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House Budget Chairman Paul Ryan
House Budget chairman Paul Ryan shows a copy of The FY2013 Budget - The Path to Prosperity during a news conference at Capitol Hill. Photograph: Jose Luis Magana/Reuters
House Budget chairman Paul Ryan shows a copy of The FY2013 Budget - The Path to Prosperity during a news conference at Capitol Hill. Photograph: Jose Luis Magana/Reuters

Paul Ryan introduces Republican budget's sweeping Medicare reform

This article is more than 12 years old
Representative proposes 'competition' in Medicare to cut spending, but it could prove toxic to the GOP in an election year

Congressional Republicans have proposed a budget of sweeping spending cuts, tax reductions and reform to healthcare for the elderly that threatens to prove politically toxic for their party in an election year.

The chairman of the House of Representatives budget committee, Paul Ryan, launched the document by playing on fears of rising debt to propose the introduction of "competition" to Medicare in order to cut growing government spending on the programme and balance the budget by 2040.

But the Republicans swiftly faced accusations of putting tax cuts for millionaires ahead of healthcare for sceptical seniors who forced Ryan to back away from a similar proposal last year after party leaders feared a backlash at the polls. Critics have also portrayed the Republican plan as seeking deep spending reductions in order to avoid mandatory cuts to the defence budget kicking in next year.

The Republican proposals have little chance of making it through the Democratic party-controlled Senate but they will help frame debate on spending and the economy in the run up to November's presidential election.

Ryan set the tone in launching the budget proposal by accusing Barack Obama of drowning the country in debt by refusing to cut spending fast enough.

"We know in front of us is one of the most predictable crises we've ever had in this country's history: a mountain of debt that is coming. This is what the Congressional Budget Office is telling us our future is going to look like. This is the future that the president's plan of debt and decline brings us to," he said.

The Republican plan is built around an additional $5.3tn in savings by cutting government spending over the coming decade. About half would come from reductions in healthcare provisions including scrapping Obama's reforms, which is the subject of a supreme court hearing next week.

Under the Republican proposal, deep spending cuts would bring the deficit down from its present $1.18tn to $797bn in 2013 – nearly $200bn less than under the president's plan.

But the Republicans are facing charges of robbing the poor to pay the rich with what Ryan called the "hallmark" proposal to reduce personal income tax from six brackets to just two rates: 10% for most people and 25% for high earners.

Companies would pay tax only on what they earn in the US at a rate of 25% – a reduction of 10% – which Ryan described as "at the international average".

Obama proposes to raise taxes on the wealthy, bringing in $2bn more in revenue than under Ryan's plan.

The White House described the Republican proposal as unfair and failing "the test of shared responsibility".

"It would shower the wealthiest few Americans with an average tax cut of at least $150,000, while preserving taxpayer giveaways to oil companies and breaks for Wall Street hedge fund managers," said the White House communications director, Dan Pfeiffer. "The House economic plan draws on the same wrong-headed theory that led to the worst recession of our lifetimes and contributed to the erosion of middle-class security over the last decade."

The riskiest proposal for the Republicans is the plan to shrink and reform Medicare to "empower with choices" by switching from federally funded healthcare for the elderly to government subsidies for private insurance.

"We propose to save and strengthen Medicare by taking power away from government bureaucrats," said Ryan. "We believe competition and choice should be the way forward versus price controls that lead to rationing."

The proposal is an amended version of one he introduced last year but was forced by the Republican leadership to abandon after a sharp reaction against it from elderly voters fearful of any tampering with the programme.

Ryan tried to offset the potential political damage for his latest version by saying it would be preserved in its present form "for today's seniors".

The White House condemned the proposals by saying that "Medicare, the House budget would end Medicare as we know it, turning the guarantee of retirement security into a voucher that will shift higher and higher costs to seniors over time".

Bob Beckel, a former Democratic party presidential campaign strategist, called the Medicare proposal "a loser" for Republican candidates.

"What he does is take Medicare and turn it over to the private sector with a government allowance," he said. "You take that out and try and campaign on it and see what happens."

The budget plan also proposes to shrink Medicaid, which provides healthcare for the poor, by passing control to individual states with block grants that are hundreds of billions of dollars less than the present spending. In addition, there would be further cuts to welfare payments to the needy.

The Democrats accused the Republicans of reneging on a deal reached in August that set the government spending level at at $1.047tn for discretionary spending. Ryan's budget puts it at $1.028tn.

Republicans say the agreement did not require spending up to the limit. The Democrats say otherwise.

The chairs of the Senate budget and appropriations committees, Kent Conrad and Daniel Inouye, have written to the House speaker, John Boehner, to war that an attempt to revise the $1.028tn debt cap will complicate this year's negotiations and "represents a breach of faith that will make it more difficult to negotiate future agreements".

Patty Murray, a Democratic party member of the Senate budget committee, said: "By desperately attempting to appease their extreme conservative base, House Republicans are reneging on a deal their own Speaker shook on less than eight months ago. They have shown that a deal with them isn't worth the paper it's printed on and they are threatening families across America yet again with the prospect of a government shutdown."

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