EconomistMom.com
…because I’m an economist and a mom–that’s why!

EconomistMom.com

Ryan’s “Path to Prosperity”

April 5th, 2011 . by economistmom

House Budget Committee Paul Ryan has released his budget proposal, which he explains in the very polished video above. (Q: Did “taxpayer dollars” pay for the production of that video?…) Here’s the link to information on the Ryan budget on the House Budget Committee’s website.

Major contours of his proposal are that the deficit is brought down to economically sustainable levels, but not eliminated, within a few years; revenues never rise above the (”magic”) historical average of just over 18 percent of GDP; spending is brought down to around 20 percent of GDP within ten years and below 15 percent by 2050(!)–which is what it takes to get debt/GDP to come down while holding onto the revenue ceiling.

Ryan does the right thing by recognizing that a lot of “entitlement” spending in the federal budget actually operates through the tax code: he proposes fundamental tax reform that virtually eliminates tax expenditures–those deductions, exclusions, and other special provisions in the federal income tax. Doing that alone would raise a lot of revenue (in an economically efficient way) that could be used entirely for deficit reduction, but Ryan effectively “spends” it on reducing marginal tax rates instead. That’s my biggest complaint about his proposal, strengthened by my opinion that it’s unrealistic and perhaps downright cold-hearted to cut direct spending by as much as he’s proposing.

UPDATE: The New York Times’ David Brooks asks the same question I have (as I highlighted in my earlier post; emphasis added):

[The Ryan budget] also creates the pivotal moment of truth for President Obama. Will he come up with his own counterproposal, or will he simply demagogue the issue by railing against “savage” Republican cuts and ignoring the long-term fiscal realities? Does he have a sustainable vision for government, or will he just try to rise above the fray while Nancy Pelosi and others attack Ryan?

And what about the Senate Republicans? Where do they stand? Or the voters? Are they willing to face reality or will they continue to demand more government than they are willing to pay for?

Paul Ryan has grasped reality with both hands. He’s forcing everybody else to do the same.

More later; Concord is working on our press release. (UPDATE: here it is.)

17 Responses to “Ryan’s “Path to Prosperity””

  1. comment number 1 by: Vivian Darkbloom

    Looks like David Brooks was on to something. Paul Krugman is very busy with savage demogoguery. Here’s his latest suggestion on how to lead a constructive adult conversation:

    “”And let’s be frank: Obama still, after all that has happened, seems devoted to the dream of transcending partisanship, a dream he tries to serve by being nice to Republican ideas no matter how terrible those ideas are”.

    http://krugman.blogs.nytimes.com/

  2. comment number 2 by: John Q.

    Anyone whose plan “fixes” the national debt on the backs of those least able to pay for it (poor, disabled, elderly) isn’t part of an “adult conversation”. When we talk about providing care for Grandma, we don’t look for ways to shift the costs for her care onto her nor onto the backs of family members who can’t afford to help out. How about in your household?

  3. comment number 3 by: Jason Seligman

    A really great post Diane - lots of food for thought… Ryan’s message is clear and well delivered, you enhance it by better pointing out what was otherwise left unsaid — that House Republicans wish to balance the budget in the context of current-or-lower revenues, as a percent of GDP.

    Notice that a series of successful spending cuts make any fundamental tax reform less likely than otherwise…

    I think the generally taxpayer is agnostic about the sanctity of “18%” as a number but a case need be made to motivate increases. Actually the focus on this and the “27%” personal and top rates as further homage to history are both a bit naive, but they do offer goal posts that are useful for all of us to consider as we evaluate the hard work ahead.

  4. comment number 4 by: AMTbuff

    I agree with David Brooks: “The current welfare state is simply unsustainable and anybody who is serious, on left or right, has to have a new vision of the social contract.”

    Obama aside, does any Democrat in Washington have a sustainable vision for government? The Democrats seem to be unaware of the need to find an answer before the bond market forces a much less attractive future on us. Even Bowles-Simpson is BS for failing to address the big problem: health care expenditures.

    Here’s a hint. “Increase taxes now and we’ll figure out something on health care spending later” is not a sustainable vision for government. It’s not even a viable political tactic anymore.

    Gipper is right. If you combine Ryan’s spending cuts with B-S’s tax increases you’d have a sustainable vision and probably avert a bond market crisis. Any action is pointless unless it’s radical enough to prevent the bond market from losing patience with us.

  5. comment number 5 by: rjs

    im with mark thoma on this:

    http://economistsview.typepad.com/economistsview/2011/04/the-ryan-plan-is-fundamentally-immoral.html

  6. comment number 6 by: Gipper

    Ryan has proposed 2 plans in 2 years to balance the budget at some future date. Democrats have proposed…… 0.

    Let’s see Paul Krugman’s plan. I’m sick of these chickens**t leftwingers who have such whacky ideas about how to spend other people’s money for their personal moral mandates. All the Left can do is hurl spears. They are bereft of any feasible proposals to show the American people and they are too chicken to put anything in writing.

    You can’t have a conversation or a fight with someone who won’t even step into the arena.

    And no…getting the deficit to 3% of GDP is not a solution. It’s an excuse for not admitting the truth that the New Deal and the Great Society were pay it forward Ponzi Schemes to benefit politicians who made promises that they wouldn’t have to be around to keep.

    After this debacle is done, FDR and LBJ are going to take a big hit from historians. Their visions will end up in the trash heap of history.

    Thank god!

  7. comment number 7 by: SteveinCH

    Sorry rjs but once an economist buys into the “tax cuts for the rich” myth, he or she loses all credibility.

  8. comment number 8 by: grooft

    Medicaid provides health care at a discount of 27% for kids and 20% for adults (per CBPP analysis).

    Yglesias says it nicely.

    “Thanks to Paul Ryan some families who can currently afford to take their kids to see the doctor won’t be able to take their kids to see the doctor. That will reduce aggregate health care expenditures and increase aggregate “kids get sick and die” nationwide. Of course a lot of kids who get sick and don’t get treated won’t die. It’s not as if the death rate from illness and accidents was 100 percent in the era before modern health care. People just suffer and life goes on. And with the extra budgetary headroom created, rich people can pay lower taxes”

    Ryan is bamboozling, immoral, very powerful guy. What he is not is “courageous”, “honest” or “deficit cutting”.

  9. comment number 9 by: BillSmith

    Where is the plan from the Senate Democrats?

  10. comment number 10 by: Gipper

    Grooft:
    The experiment of running a society based on compassion has been tried, and has failed. Soviet Union, Eastern Europe. Cuban and North Korea are no picnic and China gave up.

    Yglesias, Krugman and others pretend to be compassionate, but in their personal lives, I’ll be they never offered a homeless man a ride to their homes where they could shower, get a meal, and was their clothes. You see, liberals love humanity, but they don’t care for humans very much.

    The fact is that people work and produce for their own selfish reasons: for themselves, their children, their friends, or their favorite charity. That’s what motivates superior production. Not exhortations for meeting quotas of the five year plan. High tax rates kill the goose laying the golden eggs.

    You might as well complain that it’s socially unjust that we can’t just pour water into our gas tanks to run pollution free vehicles. That’s the level of intelligence displayed by Mr. Yglesias and his ilk on the Left.

    Sorry, folks. Our economy runs on greed and gasoline. Adapt or die.

  11. comment number 11 by: Arne

    “High tax rates kill the goose laying the golden eggs.”

    Where is your evidence? Economic growth has not increased when taxes were decreased.

  12. comment number 12 by: Jim Glass

    Lawrence Kotlikoff has come up with a plan — so the conversation is starting, which can only be good.

    He explains, and here’s the proposal: http://thepurplehealthplan.org/

    ZeroHedge opines “five Nobel laureates in economics, George Akerlof, Edmund Phelps, Thomas Schelling, Vernon Smith and William Sharpe, have signed on. So have other prominent economists. We have not read it but fail to see how it can be possibly worse, especially since one Paul Krugman has not endorsed said plan.”

    FWIW

  13. comment number 13 by: Brooks

    I’m glad to see ANY substantial plan — right, left, or center — reach this point in the political process.

    I’m not naive enough to be confident of any real solution becoming law soon, but hopefully we’re a step closer, because hopefully now the debate will be start to be effectively framed more as one of alternative solutions (meaning alternative sacrifices) rather than just criticism and avoidance of politically unpopular sacrifices.

    I hope history will read as follows:
    2008: “Yes we can!”
    2011: “Where’s YOUR plan?!”

  14. comment number 14 by: Gipper

    Arne,

    It would have been more accurate to say that “High Spending rates kill the goose laying the golden eggs — assuming that in the long-run spending and tax revenues have to balance.”

    Over the long-term, businessmen don’t look at today’s tax rates. In accordance with rational expectations, they look at the future.

    Even though Krugman and other Keynesians claim that deficit spending leads to a “stimulus,” rational economic actors understand that deficits today lead to taxation in the future — either through inflation or higher tax rates.

    A RE theorists would not be impressed by the recent tax cuts as being a boost for economic progress because they understand that the country’s trajectory of spending has not changed.

    It’s almost impossible for regression models looking at changes in marginal tax rates to capture these future expectations so I’m not impressed with folks who point to time series of tax rates and GDP and say “See how GDP increased when Clinton raised taxes!” I could just as easily argue, “See how GDP rose after the Republicans captured Congress after 1994 and changed future expectations!”

  15. comment number 15 by: Jim Glass

    I’m glad to see ANY substantial plan — right, left, or center — reach this point in the political process.

    Yup. It’s interesting to note that the five Nobelists who’ve “signed on” to the LK plan run from the quite politically left (Akerlof) to the quite politically small-govt right (Smith). That’s encouraging too.

  16. comment number 16 by: mike

    Yes. Obama has blown the opportunity for fiscal leadership. He should have shown a path in his 2012 budget, at least through proposals that would have an impact in the out-years if he believed that the recovery was too fragile to start in 2012. But he didn’t. He could have dealt with defense, the entitlements, and tax expenditures in a serious way but he abdicated to Ryan. Did Orzag leave because he was tired or because he was disguste?

  17. comment number 17 by: Jesse

    Both parties are fiscally irresponsible and Paul Ryan contributed to this mess with his many fiscally irresponsible votes as a Congressman.