Arguments Blog
Wednesday, Apr 6, 2011, 11:50 AM

The Ryan Budget: Voodoo Economics Redux

Isabel Sawhill

Paul_Ryan.jpgOn Tuesday morning, Republican Representative Paul Ryan released a budget plan that would slash spending over the next few decades with no increase in taxes and very limited cuts to defense programs. It’s like a stool with only one leg. It will not stand.

Although it’s a wobbly stool—in both political and in policy terms—it will have a big impact on the debate. David Brooks calls it “a moment of truth,” noting that despite a presidential commission that has issued a bold plan for getting our fiscal house in order, the President failed to endorse its work.

How should the President and other progressives respond? For starters, progressives should be unabashed in labeling the Ryan plan for what it is: an ideological manifesto for a Tea-Party-dominated Republican Party.

Here’s what the progressive rebuttal should be in a nutshell: 1) point out that voodoo economics is back in full gear; 2) start talking about tax reform and its potential to produce a fairer, simpler, and more pro-growth system that has the added advantage of plugging a big hole in the budget; 3) instead of worrying about protections for the elderly, many of whom are quite affluent, remind people that, whether young or old, wealthy Americans have made out like bandits in recent decades and that it’s time to do something for working families of modest means; 4) rethink America’s defense posture and whether we can continue to be the world’s policeman, and 5) be open to some reforms to Medicare and Medicaid but only if they’re combined with additional revenues and a more streamlined military.

Voodoo Economics. The economic projections in the plan are straight out of Alice in Wonderland. Big cuts in spending produce an unemployment rate of 2.8 percent. Wow. The Mad Hatter has joined the Tea Party. No mainstream economist can do anything other than laugh at the audacity of the claims.

Tax Reform. Tax reform is badly needed, and Ryan’s plan recognizes its productivity-enhancing effects, but devotes all of the proceeds from eliminating a host of deductions to reducing tax rates to 25 percent on both individuals and businesses. If we kept tax rates at current levels, or even reduced them a bit, we would be able to plug a big chunk of the deficit hole. A liberal competitor to Ryan’s plan would eliminate half of current deductions, producing about $5 trillion in new revenues over the next ten years. It would also allow the Bush tax cuts for all but the lowest-income households to expire, producing another $4 trillion or so. The two combined could, by themselves, solve the near-term problem. But this stool would also be a bit wobbly and unbalanced. It would affect the middle class, not just the rich, and thus would face a storm of protests from a wide swath of the public.

Fairness. What Ryan has done is politically risky and some Democrats are undoubtedly salivating over the prospects of defending Medicare and Medicaid from the kind of deep cuts that Ryan’s plan entails. And while Ryan ducked getting specific about Social Security, he insisted that it’s broke and called on the President to come up with a plan to make it solvent. Given the overwhelming political popularity of Medicare and Social Security, one option is to simply play this for everything it’s worth in political terms. Even supporters of the Tea Party have been known to complain that a government takeover of health care would be unwise because it would involve “messing with” their Medicare.

My own view is that these programs are a big part of the problem and that they can be reformed in ways that protect vulnerable groups and make them fiscally sustainable over the long run. As I have argued elsewhere, if they aren’t reformed, it is working-age families and their children who will be hurt. So rather than focus just on protecting Medicare and Social Security, progressives should instead keep emphasizing the distributional implications of the entire Republican package, including cuts in Food Stamps and other safety net programs. According to a new analysis from the Center for Budget and Policy Priorities, two-thirds of the cuts in Chairman Ryan’s plan would fall on lower-income families, while the wealthy would clearly benefit from lower taxes. Yet 90 percent of the gains in income since the 1970s have gone to the top 10 percent of the population.

The Military. Another option is to cut defense. The Ryan proposal endorses Defense Secretary Gates’s effort to cut $178 billion over 10 years and reinvest $100 billion in new capabilities. That makes for a savings of $78 billion over 10 years, which is not a lot of belt tightening. Terminating operations in Iraq and Afghanistan and making a 10 percent cut in the Pentagon’s core budget would, by contrast, save something like a $1 trillion over a decade. Given that our defense budget is more than four times that of China’s and represents 40 percent of all military spending in today’s world, how can we ask taxpayers to tighten their own belts when the defense establishment gets a virtual pass? We need an adequate defense, but all parts of government need to contribute to fiscal restraint.

Medicare and Medicaid. In the end, we are going to have to limit the growth of spending on public health-care programs, although not as drastically as Ryan proposes. Rapidly rising health-care costs along with the aging of the population are the root cause of an exploding level of debt over the next few decades. The Ryan plan attempts to solve the problem in two ways: First, by subsidizing the purchase of health insurance instead of paying directly for care in the open-ended, fee-for service Medicare system; and second, by block-granting Medicaid to the states.

Together these two provisions would sharply reduce spending on Medicare and Medicaid. Critics of the proposal complain that it will leave some low-income and elderly Americans without affordable health care. That’s clearly a risk. However, if premium subsidies are structured in a way to provide adequate health insurance to vulnerable groups, they need not be adversely affected. To be sure, more affluent seniors would have to pay more out of pocket. We should keep in mind that the Affordable Care Act already calls for a slower rate of growth in Medicare after 2015 and empowers an independent advisory group to recommend changes that would accomplish a rate of growth similar to what Ryan is proposing. Everyone realizes that slower growth in health-care costs is essential to sustain the system over the longer run, and all the evidence points to our getting very poor value for our health-care dollar. Spending on health care does not necessarily lead to better health as dozens of other advanced countries have shown. Finally, by capping the growth rates for these programs, the system would be forced to find more efficient ways of delivering care, and some resources would be freed up for investments in education, research, and infrastructure, and for helping lower-income families and their children join the middle class.

Unfortunately any hope that Ryan would rise above party politics and seek compromise with Democrats or even the moderates in his own party has been dashed by this proposal. At bottom, his plan is an ideological platform for the 2012 campaign—a Tea Party manifesto clothed in some nice rhetoric and sprinkled with a few good ideas.

Isabel Sawhill is the director of the Budgeting for National Priorities project at the Brookings Institution, where she also co-directs the Center on Children and Families.

 

COMMENTS: 19
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Alex:

I am glad Ryan put his proposal on the table. Whether you agree with him or not, this is a discussion our country needs to have and decide. Our government continues to tax us too much overall and with a poorly designed system that creates crazy outcomes like GE not paying taxes.

But we need to have serious discussion, not just calling something Voodoo economics. That just does not help.

And you should get real about the Affordable Care Act. It will not lower the cost curve. It is full of phony cost cuts that will never happen.

I've seen what the UK healthcare system looks like and the results of a panel making decisions. The result is just plan bad.

At least Ryan's proposal would re-engage people in how much health care costs and in making decisions that are best for them. This is only kind of reform that will start to change the cost curve in a meaninful way if you ask me.

Apr 6, 2011, 3:08 PM
Kimo Hana:

This is great. You accuse Congressman Ryan of publishing an "ideological platform" and your response?

An ideological counter-rant hackjob complete with Mad Hatters, class warfare, and scare tactics.

Unless the Left comes up with a viable response that actually improves on Ryan's proposal, it's done. This is your chance. I am disappointed that democracyjournal.org which positions itself as a thoughtful liberal journal had to lower itself to the gutter.

It speaks volumes on the utter inability for the Left to envision a viable way out of the current mess we are in.

This budget is the greatest challenge the Left has faced since its Wilsonian foundation. Yet it faces this existential threat by voting "Present". Sad. For you.

Apr 6, 2011, 3:33 PM
Mike:

Amazing! First the LAST President and his cronies create this unbelievable mess and now we're supposed to believe that the same old republicon rape and pillagers are going to fix it ? What a freakin' joke !

Apr 6, 2011, 3:48 PM
Todd Ingalls:

I think one of the first things that must be done is to stop repeating the lie that the debt commission issued a report. It in fact failed to issue a report it was only the co-chairs that issued their blueprint.

Apr 6, 2011, 3:48 PM
David McClurkin:

If the Affordable Care Act already calls for a slower rate of growth in Medicare after 2015, why should it be thrown out? How is that Act inconsistent with the sort-of-like-a-voucher system that Rep. Ryan puts forth? This is all about 2012 Budget. Right? It seems like there is the matter of continuing 2011 and being adult enough to keep the government functioning. First things first, please.

Apr 6, 2011, 4:02 PM
chris murphy:

actuaaly Ryan's plan is evn worse than your description. Under the Ryan plan the everyone with incomes up to $128,000 will be paying more in fed income tax. The bottom 20% will pay 12% more while the top 1% will get a 15% tax cut.

http://ctj.org/pdf/ryanplan2010.pdf

Apr 6, 2011, 6:08 PM
Sacrifice:

Both political parties are profoundly dishonest in approaching the resolution to this impending fiasco.

What should happen is:

a) All the Republican cuts should be implemented. Which will drastically cut spending.

b) All Democratic tax increases should be implemented which will drastically cut the deficit.

In this way, the problem will be solved, and no one will be happy. This sort of crisis does not lend itself to happy endings unless you are dreaming.

- My modest proposal...

Apr 6, 2011, 9:19 PM
Mark Braly:

I'm surprised that so little has been made of the fact that Ryan's cuts do nothing to reduce the deficit, although that is supposed to be the reason for them. His spending cuts after ten years are about equal to tax cuts for the wealthy.

Apr 6, 2011, 9:23 PM
Screedster:

Ryan's proposal has the veneer of seriousness but is really just the same old copremesis from the sociopathic entity known as the Republican Party. It's time to call it out for what it is, and time to get your class war on.

http://screedster.blogspot.com/2011/04/get-your-class-war-on.html

Apr 7, 2011, 9:44 AM
peter john:

Ryan's plan is the fastest way to destory the American economy. The cuts in spending will reduce demand and greatly increase unemployment. While the tax cut to the rich will increase the amount of Excess Capital they already have. This Excess Capital will be used for speculation which will cause boom and bust. An example of this is the roaring 20's followed by the Great Depression.

Apr 7, 2011, 10:02 AM
Matt:
Critics of the proposal complain that it will leave some low-income and elderly Americans without affordable health care. That’s clearly a risk. However, if premium subsidies are structured in a way to provide adequate health insurance to vulnerable groups, they need not be adversely affected.

The screaming teahadis in this comment section notwithstanding, this is awfully close to fluffing Rep. Ryan's plan. If the subsidies "provide adequate care for vulnerable groups", then we could have provided the same care for LESS by not handing out profits to insurers. There are exactly two possible outcomes of Rep. Ryan's attempt to blow up Medicare:

- vouchers prove to be woefully inadequate, Congress gives in and now we're not only failing to contain cost growth but also lining insurers' pockets with 20% markup

- vouchers prove to be woefully inadequate, Congress decides it doesn't care, SENIORS DON'T GET CARE

Neither of these do anything to actually solve the problem, and that's just one of many reasons that this "plan" is completely ridiculous.

Apr 7, 2011, 1:31 PM
richard:

"How should the President and other progressives respond?"
obama a progressive? sorry, but you lost any credibility at that point. why waste my time with anything else you wrote?

Apr 7, 2011, 4:14 PM
Sid:

"5) be open to some reforms to Medicare and Medicaid..."

Didn't the president just try to reform Medicare with the Health Plan that was roundly criticized by republicans as "pulling the plug on grandma"?

Why should progressives have to respond to the Ryan plan?

Isn't the Ryan plan just a response to the Health plan that the President already put out there?

How quickly we forget...

Apr 8, 2011, 12:13 AM
Marion:

I wish that Ms. Sawhill would not dismiss the problems of all the elderly by saying that many of the elderly are affluent. Not all the eldlerly are wealthy, and many live at or near poverty levels. These elderly need all the protection they can get.

In fact, this whole piece is a rather superficial response to what will be considered by many as a serious proposal. It deserves a more thoughtful response from those of us who find the proposal abhorrent.

Apr 9, 2011, 1:20 PM
Benandstacy:

I'd be willing to take Paul Ryan's plan more seriously if it truly cut the deficit but it doesn't, in fact it removes further revenues with an even more ridiculous tax cut for the super-wealthy while boosting taxes for the poor. There are serious and thoughtful Republicans out there, but Ryan is not one of them. Nor was Bush before, for all the talk about balancing the budget and fiscal responsibility, he sure knew how to run up a deficit as never seen before, despite the relative prosperity of the country in comparison to the current state.

There have been many societies in the past that have tried to run their governments just like this, by giving the already privileged leisure-class aristocracy even more tax breaks, while shifting the tax burden to the lower-class working-stiff Morlocks who are already struggling to get by as it is. Those societies never succeed. Never. You can't support a government and stimulate an economy by crippling people who are already poor and desperate even further, while giving the already rich, who have benefited disproportionately from the public support of a first-world country, still another pass to avoid supporting the nation that made them rich in the first place. I'm an Independent, but it doesn't take a flaming revolutionary to realize something that's so common sense to nearly everyone.

In fact, the most prominent example of a Ryan-style revenue system, of brutalizing the poor while removing any burden from the plutocrats and oligarchs, was pre-Revolutionary France in the 1770's. And we all know how well the ravenous aristocracy fared there.

Apr 9, 2011, 11:52 PM
palomine:

'obama a progressive? sorry, but you lost any credibility at that point.'

Huh? I like many other progressives have been critical of Obama in many circumstances, but the record shows he's as progressive a President as we've had since JFK and LBJ. Under his guidance, in barely over two years amid crippling political paralysis and inheriting the worst economy since FDR after Hoover, Obama has managed more than almost any other President in his first two years:

- repealing DADT
- stopping Sally Mae's outrageous rip-offs of college students and reforming student loans to help graduates
- getting funds to help the stricken 9/11 volunteers
- promoting research into alternative fuels (part of the '09 stimulus package)
- getting a package of small-business loans
- getting tens of billions of dollars to support teachers and other public workers in late 2010, and closing an outsourcing-tax loophole to do it
- reforming health care (yes, a flawed first attempt, but FDR's New Deal started the same way)
- getting us out of Iraq (yes, in peacemeal fashion, but doing it nonetheless)
- providing extensions to unemployed workers caught up in the economic crisis
- passing the Recovery and Reinvestment Act with a stimulus that went to the states and supports Medicare and Medicaid
- standing up to Republican attempts to gut Social Security and Medicare
- appointing other progressives like Hillary Clinton to positions of power and decision-making (far more of these than the Geithner types)
- defemding American workers from foreign import tariffs for tires and other items
- passing a landmark financial reform bill
- appointing Elizabeth Warren to create the country's financial watchdog (as much or more important that eventually running it)
- appointing two progressive liberal women as Supreme Court justices and a host of liberal federal judges

To the extent that other parts of Obama's agenda, like restoring a sensible tax rate on the super-rich and the DREAM Act, haven't passed yet, that has a lot to do with Republican obstructionism. Has he slipped up at times? Of course, what President wouldn't especially with such ridiculous demands, he can't be everywhere at once. But he's supported progressive causes and done so successfully to an extent matched by few other leading figures.

And that's how it's always been, that's how the Founding Fathers designed our government, to move slowly and with great difficulty esp in times of partisan polarization, like before the Civil War and now.

Those who complain that Obama "isn't progressive enough" are simply delusional, completely unaware of the USA's history and the constraints placed on our political system, wanting to have everything handed to them on a silver platter rather than fighting for it. Positive change in the US has always been peacemeal, even for FDR and LBJ, it took decades for the New Deal reforms to come into their modern form. And FDR and LBJ never faced anything close to the rabid obstructionism and polarization that Obama has, so it boggles the mind that he's been able to get so much done in spite of it.

I'm even starting to suspect that some of the "Obama isn't progressive enough" whiners are actually agent provocators hired by the Koch Brothers or others like them, it's such a ridiculous and unsupported claim that it has the ring of enemy operations trying to disrupt progressive unity. So whether naivete or provocation, the charge holds no weight. Obama has accomplished a tremendous amount in a very short time despite mind-boggling odds, and he and the Dems for all their flaws (and yes they have them), still very clearly take the side of working Americans against the uber-wealthy trying to ruin the US with a massive collection of gated communities and a return of 19th-century feudal-style exploitation, witness all the Congressional votes with nearly all Dems standing up for workers and nearly all Repubs trying to weaken the middle class and working Americans. Obama deserves great credit for accomplishing so much for the progressive cause in spite of all this.

Apr 10, 2011, 1:33 AM
Harold Foster:

This is all well and good. But the Republicans, especially the tea party hard right, have highjacked the microphone in this debate.

Large, overwhelming majorities, of the US public -remember THEM??? - favour a simple, straightforward approach to dealing with a fiscal crisis that, let us remember, was largely the doing and making of the Republicans from 1995 through the Great Meltdown of 2008:

- fair share taxation of the truly wealthy, who, after all, now own or control over 25% of all the nation's wealth

- no dickering with entitlements

- a financial transactions tax (estimated to raise $1 trillion over 10 years) to finally get back from Wall Street a sliver of the bail-out money we taxpaying shlubs have given them since 2008

- a $100-$125 billion "hard" reduction in defense spending each year over the next five years

- restoration of those provisions of the original Affordable Care Act that would REALLY have reduced medical expenses and administrative costs over the next decade-odd, including provision of a robust "public option" and federal government "single buyer" dealings with Big Pharma, to really force the private health care and pharmaceutical industries to compete for their fair share of a single, national health care market

- repeal of those provisions of the so-called Bush tax cuts that favoured the really wealthy (households making over $250,000 a year), and

- (finally) treating capital gains and other "wealth and investment increments" as ordinary income in the tax code (another estimated additional $1 trillion in revenue over the next decade).

Apr 11, 2011, 11:55 AM
JoeWil:

I found the article unsettling, in lumping the proposal as Voodoo economics to win the gratitude of a few right wing nuts in the TEA party movenment. Unless, Isabel was comotose, she would have recognized that the independent voters are the prize for the elections.

Democrats are firmly in the camp of the current President and ultra-conservatives will grumble but support the GOP nominee. The war for hearts and minds of independents is where the battle is. I agree that assumptions are rosy and some forecasts are improbable, but action, even though it maybe all elbows and knees with minimmal progress, is preferred by independents to inaction.

Ryan's plan sets the debate, catches your attention and is the defacto yardstick against which the upcoming debate is measured. But that the president pulled the best of the Presidential commission, or the Rivlin led group, it would be easy to dissmiss Mr. Ryan as a pipe dream.

Entitlements will be rolled back and social contracts will be changed. It will happen if democrats guide them responsibility, of if the IMF dictates the terms in a few years as increasing cost of refinancing debt skyrockets teeteering us on default.

Stop being the world's policeman. Not in our life-time. Raise taxes on the wealthiest. In case you missed that billionaires are casting money to charities instead of contributing it to estate taxes. Accumulated wealth of the upper 5% is not enough to resolve the national debt.

The way to combat the ryan plan is to state he is right...absolutely right...National debt is a problem, and here iis a betterway to get back to a reasonable debt to GDP ratio. Do not fight the proposal, agree and then introduce the better yardstick by which to measure progressive and fiscal responsibility.

Apr 11, 2011, 3:13 PM
Chris O'Dell:

not to oversimplify, but when my kids were born 30-35 yrs ago, my simple factory insurance paid for their births totally, downsouth and nonunion. healthcare crisis only emerged when big biz started moving overseas and stopped investing in the domestic workforce. in other words, when big biz no longer needed the american worker, we suddenly had a healthcare crisis.

Apr 18, 2011, 4:59 PM

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