Ryan’s Goal: Low Taxes and Small Government, not a Balanced Budget

By :: August 14th, 2012

Paul Ryan is often identified as a deficit hawk. And while he regularly talks about the importance of balanced budgets, that’s not what matters most to the GOP’s soon-to-be vice presidential nominee. Ryan’s holy grail is low taxes and small government, not fiscal balance.

Those priorities are clear in the fiscal plan Ryan wrote for the House Republicans last spring. Ryan, who chairs the House Budget Committee, was the architect of the House’s 2013 fiscal framework--a plan that wouldn’t balance the budget until after 2040.

In fact, looking at the next 10 years—the budget window that really matters to Congress—Ryan’s deficit would be roughly identical to the Congressional Budget Office’s baseline. At the end of the period, in 2022, they’d be exactly the same. In other words, Congress would achieve the same amount of deficit reduction by doing nothing as it would by following Ryan’s blueprint.

To be sure, that is significant deficit reduction--much more than President Obama has proposed  and more than some think the economy can tolerate, at least in the near-term. Yet, the real story is in the level of spending and taxes that Ryan favors, not the gap between them.

CBO’s March, 2012 baseline projects a deficit in 2022 of about 1.2 percent of Gross Domestic Product. Ryan’s “Path to Prosperity,” which became the framework for the House budget, brought the 2022 deficit down to exactly the same 1.2 percent. No difference in the top line.

Now, look at revenues and spending under the two scenarios. Under the CBO baseline, the federal government would collect 21.2 percent of GDP in taxes and other revenues and spend about 22.4 percent. The Ryan budget would collect far less—about 18.7 percent of GDP in revenues—and spend much less—about 19.8 percent of GDP.

Thus, the deficit is the same but Ryan’s levels of taxes and spending would be dramatically lower than the CBO baseline.

Keep two very important issues in mind as you think about this: First, Ryan would collect that amount of revenue only by eliminating trillions of dollars of tax preferences, which he has not specified. In earlier fiscal plans, notably his Roadmap for America’s Future, Ryan would have scrapped just about all tax preferences (though he would have made capital gains and dividends tax-free). But his latest plan did not describe which subsidies he’d eliminate.

While he proposed specific individual and corporate tax rates and the repeal of the Alternative Minimum Tax, he left the heavy lifting of paying for it all to others.

Absent those offsetting tax increases, the Tax Policy Center figures Ryan’s 2013 budget plan would generate revenues of only about 15.8 percent of GDP in 2022. Without those base-broadeners, Ryan’s deficit in 2022 would balloon to about 4 percent of GDP.

That would be higher that the projected deficit under Obama’s fiscal plan, which CBO projects would be about 3 percent of GDP in 2022.

The second important issue to keep in mind is Medicare. Because Ryan (wisely in my view) would not begin changing Medicare until 2023, none of the cost savings from his plan to turn the program from a defined benefit system to a defined contribution program show up in those first 10 years. Over time, those Medicare changes would dramatically reduce federal spending, either by lowering overall costs or shifting those expenses to seniors, or both.

The other day, the Washington Post’s Ezra Klein noted that Ryan was less of a deficit hawk than advertised, and he used as evidence Ryan’s votes in favor of the bank and auto bailouts and, earlier, his support of President George W. Bush’s Medicare Part D drug benefit—all of which added significantly to the deficit.

Those are legitimate points, but you don’t need to dig up old Ryan votes to see where his priorities are. Just look closely at his 2013 budget.

33Comments

  1. denim  ::  7:08 pm on August 14th, 2012:

    An unregulated “free market” and a small government are interesting goals.
    One needs to understand that an unregulated “free market” and small government means that the minimum price of goods, services, and wages is zero. The price goes up as the bids increase the demand. The government is too small to prevent scams,behind the scenes collusion, and manipulation of the market. It is “dog eat dog” and one dog eventually dominates the pack. As John Kenneth Galbraith put it, one needs the “Countervailing Power” of a triumvirate of big business, big labor, and an activist government. In my view, the Romney-Ryan-Tea Party want to destroy or greatly cripple the latter two.

    John Kenneth Galbraith:
    “In “American Capitalism: The Concept of Countervailing Power”, published in 1952, Galbraith outlined how the American economy in the future would be managed by a triumvirate of big business, big labor, and an activist government. Galbraith termed the reaction of lobby groups and unions “countervailing power.” He contrasted this arrangement with the previous pre-Depression era where big business had relatively free rein over the economy.”
    http://en.wikipedia.org/wiki/John_Kenneth_Galbraith

  2. AMTbuff  ::  10:47 pm on August 14th, 2012:

    It’s easy to carp about Ryan’s plan. I admit it’s incomplete. What’s much harder is to come up with an alternative that’s better and that’s at least as complete. Only Bowles-Simpson has come close, and Obama wouldn’t touch it with a 10 foot pole. Senate Democrats refuse even to assemble a budget, relying on continuing resolutions rather than stating their actual plans and priorities.

    If the contest is between an imperfect plan to avoid fiscal collapse and no plan, I’ll take the imperfect plan. Obama has no plan, or at least none he cares to admit to. When he has a plan I’ll pay heed to criticisms of Ryan’s plan, but not until then. Serious commentators should do the same. The people deserve an honest debate, not a pretense that everything will be fine if we just close our eyes and ears to Ryan’s plan.

  3. Tax Roundup, 8/15/2012: Revenge via 1099-C? Plus more on taxes in the campaign, and answering tough questions about your accounting job history « Roth & Company, P.C  ::  9:14 am on August 15th, 2012:

    […] Ryan’s Goal: Low Taxes and Small Government, not a Balanced Budget (Howard Gleckman, TaxVox). All three would be nice, but right now two out of three would be a huge improvement. […]

  4. Michael Bindner  ::  4:34 pm on August 15th, 2012:

    Len Burman uses a defined benefit plan for all health care in his VAT funded proposal, which eliminates Medicare and Medicaid as separate programs and ensures universal coverage and community rating. That actually makes some sense, but neither plan goes to the root of the problem with Medicare and health care costs in general, which is not cost but price. Health care is very profitable and many providers, both in the supply and service areas, have monopoly power. For example, if you live in Virginia, your hospital is either INOVA or Kaiser. Until either single-payer or regulation as a public service come about, prices will continue to increase. I suspect that costs are being managed quite well by company bean counters, which means quality is low while costs are high.

    What is worse in the Ryan budget is his contention that welfare keeps people poor and should be cut – with the states doing the dirty work. Where some economists believe Medicaid should be totally federalized, Ryan would devolve them and make some states really good providers of services with a willingness to raise taxes to cover the shortfalls, while others become really bad providers – keeping taxes low to attract business – however because the businesses are in right-to-work states the pay and benefits won’t be that good either. Such a bifurcation of our financial life will really bring about two Americas in a way that can’t be sustained and may finally give Marxian theory a true test in the United States (of whether the proletariat will ever revolt when pushed to the wall).

  5. Michael Bindner  ::  4:39 pm on August 15th, 2012:

    His plan is to trust his health care reform to cut costs, cut the military at the sequester amount, raise taxes on the wealthy and let interest cost cuts make up the rest of the cost of making the tax cuts for all but the top 2% permanent.

  6. TaxVox » Blog Archive » Ryan's Goal: Low Taxes and Small … « Double Taxes  ::  10:44 pm on August 15th, 2012:

    […] the original post here: TaxVox » Blog Archive » Ryan's Goal: Low Taxes and Small … Comments […]

  7. full view  ::  2:31 pm on August 16th, 2012:

    “In other words, Congress would achieve the same amount of deficit reduction by doing nothing as it would by following Ryan’s blueprint.”

    right. but with the Ryan blueprint you don’t suffer the negative affects in the short-term of the fiscal cliff. omission of facts, or observing only specific pieces of a whole reality. Urban and Brookings self-described as non-partison. right.

  8. full view  ::  2:34 pm on August 16th, 2012:

    his healthcare plan is projected to increase costs, not cut them.

  9. Tom Hellene  ::  11:19 pm on August 18th, 2012:

    No one that understands finance at all would believe the budget can be balanced without raising taxes on more than the “wealthy”. And in what universe will interest costs drop as deficits continue and interest rates can’t go lower. Finally, even when the CBO says the ACA is balanced they add the caveat that they are required to use the assumptions Congress sets, but they recognize history argues against that actually happening.

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