Ryan Would Shift the Fiscal Burden to Low and Middle-Income Households

By :: March 27th, 2012

The budget proposal House Budget Committee Chairman  Paul Ryan (R-WI) released last week  is, essentially, an effort to have low- and middle-class households bear the entire burden of closing the fiscal gap and bear the costs of financing an additional tax cut for high income households. 

The Tax Policy Center (which I co-direct) analyzed the revenue policies as proposed by Rep. Ryan. We simulated the effects of repealing the AMT and reducing ordinary income tax rates to 10 and 25 percent.  These proposals would cost about $3.2 trillion over ten years, on top of the $0.3 trillion lost from repealing taxes enacted to pay for Affordable Care Act, the $1.1 trillion lost from his desired reduction in the corporate tax rate, and the $5.4 trillion lost from first extending the Bush-Obama tax cuts (which he also supports). By 2022, the tax policies he has specified would lower federal revenues to just 15.8 percent of GDP.  Talk about digging yourself a hole.

Ryan claims he can fill this hole by eliminating tax breaks, which he correctly identifies as “spending through the tax code.” At first glance, this sounds like a step in the right direction: broaden the base and lower rates. Yet, like many recent proposals, the devil is in the details.  Ryan never specifies which specific tax expenditures he would cut.

At a time when our country faces a daunting fiscal challenge, Ryan asks nothing of the wealthiest Americans. His budget proposal would simultaneously cut tax rates for the rich and corporations while slashing programs for the poor and elderly: he would shift many federal low-income assistance programs to state governments and would transform Medicare into a premium support system that will shift health care costs to seniors if health care inflation cannot be controlled.  

Although I agree that spending cuts are necessary to meet our fiscal challenges, so too are additional revenues, for many reasons.  They are the only way to get shared sacrifice from the wealthiest Americans.  They could reduce the draconian spending cuts that Ryan proposes.  Until he specifies which popular tax breaks he would eliminate, the Republican’s budget is clearly a win for the rich and a loss for everyone else.

Lastly, it is worth highlighting that  Ryan is gaming the system in creating budget estimates. His  budget proposal is too vague to be scored, so he simply told the Congressional Budget Office to determine the effect of his budget proposal **assuming** the proposal achieves its stated goals for spending and revenues. This is not the same as the usual approach – which involves asking CBO to determine whether the proposal actually achieves its stated goals. Instead, Ryan dictates the assumptions he wants and walks away with a seemingly favorable CBO report.  This is smoke and mirrors. Ryan may not be the only politician to use the system this way, but that doesn’t make his actions any more forthright or reveal anything informative about this plan.




  1. Michael Bindner  ::  5:13 pm on March 27th, 2012:

    Ryan is simply off-loading the pain of deciding what tax breaks go away to Ways and Means, as is appropriate. His budget is a negotiating position, likely with a 25% tax rate on capital gains, income, dividends, corporations – with the President holding at 28% for all of the above. I expect the answer to be 27%. Ryan knows, or should know, that he has to eventually give a bit more because Obama could bring back the entire mix of Clinton tax rates by doing nothing and Ryan can’t stop him.

  2. Ralph H  ::  11:53 am on March 28th, 2012:

    A few points. (1) While there is valid criticism in the lack of specifics, any specifics are immediately seized on by the opposition (as was the original Ryan plan). (2) With the exception of the Simpson-Bowles Plan, there is a singular lack of any solution being proposed, and S-B was dismissed by the president rather quickly. (3) The ongoing problem is in entitlemnts, and in particular to those who have not paid for them due to their low tax rate; thus to solve the problem payments likely have to be controlled.

    Personally, unless there is significant reduction in payments to those who have not contribute to tax revenues, I would resist any tax increases. I also reject the concept that deductions are “tax expenditures”. The way I see it, the statutory rate is too high at 35% so any deductions in effect lower it to a more reasonable rate (like 25%). If Ryan trades off the two by limiting or ending deductions and lowering the rate more power to him.

    If there is to be any bipartisan agreement, Mr Ryan will be an important participant, so it is not a good idea to trash him.

  3. AMTbuff  ::  12:25 pm on March 28th, 2012:

    The government needs to break its promises to some combination of bondholders and beneficiary recipients. Middle class recipients will inevitably constitute most of those affected. There is no scenario in which the middle class can be protected. Only the lower class can be protected if the middle class is willing to cover for them, a politically doubtful proposition.

    It’s mathematically impossible for the rich to bear most of the burden of closing the fiscal gap. There’s not enough money is raising their taxes to the sky and cutting off all their promised benefits.

  4. Michael Bindner  ::  5:02 pm on March 28th, 2012:

    No, it needs to break its promises to not raise taxes.

  5. Michael Bindner  ::  5:04 pm on March 28th, 2012:

    S-B was actually mostly adopted by the President, especially the balanced approach and tax reform structures and the need for tax reform to be revenue generating at $150 billion a year, rather than revenue neutral.

  6. AMTbuff  ::  6:15 pm on March 28th, 2012:

    Michael, all the tax increases you can dream up will not close the long-term fiscal gap detailed in Appendix A of http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/115xx/doc11579/06-30-ltbo.pdf

    As a matter of mathematics, unless the curve for government health care spending can be made completely flat, tax revenues at any level will eventually be exhausted. Unless you have a way to tax all the Chinese, then space aliens within an ever-expanding sphere of conquest.

  7. Tax Roundup, 3/29/12 « Roth & Company, P.C  ::  9:12 am on March 29th, 2012:

    […] Gale at Tax Vox says Ryan Would Shift the Fiscal Burden to Low and Middle-Income Households.  News flash, William: the Rich Guy isn’t […]

  8. Ralph H  ::  9:14 am on March 29th, 2012:

    I disagree. The administration has proposed only high income earner tax increases while cxontinuing the givaway to all in the form of the temporary SSI tax break.

  9. Steve Baxley  ::  8:54 am on March 30th, 2012:

    I am wondering if this plan takes the same approach as the prior “Roadmap for America’s Future” with respect to the taxation of interest, dividends and capital gains. The prior plan called for elimination of double taxation by removing these investment income items from the individual tax base. Page 51 in the “Path to Prosperity” suggests that tax reform should promote savings and investment and that raising taxes on capital is a bad idea, but I don’t see a specific provision on the tax rate (or lack thereof) on interest, dividends and capital gains.

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