Rep. Paul Ryan’s Fantasy Budget

Original Link: http://www.americanprogress.org/issues/budget/news/2013/03/12/56359/rep-paul-ryans-fantasy-budget/

By Michael Linden

Tax Policy Center released new estimates of the revenue-impact of the proposed tax cuts in the House Budget Resolution. This analysis has been updated to reflect the newest estimates.

The newly released House Republican budget plan, authored by Rep. Paul Ryan (R-WI), claims to achieve balance by 2023, but that’s only true if you ignore the $6 trillion tax hole, and the utterly unrealistic cuts to a category of federal spending that’s already set to decline to historic lows. Without these egregious gimmicks and magic asterisks, Rep. Ryan’s plan not only fails to balance the budget but would actually dramatically increase the deficit and debt.

The $6 trillion tax hole

The Ryan budget’s claim to balance rests on purportedly reducing spending down to 19.1 percent of GDP by 2023, which is the same as the level of revenue that current projections expect for that year. But, in fact, Rep. Ryan’s tax proposals come nowhere close to generating 19.1 percent of GDP. In fact, the Ryan budget calls for enormous tax cuts but fails to explain how to pay for the cost of those cuts.

Specifically, the Ryan budget plan includes the following detailed tax cuts:

• Reducing the top marginal income tax rate by nearly 15 percentage points
• Reducing the corporate tax rate by 10 percentage points
• Repealing the alternative minimum tax
• Repealing the Affordable Care Act revenue provisions

The Tax Policy Center estimates that these provisions would reduce revenue relative to Rep. Ryan’s target by approximately $5.7 trillion. Rep. Ryan is missing about $750 billion of revenue in 2023 alone. After accounting for the added interest costs from all of these unpaid-for tax cuts, Rep. Ryan’s budget would still be about $1 trillion in the red in 2023.

Of course, Rep. Ryan could avoid all this red ink if he paid for these tax cuts with offsetting tax expenditure savings, which he claims to want to do. Unfortunately, he fails to identify even one tax expenditure he would close to generate the missing revenue. Perhaps that’s because the enormity of his tax hole makes it practically impossible for him to actually make the math work. A total and complete repeal of all itemized tax deductions—the mortgage interest deduction, the charitable deduction, and the state and local tax deduction, for example—would generate less than $2 trillion in added revenue. Not only would that still leave him $5 trillion short of his claimed revenue levels, but he would also be financing a massive tax cut for the rich with a huge middle-class tax increase.

If all of this sounds vaguely familiar, that’s because this is the same play that Rep. Ryan and his running mate, former Massachusetts Gov. Mitt Romney, ran in the 2012 election: promising enormous tax cuts with no way to pay for them except by raising taxes on the middle class. The only difference this time is that this version of Rep. Ryan’s budget has a bigger revenue hole than the Romney budget did, meaning his tax increases on the middle would have to be even bigger.

Unless Rep. Ryan and his colleagues are calling for enormous middle-class tax hikes to pay for their huge tax cuts for the rich and for corporations—a politically and morally toxic position—then they are facing a massive hole in their budget.

Fantasy levels of nondefense discretionary spending

Even if their tax plan wasn’t entirely dependent on $6 trillion worth of unspecified tax expenditure savings, the House Republican budget would still not balance within 10 years—unless they somehow manage to convince future Congresses to adhere to an unprecedentedly low level of spending in a category known as “nondefense discretionary.” This category of spending has already been the focus of more than $1.1 trillion in cuts, but the Ryan budget calls for an additional $900 billion in reductions. To be clear, these would come on top of, not instead of, sequestration.

If these cuts were actually imposed, the result would be that nondefense discretionary spending would total just 2.1 percent of GDP by 2023. Since 1962, the first year for which we have comprehensive data, nondefense discretionary spending has never totaled less than 3.2 percent of GDP. In other words, Rep. Ryan’s budget numbers depend on cuts that would bring this category of spending down to a level one-third lower than its previous lowest point in modern history. That is unrealistic, to say the least.

This category of spending includes most of the federal government’s investments in economic growth; all of veterans’ health care; food, drug, and consumer product safety; federal law enforcement; and many other vital public services. Of course, you might never know that by reading the documentation accompanying the Ryan budget. That’s because it is far easier to “cut” the nebulous category called “nondefense discretionary” than it is to cut actual programs, benefits, and protections that the public knows and likes. But in fact, for these kinds of cuts to actually come to pass, Congress—now and in the future—will have to get specific. And if they decide that they can’t, in reality, reduce these things to levels unheard of in generations, then Rep. Ryan’s claim to a balanced budget falls apart.

No, the Ryan budget doesn’t balance

Either one of the aforementioned budget gimmicks is enough to sink Rep. Ryan’s claim to balance. Together, they even undermine any claim to deficit reduction at all. If Rep. Ryan is unable or unwilling to fill his $6 trillion tax hole, and if he is unable to make his $900 billion in additional nondefense discretionary cuts stick, then far from reducing the deficit, the Ryan budget would actually result in deficits averaging 4.3 percent of GDP through 2023, and the debt-to-GDP ratio continuing to rise ever year for the next 10 years. That’s a world away from balance.