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NEED TO KNOW: BUDGET

Out of Balance

Paul Ryan has garnered wide praise for his latest GOP budget. But there’s a problem: It won’t come close to wiping out the deficit.

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Loss leader: What Ryan’s plan does more than anything is starve the government.(Chet Susslin)

CORRECTION: An earlier version of this article mischaracterized the type of government spending that House Budget Chairman Paul Ryan has proposed reducing to 3.75 percent of GDP by 2050.

Rep. Paul Ryan has long been seen as the Republican poster boy for fiscal matters: a visionary willing to tackle the country’s long-term budget problems. Last year, Time magazine went so far to call the Wisconsinite a “prophet” when naming him a runner-up to its “Person of the Year.” Even the House Budget Committee chairman’s skeptics applaud him for his courage in tackling growing entitlement spending. But crunch the numbers, and his latest plan looks like a lot of other ones.

 

Ryan’s fiscal 2013 budget proposal seeks huge tax cuts without offering any way to pay for them apart from the broad prescription of closing loopholes and eliminating tax havens.

He says his plan would reduce discretionary government spending and other mandatory spending--apart from Medicare, Medicaid, and Social Security--to 3.75 percent of gross domestic product by 2050. That’s a huge cut that would require programs for the poor, elderly, and working class —everything from food stamps to housing assistance to Medicaid to job training—to take severe financial hits. It would also convert Medicare to a voucher-based system that could push rising costs onto seniors. Such moves sound daring in practice but could be hard to pull off without casting the Republican Party as a modern-day Ebenezer Scrooge. All together, the package hands Democrats a potent political weapon, especially if it doesn’t do what it purports: that is, balance the budget.

Ryan’s plan would also undo the across-the-board cuts of $1.2 trillion from last summer’s debt-ceiling deal, with a special eye toward preserving defense spending. To accomplish this, he would ask six nondefense-related committees to find savings. That’s an idea that sounds very much like the route the failed super committee followed.

 

“The House budget resolution pushes the envelope in every direction. If you aren’t willing to believe that every one of these extreme claims is going to come true, then the numbers won’t happen,” says Joseph Minarik, who was chief economist at the Office of Management and Budget under President Clinton.

The math doesn’t appear to work in Ryan’s favor, either. The nonpartisan Tax Policy Center estimates that his tax cuts would add up to $4.6 trillion—and that’s on top of the $5.4 trillion in revenue forfeited through extending the Bush-era tax cuts.

Giving away that much money while lowering the corporate and top individual tax rates to 25 percent would require Congress and the president to essentially do away with tax expenditures. These breaks encourage middle-class Americans to buy homes or give charitable donations. They allow people to deduct state and local taxes or give companies a break if they provide health insurance.

Yet, without targeting specific breaks, the Ryan plan looks like a massive money loser for the federal government and a win for the wealthy and corporations—optics that play into President Obama’s campaign drumbeat of economic fairness.

 

Not that this matters to some conservative Republicans, who are grumpy that Ryan’s plan did not go far enough. It caps spending at $1.028 trillion, but a faction of the party wanted to cap it at $931 billion.

Still, the plan’s vagueness hasn’t stopped the GOP presidential candidates from resoundingly endorsing it. “It’s a bold and exciting effort on his part and on the part of the Republicans, and it’s very much consistent with what I put out earlier,” Romney said during a tour of the Google offices in Chicago on Tuesday.

Newt Gingrich, who last year called Ryan’s fiscal 2012 plan a piece of “right-wing social engineering,” conjured up enough goodwill to call this one “courageous.”

More broadly, Ryan’s budget speaks to a growing trend in the Republican Party this election cycle of campaigning on the platform of fiscal responsibility while offering policy proposals that would increase the deficit.

Like Ryan, Romney would slash tax rates—so much so that the Tax Policy Center estimates that the federal government would lose $900 billion in revenue in 2015 alone, assuming extension of the 2001 and 2003 tax cuts. Romney similarly has not outlined the tax breaks he would eliminate to pay for his cuts.

These policy proposals sound fine if you don’t like taxes, but they’re hardly consistent with the traditional Republican message of reducing the deficit, balancing the budget, and operating on sound economic footing. Instead, they make vividly clear that right now the party is primarily interested in shrinking the size of government rather than balancing the books.

“Beyond the GOP base, I don’t see the Ryan budget playing well,” says Alan I. Abramowitz, a professor of political science at Emory University. “It opens up the Republicans to criticism that they’re making these gigantic cuts that hurt low-income groups while cutting taxes primarily on the wealthy. Particularly for someone like Romney, this reinforces the image he already has of a rich guy whose policies favor the rich.”

Going into November, Ryan has signaled that he expects the presidential candidates to pay heed to his proposal and to offer up their own choices about the budget and taxes. And some budget experts give Ryan credit for tackling Medicare, a structural problem that’s growing in cost regardless of which party controls the White House and Congress.

“I do give Paul Ryan two thumbs up as a leader for the need to reform entitlements,” says Maya MacGuineas, president of the Committee for a Responsible Federal Budget.

Still, with each new budget and tax plan the Republicans unveil, they’re chipping away at their long-held reputation for fiscal hawkishness. But that may no longer be the point.

This article appears in the March 24, 2012 edition of National Journal Magazine.

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