If a budget is a political document, then House Budget Chairman Paul Ryan, R-Wis., laid down his marker on Tuesday to show how little he likes the size and scope of federal government--a dramatic and perhaps unwise stance in a close election year.
Ryan’s budget proposal, released on Tuesday morning, would hand more control of Medicaid, food stamps, and housing assistance to the states by block-granting these programs. He would repeal health care reform, which he calls in his budget part of a “growing and pernicious trend of government outreach into the economy,” and he would get rid of yet-to-be-determined government programs and agencies that he views as wasteful. In his budget last year, he offered more specifics about government programs he dislikes--everything from environmental protection to financial regulation.
You can practically see the Democratic opposition ads unfolding now, showcasing the way that Ryan’s plan would drastically cut government spending while keeping the Defense Department’s budget intact.
The ranking member of the House Budget Committee, Chris Van Hollen, D-Md., wasted no time in calling out the way he said Ryan’s plan could hurt middle-class and low-income Americans. “They are intending to provide big tax breaks for folks at the highest end of the income ladder; and the people who end up shouldering the burden of that are middle-income taxpayers because they are going to end up being squeezed when you provide big tax breaks for the folks at the top,” Van Hollen said during an appearance on Bloomberg Television.
Most important, this budget tests Ryan’s reputation as a fiscal hawk, especially his tax plan. The latter would reduce the individual tax rates (which make up the majority of government revenue) to two brackets of 10 percent and 25 percent, while lowering the corporate tax rate to 25 percent. The Joint Committee on Taxation released a report last October saying that it would be hard to reduce the corporate tax rate to anything lower than 28 percent without losing money. Ryan’s plan would also create a territorial tax system that would offer a low tax rate, if any taxes, on the profit that U.S. companies earn overseas--a page from the playbook of the Ways and Means Committee Chairman Dave Camp, who introduced a similar international tax plan last fall.
To pay for these tax cuts, Ryan says that his budget would close tax loopholes--a political dodge both parties lean on heavily when talking taxes. But for an economic nerd like Ryan, the dodge does not come across well. Which loopholes? Would it be the wildly popular mortgage-interest deduction that encourages millions of Americans to buy homes, or the tax break that goes to employers that offer health care? And which segment of the population would bear the brunt of the elimination of certain tax breaks--the middle class, the poor, or the wealthy?
These are questions the Ryan budget kicks back to Ways and Means to answer, although Ryan said on Tuesday that the Republican committee members offered much input into his tax plan.
Other questions remain, such as the way Ryan assumes he can reduce the deficit so quickly and his assumptions for economic growth. According to his plan, Ryan would reduce the federal deficit to $800 billion in fiscal 2013, a huge drop from CBO’s latest projection that puts the deficit at $1.2 trillion. How can Ryan cut the deficit in one year by $400 billion if he plans to keep defense spending as is and implement huge tax cuts?
Second, his plan relies heavily on the idea that lower tax rates, little regulation, and smaller entitlement programs will shock the economy into action. The tables at the end of his budget illustrate this best when they show revenue rising by billions of dollars throughout 2022.
“We reject calls to raise taxes, but revenue nevertheless remains steady under our budget because we close special-interest loopholes,” he writes in a Wall Street Journal op-ed. “More important, our reforms will grow the economy—and the faster the economy grows, the more revenue the government will have to meet its priorities and start paying down the debt.”
Yet Ryan is also clear in his budget that he wants CBO to change the way it measures government policy, and that reeks of budget gimmickry, a charge he often levels at Democrats. It would be incredibly difficult to increase revenue and reduce the deficit in such a short period of time, alongside Ryan’s other plans—even with huge cuts to government spending.
Ryan opens his budget with a narrative and chart that map out what he calls the contrasting vision between his agenda and President Obama’s. Ryan certainly has laid out an ideal for the Republicans, even if it contains gaps. On Tuesday, he was eager to show that other Republicans supported his plan as he stood at a press conference flanked by his fellow GOP members of the House Budget Committee and Sen. Jeff Sessions of Alabama, the ranking member of the Senate Budget Committee.
Over the next few weeks as Ryan brings his budget to the floor, it will be interesting to see how his fellow Republicans react on the Hill as well as on the campaign trail.
Ryan is proposing a radical budget that would lower tax rates and transform Medicare and Medicaid, all based on the assumption that supposed future economic growth will help the United States pay down the deficit. Will other Republicans follow him down this path?