The budget battles now move into high gear, with political punch and counter-punch being launched. President Obama, through his spokesman David Plouffe, who appeared on all four major Sunday talk shows, is now prepared to join the deficit reduction debate triggered by the filing of the Paul Ryan budget plan. The President will unveil his proposals this week in a speech on Wednesday, and you can expect quite a contrast with the Ryan plan. For now let us look at some of the give and take on Ryan’s plan.
Ryan is praised by David Brooks, who correctly points out that Ryan has moved the difficult choices we face as Americans to the front of the debate.
The best thing about the long-term budget proposal from Paul Ryan, the Republican chairman of the House Budget Committee, is that it forces Americans to confront the implications of their choices. If voters want taxes that amount to roughly 18 percent of G.D.P., then they are going to have to accept a government that looks roughly like what Ryan is describing.
A pretty important point by Brooks, and one that quite frankly has been avoided by the failures of Washington leadership from both parties. It is why I always reserve some praise for Ryan, because he is moving the debate to where it needs to be. And he had the guts to put his plan out, and force people to confront CHOICES. And those choices highlight some of the rest of the Brooks column, as well as the withering attack launched by Paul Krugman on Ryan.
But it should be acknowledged that the Ryan plan has several grave weaknesses.
As presently configured, it is unacceptable to moderate voters and stands no chance of passage. Substantively, it does not address the structural problems plaguing the American economy: wage stagnation, inequality, declining growth rates. It doesn’t have an answer to rising health care costs. Nor does it leave room for future policy creativity; there’s no money to allow future generations to rise to unforeseen challenges. So, while acknowledging that Ryan has done the nation a great service by providing a starting point, we should expect his budget to evolve as the debate goes forward.
First, though Ryan is absolutely right to call for a fundamental reform of the tax code, we should probably aim to generate tax revenues equal to 20 percent of G.D.P., not the 18 percent he proposes. This would allow us to preserve some of the discretionary spending programs that Ryan cuts.
Before we talk about some of the flaws of Ryan’s plan let us look at the Brooks criticism of Democrats on their failure to honestly present the choices we face.
The Democrats are on defense because they are unwilling to ask voters to confront the implications of their choices. Democrats seem to believe that most Americans want to preserve the 20th-century welfare state programs. But they are unwilling to ask voters to pay for them, and they are unwilling to describe the tax increases that would be required to cover their exploding future costs.
And it is true that the Democrats have highlighted the extension of the Bush tax cut for top earners, but it is also true that you can only spend that money once. Sometimes we forget that.
Krugman hits Ryan pretty hard, and it seems to me that he has made some points that will be difficult to rebut. Krugman hits the choices made by Ryan, pointing out the obvious flaws.
n particular, the original voodoo proposition — the claim that lower taxes mean higher revenue — is still very much there. The Heritage Foundation projection has large tax cuts actually increasing revenue by almost $600 billion over the next 10 years.
A more sober assessment from the nonpartisan Congressional Budget Office tells a different story. It finds that a large part of the supposed savings from spending cuts would go, not to reduce the deficit, but to pay for tax cuts. In fact, the budget office finds that over the next decade the plan would lead to bigger deficits and more debt than current law.
So Krugman goes to the heart of the defect in the Ryan plan. Ryan proposes “tax simplification”, which is his methodology of reducing tax rates, especially for corporations and top earners. Ryan avoids what Bowles-Simpson called for, which was the elimination of tax expenditures. And Krugman jumps on the weakness, pointing out that Ryan is financing the tax cuts with cuts to medicare and medicaid. Krugman points out that Ryan’s plan, if it does not meet its revenue estimates, could actually increase the deficit beyond where it is today. So where does Ryan get his revenue estimates? Well that is an interesting question. Ryan “assumes” revenues of 18% of GDP in spite of his tax cuts. The Congressional Budget Office scored the Ryan proposal and points out that they did NO analysis of his revenue projections. They were simply instructed to make revenues 18% of GDP. Ryan relies on the Heritage Foundation for some of the economic assumptions underlying this claim. Krugman shreds them.
It turns out that Mr. Ryan and his colleagues are assuming drastic cuts in nonhealth spending without explaining how that is supposed to happen.
How drastic? According to the budget office, which analyzed the plan using assumptions dictated by House Republicans, the proposal calls for spending on items other than Social Security, Medicare and Medicaid — but including defense — to fall from 12 percent of G.D.P. last year to 6 percent of G.D.P. in 2022, and just 3.5 percent of G.D.P. in the long run.
That last number is less than we currently spend on defense alone; it’s not much bigger than federal spending when Calvin Coolidge was president, and the United States, among other things, had only a tiny military establishment. How could such a drastic shrinking of government take place without crippling essential public functions? The plan doesn’t say.
Ryan’s plan also does not address the underlying cost of health care. His block grant and “premium support” models, without question, hold the line on federal health care expenditures, not by reducing overall costs but by cost shifting to beneficiaries. Ryan does solve a federal budget problem by limiting the governments rate of increase in health care expenditures, but elderly and vulnerable populations will have a benefit that will not go up nearly as much as health care inflation, leaving many, over time, unable to afford coverage.
Ryan has started the debate, but beyond the above his lack of focus on defense spending, his refusal to enact true tax reform which would eliminate unnecessary tax expenditures, and his desire to hew to strict Republican orthodoxy on tax cuts growing revenues, means that the plan as constituted is going nowhere. Lets see what the President brings on Wednesday.