Would the Ryan Budget Significantly Reduce the Deficit?

Wednesday, August 22, 2012 at 3:02 PM by

Analysts Conclude that Tax Cuts for the Wealthy Undermine the Promise of Reduced Deficits

We’re returning today to the topic of the House budget plan developed by Representative Paul Ryan – not because the Janesville Republican is now on the GOP ticket, but for the same reason that we’ve examined that legislation numerous times this year.  It continues to be an extremely important issue because the decisions that are made in the next federal budget could have an even greater impact on future Wisconsin budgets than decisions by lawmakers in Madison.

Most people have the impression that the deep cuts in Paul Ryan’s budget plan would yield sharp reductions in the annual deficits and would bring the budget into balance in the near future.  However, as Matt Miller wrote in a Washington Post column last week, Ryan had to concede in a recent interview that his budget plan wouldn’t bring the annual federal budget into balance until sometime in the 2030s.

Even that very gradual timetable could be far too optimistic because it assumes that his tax plan is “revenue neutral,” and that’s highly questionable, at best – considering that Ryan has yet to name any tax break that he would eliminate to help offset tax cuts totaling more than $4.4 trillion over the next decade (according to the nonpartisan Tax Policy Center).

Ezra Klein addressed that issue in a very good analysis in the Washington Post last week.  He noted that nonpartisan analysts have concluded that for the tax plan to be revenue neutral it would have to eliminate “almost every expenditure in the tax code, including the capital gains tax break and the home mortgage interest deduction.”  

Klein’s commentary struggles with the matter of how to compute and describe the effects of a plan when key details are omitted and the promised goal (revenue-neutral tax cuts) is highly improbable. This is a conundrum for many journalists.  As Klein wrote: “I don’t have a good answer. I’m not comfortable dismissing what Ryan says he’ll do.  But I’m not comfortable assuming that he’s going to do something he’s never done before, that the Republican Party is ideologically uninterested in doing, and that would be nearly impossible to get done.”  

Klein’s analysis shows that if the Ryan budget doesn’t include the elimination of any tax breaks, then it reduces the deficit less than the other major budget plans.  As I noted in a blog post in early April, economist Paul Krugman – the Nobel Prize winning columnist for the New York Times – also concluded that the Ryan budget would leave a bigger deficit than the President’s plan.  But he went considerably further than Klein when he wrote that “the completely unsupported assertion that trillions of dollars in revenue can be found by closing tax loopholes” is so implausible that he called the Ryan plan “the most fraudulent budget in American history.”

Krugman wrote about this topic again Monday, in a column in which he ponders why a plan that is so ill-defined and full of “unsupported assertions” can be cited by some as an example of  “fiscal responsibility.”  He offers several partial explanations and concludes that “ ‘fiscal responsibility’ is often equated with willingness to slash Medicare and Social Security, even if the purported savings would be used to cut taxes on the rich rather than to reduce deficits.

I agree with Matt Miller’s conclusion that the most important issue is not how fast a budget plan reduces the deficit; it’s whether the budget decisions spur or slow economic growth in the near term, and then strike the right balance over the longer term between deficit reduction and the investments needed to protect economic security for Americans.  That said, it’s important to understand what the House budget plan developed by Rep. Ryan would and would not accomplish, and we’ll continue to examine that plan and alternatives in the months ahead and as the next Congress tackles these issues. 

Jon Peacock

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