Revealed: How Paul Ryan Reduces Deficits by $4.6 Trillion and Balances the Budget

Posted: Mar 12, 2013 10:01 AM

Later this morning, House Budget Committee Chairman Rep. Paul Ryan will formally reveal his party's fiscal blueprint for FY 2014.  The new "Path to Prosperity" will achieve balance by 2023, with annual deficits dipping below $100 billion seven times over the next decade.  It does not raise taxes.  It offers specific reforms to reduce and control unsustainable healthcare spending while saving important safety net programs from insolvency.  And it reduces deficits by $4.6 trillion over the next ten years (compared to the current trajectory) without relying on misleading gimmicks.  Based on Ryan's appearance on Fox News Sunday and several discussions with House Budget Committee sources, I recapped the key components of House Republicans' new proposal in five bullet points:

The GOP budget will balance in 10 years.  By comparison, President Obama's most recent budget came into balance...never.  Ryan's plan accomplishes this feat by implementing a number of cost-reducing reforms to entitlement programs, incorporating the budget caps and revenue increases that recently became law (laying down a new, more advantageous baseline), and by asking all federal workers to begin making some contributions to their pensions by the end of the coming decade.  

The Republican proposal increases spending overall.  Democrats will inevitably inveigh against Ryan's budget as a heartless and "draconian" imposition of unthinkable austerity.  Nonsense.  It will, on average, increase federal spending by 3.4 percent per year for the next ten years.  Yes, this is a less rapid rise compared to the unsustainable current path (annual increases of nearly five percent), but it's an increase nonetheless.  Ryan contextualizes these big numbers: "Instead of spending $46 trillion over the next 10 years, we'll spend $41 trillion. That's means we'll grow spending on average 3.4 percent a year instead of growing it an average 4.9 percent a year, which is the path we're on, which keeps us from ever balancing the budget which produces a debt crisis."  

Ryan's bipartisan Medicare reform plan remains intact.  The structural reforms to Medicare from last year's GOP budget will be replicated in this year's iteration.  This proposal is drawn from the bipartisan Wyden/Ryan compromise, which entails premium support, increased means testing, and maintaining a traditional Medicare option for future seniors.  As was the case last time around, anyone aged 55 or older is totally unaffected by these reforms.  On its current, unreformed path, Medicare will be insolvent in 11 years.

Tax reform, not tax hikes.  President Obama is trying to redefine "tax reform" to be synonymous with tax increases.  On top of his $600 billion hike imposed in resolving the fiscal cliff standoff, Obama will likely seek to raise at least as much extra revenue in his new budget.  Not to reduce the deficit, of course, but to finance more spending.  Ryan rejects this perversion of "reform," opting instead for pro-growth, genuine, revenue-neutral reforms -- which were endorsed by the president's own fiscal commission.  The basic premise involves closing and eliminating tax loopholes and deductions in exchange for lowering rates across the board.

Wishlists vs. reality.  Ryan confirms that the new budget calls for the total repeal of Obamacare, which Chris Wallace notes is a political impossibility.  Without eliminating that program's enormous price tag and massive long-term debt implications, many of the Republicans' budget math becomes infeasible.  Ryan concedes that the president is unlikely to experience a change of heart regarding conservatives' entitlement reform ideas -- even as it remains to be seen if the White House will advance a solution of its own.  Nevertheless, the chairman expresses hope that certain piecemeal reform options may still be on the table; the Wall Street Journal outlined some of these potential measures in an editorial last year.  

Ryan's own executive summary appears in today's Wall Street Journal.  Now that I've studied the budget itself, here are a few additional notable features:  (1) On taxes, the Ryan budget consolidates and flattens the tax code's individual income tax brackets from seven to just two levels: Ten and 25 percent.  It also repeals the Alternative Minimum Tax and reduces the corporate tax rate to 25 percent.  To offset these pro-growth rate cuts (in order to achieve revenue neutrality), the Republican plan would further simplify the tax code by reducing and eliminating tax loopholes and deductions.  These reforms on marginal rates align with the recommendations of President Obama's Simpson-Bowles commission, and the corporate rate reduction tracks with a recommendation from his non-partisan jobs council.  (2) On spending, this plan restores federal outlays to the historical average of between 19 and 20 percent of GDP, and it extends the 2011 Budget Control Act's spending caps through the remainder of the budget window.  As noted above, federal spending would still increase year-over-year, but would do so at a slower clip than the spiraling status quo.  (3) On welfare, it restores the work requirements that President Obama unlawfully weakened via executive action last year.  The budget synopsis goes on to observe that the federal government spends "roughly $1 trillion on anti-poverty programs," yet poverty rates have climbed to an all-time high.  Throwing money at a problem doesn't necessarily fix it, and it's a useful measure of "compassion."  The GOP budget reforms the federal food stamps program to ensure that it serves only those who truly need assistance, and eliminates the existing, perverse incentive scheme that encourages states to swell their roster of recipients.  Food stamp usage soared to a new high in December, with nearly 48 million Americans participating in the program, up from 17 million in 2001.  

(4) On public pension reform, as mentioned above, this budget asks federal employees to gradually increase contributions to their own pension funds.  The authors cite CBO estimates that public employees earn 16 percent more than their private sector counterparts in total compensation; these pension changes would partially mitigate that imbalance, and would save taxpayers $132 billion over ten years.  (5) On housing, Ryan proposes winding down Fannie Mae and Freddie Mac, the quasi-government entities that fueled the subprime mortgage crisis that contributed enormously to 2008's financial meltdown.  (6) On defense, House Republicans call for more than $560 billion in defense spending next year, which they say is "consistent with" our security needs and military goals.  They roll back some of the arbitrary sequester cuts -- which the White House specifically designed to disproportionately target defense -- offsetting those reductions with alternative savings (along the lines of previous House-passed solutions rejected by Democrats).  Crucially, (7) on budgetary reform, the GOP urges a significant overhaul in the way the Washington budget process works.  This seems warranted after four years of utter dysfunction, resulting in our government lurching from one manufactured crisis and cliff to the next.  Proposed changes include requiring certain legislative efforts to project cost estimates beyond the typical ten-year budget window (a blow to fans of the back-loaded spending trick), reforming "baseline" budgeting to minimize the scourge of "auto-pilot" increases, and revamping budget estimates to more accurately reflect federal accruals of long-term entitlement obligations.

Finally, on Obamacare: The new Ryan plan proposes uprooting the president's unaffordable, unwieldy, unpopular healthcare law in its entirety.  With Barack Obama still sitting in the Oval Office, and Harry Reid controlling the Senate, this is a pipe dream.  Ryan's critics will therefore criticize his plan as an unrealistic waste of time.  This is unfair.  Budgets are intended to reflect the values and priorities of its supporters.  The Republican Party remains in favor of repealing Obamacare (as does the public).  The "Affordable Care Act" makes balancing budgets and reining in long-term spending much more difficult; it therefore follows that the GOP's solution to these problems would entail the law's elimination.  Also, some people are already making hay over the fact that Ryan's budget keeps Obamacare's $716 billion Medicare reduction intact.  They claim this is evidence of rank hypocrisy, since Republicans assailed Obama over these cuts during the last election.  This, too, is unfair.  The conservative critique on this front has never been that all reductions to Medicare are unacceptable.  No, conservatives objected to the president's fiscal sleight-of-hand, which purported to take $716 billion out of one struggling entitlement program in order to finance the creation of yet another costly entitlement program.  Ryan himself famously exposed Democrats for pretending that these Medicare savings would simultaneously shore up the Medicare trust fund and help foot the bill for Obamacare, but the same dollar cannot be used for two different purposes.  House Republicans' FY 2013 budget also maintained Obama's Medicare cuts for the purpose of fortifying that program's finances; this year's version does the same.  So it was the egregious double-counting and huge entitlement expansion that rankled conservatives -- not the basic premise of Medicare savings.  To wit, here's a memorable Romney/Ryan attack ad from last year:

"Why?  To pay for Obamacare."

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