for those in need, the sick and the poor. Ryan’s argument is that if the growth of welfare for middle-income Americans continues, the resources available for those who really need it won’t be there.
The concept for his solutions to Medicare, private health insurance, and Social Security are similar: Give the money that the government or employers collect in taxes or effectively withhold in wages directly to consumers. Then let people shop for health insurance or retirement plans with their own money. “The idea is to empower consumers to shop for the best prices and service,” says Ryan. “The problem is the third-party payer system that separates people from their own tax dollars,” and, he adds, eliminates all incentive to seek the best deals.
Ryan’s blueprint calls for replacing open-ended spending with fixed payments or tax credits that grow at a predictable pace. He wants to move America from defined benefits to defined contributions, and tame the budget in the process. To be sure, the middle class would effectively get less money from the government than in the current system, but Americans would recoup much of those lower subsidies through reduced prices and better service. And slowing the march in government spending would restore animal spirits to the private sector, virtually guaranteeing the strong growth that’s been an American hallmark. Once again, the vision looks like a fantasy to the Obama folks. But even Ryan’s foes concede that doing nothing means an inevitable financial crisis, with only the date up for debate.
A mostly overlooked example of Ryan’s reforms is his proposal, or at least his former proposal, on private health insurance. It’s typically daring. Ryan argues that the tax exemption granted exclusively to individuals who get their coverage through employer-sponsored plans is the central problem with private healthcare. It’s not the tax break per se, it’s that workers don’t get the same treatment if they buy their own policies. Hence, they can’t take coverage with them when they move from one job to the next. If the new employer fails to offer coverage, they’re uninsured, even though they’ve effectively been paying premiums––in the form of foregone pay––for years.
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Ryan proposes taxing policies provided by employers as what it is, additional income. He’d replace the employer exemption with a $5700 tax credi for families, not just a deduction, for buying private insurance. The probable result: Employers would hand their workers higher salaries, and stop providing insurance. America would move toward high deductible, market-driven plans. Low-income Americans would see the credit rise far faster year over year than high earners.
The Ryan plan could gradually end employer-based coverage as we know it. It’s a typical Ryan leap-of-faith: Grant individuals far more control over tax dollars, greatly reducing certainty but giving them far more clout as consumers, and creating a real medical marketplace at a time when the current course will eventually mean rationing.
Opponents are unjustly caricaturing Ryan’s budget proposals as radical, brutal shrinkage of government. Those attacks demonstrate just how bad the scenario becomes without Ryan’s “cuts.” In fact, Ryan’s budget does not lower total spending at all, it simply reduces the unsustainable rate of growth. By 2030, under his plan, outlays as a share of GDP would remain at about today’s level of 24%, three points over our historic average. In other words, his solution is to get spending growing in line with GDP, instead of transferring more and more resources from the private to the public sector. His argument is that the latter course lowers growth as it shrinks what really gives the economy its juice — job-creating, productivity-generating capital spending by America’s businesses large and small.
Over the years, Ryan has frequently expressed his fears that America would embrace a European-style value-added tax as the only solution to its budget woes. A financial crisis, he warns, could bring a VAT. “Those leading the country today would be comfortable with a VAT,” says Ryan. “If we get one, we will join in the managed decline agenda we now see in Europe. Obama wants more spending and an entitlement state. The only way to pay for that is a VAT, where revenues keep chasing the higher and higher spending.”
Back in 2010, Ryan said this about Obama. “We were on the route to managed decline before Obama. He made it worse. His mis-read the country fundamentally by thinking it’s left of center and that marketing and politics, not policy, are the solutions.” We’ll soon know if Paul Ryan’s feel for the American voter is as sure as his grasp of financial issues he’s so laboriously mastered.
