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

EconomistMom.com

Kent Conrad and Paul Ryan: So Close and Yet So Far

March 20th, 2012 . by economistmom

conrad-and-ryan-2009-chip-somodevilla-getty-images

Today House Budget Committee chairman, Paul Ryan (R-WI) unveiled the House Republican budget proposal with a lot of fanfare and his latest snazzy video.  The fundamental structure of the proposal itself is not really “news” in that Ryan has remained consistent to his word that the fiscal situation is a spending-side-only problem and that the level of revenues as a share of our economy should be maintained around its 40-year historical average.

Relating that to the story on the Senate Budget Committee chairman, Kent Conrad (D-ND) which appeared over the weekend in the Washington Post (written excellently by Lori Montgomery), I find it striking that both of the budget chairmen (from the two different houses and two different parties) now talk about tax expenditures as government spending that just happens to be done by poking holes into the income tax system.  In his own budget, Ryan refers to this “spending through the tax code” (pg. 67) and also points out how the rich benefit the most from these “tax subsidies.”  In other words, like Kent Conrad, Paul Ryan recognizes that if we reduced these tax expenditures, we would not be raising taxes as much as reducing spending.

On the other hand, Ryan stresses that his proposal to eliminate these tax subsidies would be “not for the purpose of increasing total tax revenues, but instead to lower rates.”

So, revenues relative to GDP remains the huge sticking point in what would otherwise seemingly be complete bipartisan agreement on the shape of badly-needed tax reform.  How best to break that impasse is the key to making huge progress on deficit reduction.  I think it will have to wait until after the election, however, because for now the Democrats would rather attack the Republicans for their deficit-reduction approach that implies huge, draconian cuts in direct spending and benefits than convince the Republicans to move away from that approach and more toward revenue-raising-but-by-base-broadening tax reform.  And Republicans would rather attack the Democrats for their strategy of  “soaking the rich” (and the “job creators”) than convince the Democrats that broadening the tax base by reducing tax expenditures is actually a progressive (as well as efficient) way to raise tax burdens on the rich.

18 Responses to “Kent Conrad and Paul Ryan: So Close and Yet So Far”

  1. comment number 1 by: AMTbuff

    So, revenues relative to GDP remains the huge sticking point in what would otherwise seemingly be complete bipartisan agreement on the shape of badly-needed tax reform.

    True, but you are one step removed from the root of the disagreement: Entitlement Reform. Without that, entitlement spending will surpass any amount of new revenue. The moment of truth will be deferred, not avoided. And it will be made even worse. The growth curve of entitlement spending needs to be made completely flat at some level, any level, even one much higher than today’s spending.

    Until entitlement promises become consistent with flat spending as a share of GDP, we are headed toward a fiscal crash. The only question is when. After the promises are adjusted in a way that firmly caps entitlement spending, both parties will eagerly participate in tax reform.

    Conversely, premature tax reform will enable further delay in facing the music on out of control entitlement spending. This is exactly why tax reform is so attractive to those who resist reducing unsustainable promises.

    Premature tax reform is not ideologically neutral: it favors higher spending now, delay in resolving the fiscal imbalance, and a deeper fiscal crisis later. None of that is good for the country.

  2. comment number 2 by: SteveinCH

    Diane,

    Can you point out the “huge, draconian cuts”? I went through the numbers and I don’t really see them. I see spending restraint, maybe too much of it in some places but nothing that I could call draconian or huge.

  3. comment number 3 by: Brooks (Gordon)

    If both Ryan and Conrad view the tax expenditures they wish to reduce as essentially spending, then their difference is quite simple:

    - Ryan wants to use the savings from those spending reductions to cut taxes.

    - Conrad wants to use the savings from those spending reductions ostensibly for deficit-reduction (if we view tax policy in isolation), but in effect to at least partly fund higher spending elsewhere, and perhaps partly for deficit-reduction (not sure how much of each, and it would help if the Democrats matched Ryan’s and House Republicans’ guts and responsibility by offering an alternative plan — and I’m not saying I favor their approach, just that at least they’ve offered one).

  4. comment number 4 by: Vivian Darkbloom

    Can you point out the “huge, draconian cuts”?

    I have not yet studied the entire document, but I just got stuck on page 5.

    Ryan states that his plan reduces spending by $5 trillion *compared with Obama’s proposed budget*. The same summary says Obama’s budget increases spending by $1.5 trillion *compared with current policy*. Both figures relate to the 10 year period to 2022.

    Does this not suggest that Ryan’s plan *increases* spending by $1 trillion over the next 10 years compared with curent policy?

    The same summary says the Ryan Budget “prevents the proposed Obama tax increases of $1.9 trillion.

    Based on only this, I would conclude that Obama’s proposed budget *decreases* the deficit by $400 billion over the 10 year period and Ryan’s *increases* it by $1 trillion.

    Despite identifying tax expenditures as “spending”, the proposed reduction of those expenditures appears not to be included in the spending reduction noted above. It also does not appear to be included as a “tax increase* (his proposal “prevents” those).

    There appear to be some whopping savings from tax expenditure reduction that are not identified in this document.

  5. comment number 5 by: Vivian Darkbloom

    OK, sorry about that. I misread the $5 trillion as $500 billion. Mea maxima culpa. That indeed is a big difference in spending of $3.5 trillion over that 10 year period, mostly in Medicaid and Medicare That is a big reduction from Obama’s plan, but nominally not so big. This makes sense—those programs are where the biggest problems are located.

    Still, there are some very big unidentified tax expenditure savings.

  6. comment number 6 by: SteveinCH

    As near as I can tell, Ryan’s budget doesn’t cut anything. It reduces the rate of growth of most things from the President’s budget but that hardly qualifies as a cut in the traditional sense of the word.

  7. comment number 7 by: Patrick R. Sullivan

    The indispensable Keith Hennessey draws us a picture;

    http://keithhennessey.com/2012/03/21/comparing-the-ryan-and-obama-long-term-deficits-and-debt/

    ———-quote———
    Chairman Ryan proposes stable deficits of a bit over 1% of GDP, below the historic average deficit, followed by a gradual path to balance and eventually to surplus.

    President Obama’s budget would result in deficits that are always greater than the historic average, and that would cause debt/GDP to increase again beginning about 10 years from now.

    The gap between the two proposed deficit paths widens over time.

    President Obama’s proposed deficit path is unsustainable. Our economy can tolerate high and even very high deficits for a short time. High and steadily rising deficits like those described by the blue line cannot be sustained. Something in the economy will break.
    ———–endquote———-

    How can EconMom, given her often proclaimed preferences, not favor Ryan’s plan over Obama’s proposed budgets

  8. comment number 8 by: Brooks

    I want to retract a substantial portion of my praise for Ryan as demonstrating “guts and responsibility”, at least until I find out more.

    I didn’t know that Ryan’s “plan” leaves the specifics of all the unpopular stuff needed to make his numbers work — the tax expenditure reductions — for the Ways and Means committee to supposedly work out, while offering the goodies (the tax rate reductions) much more clearly.

    I just did a (very quick) scan of Ryan’s plan and also searched on “mortgage” and “insurance” looking to see if his section on tax reform even mentions those big tax expenditures, and unless I missed something, he doesn’t even mention them as part of what he’s talking, instead referring repeatedly to “loopholes” (his word, used repeatedly, as in “special interest loopholes” and “lobbyist loopholes”).

    It seems I spoke too soon, and gave Ryan way too much credit. He still deserves credit for taking on entitlements, although even that is not nearly as courageous as it would be if his plan didn’t shield from sacrifice everyone 55 and over, leaving actual implementation to some Congress and president a decade from now who very well may balk.

    If I’m missing something (if he does indeed deserve more credit), someone please tell me.

  9. comment number 9 by: Patrick R. Sullivan

    Brooks, compared to what?

  10. comment number 10 by: AMTbuff

    Brooks, I agree that it’s a sad state of affairs when the boldest plan (in fact the only plan) to reach fiscal balance hides the ball on the extreme pain required. How can the public show its support for Pain and Change (TM) if no politician even presents it as an option, let alone attempts to persuade us that extreme pain is necessary?

    If politicians have not made a conscious decision to wait for the bond market to collapse as part of their strategy to sell Pain, they are acting exactly as if that’s what they have decided.

  11. comment number 11 by: Brooks

    AMT,

    Thanks. Please remind me:

    Did Ryan’s plan last year also depend heavily on completely unspecified cuts in tax expenditures?

    Did it have reductions in tax rates?

  12. comment number 12 by: AMTbuff

    Brooks, I don’t know offhand. Last year’s plan was focused on Medicare reform, which he pitched without explicit recognition that the government voucher would buy less and less medical insurance over time.

    In that respect Ryan’s plans presume some medical savings miracle, just as do progressives’ plans to buy time by raising taxes while maintaining promised benefits. Ryan’s miracle is theoretically possible if the move away from third-party payment produces enough market discipline in pricing. I don’t believe that, but Ryan might.

  13. comment number 13 by: Brooks

    AMT,

    IIRC Ryan and/or his plan’s supporters did argue that such large savings would result, but a more authoritative and neutral source (I think it was CBO) said it would not.

  14. comment number 14 by: SteveinCH

    I don’t think the CBO said it wouldn’t, they said something about what would need to happen in order for it to happen.

    On taxes, Ryan’s plans have always been unspecific but have argued for lower rates, fewer rates and specific a tax/gdp percentage. I don’t view these as particularly big deals since the tax/gdp numbers have been very close to the long-term current policy outlook thus implying relatively little risk in the deficit projections.

    What I like about the Ryan plan and what the CBO did not consider in its assessment is that, over time, if would become the way in which we means test Medicare…lower subsidies (premium support) to higher income folks. Means testing Medicare and SS is pretty much a requirement for any serious proposal so I think the structure change suggested by Ryan sets up a realistic chance of solving the Medicare problem. In my view, his structure change is a much more realistic solution than using IPAB to get the job done.

  15. comment number 15 by: B Davis

    There’s an interesting editorial by Bruce Bartlett on Ryan’s budget plan at this link. Following are the final three paragraphs:


    I do not believe any of this will ever happen or could ever happen. I think Ryan has an undeserved reputation for seriousness in budget matters. The word “fantasy” would better apply. As Prof. Calvin Johnson of the University of Texas law school told me, the tax side of Ryan’s plan “is floating in the clouds without any connection to earth or reality.” And of course accomplishing what he hopes to do on the spending side is even more fanciful.

    In my opinion, the Ryan budget should be seen as nothing more than a PR document for Republicans so they can say they have a plan to balance the budget, cut taxes, and cure the common cold. It may serve that narrow purpose, although many Republicans are saying that it doesn’t go far enough in slashing spending. I wish I could buy some of the stuff these guys are drinking or smoking.

    Anyone can make up numbers that balance the budget while slashing taxes at the same time if they have no concern whatsoever for the proper functioning of government, no concern for the hardship it would cause, and are in a position to order the CBO to accept those numbers at face value. Coming up with specific legislative changes that will actually implement such a vision, getting it enacted, and accepting the consequences is something else altogether.

  16. comment number 16 by: SteveinCH

    Bruce really is getting cranky in his old age.

    For the Ryan plan to work, all we need to do is hold the growth in spending to the growth in GDP and leave current tax policy in place.

    Maybe Bruce thinks that’s hard, but I don’t see the alternative that has been presented.

  17. comment number 17 by: SteveinCH

    Meant to say inflation plus population rather than GDP.

  18. comment number 18 by: AMTbuff

    I don’t see the alternative that has been presented.

    If the Democrats have a plan to close the fiscal gap that is more feasible than Ryan’s, why haven’t they presented it? Because their plan would be equally impossible, if not more so.

    As William Gale said at 1:39:45 of

    http://www.taxanalysts.com/www/conferences.nsf/KeyLookup/GBRO-88MQ92/$file/Taxanalystaudiocast.mp3

    “…but if you think about it, there is no feasible solution right now that is politically realistic. That doesn’t mean that we won’t get to a solution. It just means that when we do, it will be something that’s currently considered to be impossible.

    …If we’re going to solve this, an impossible thing has to happen.”

    According to the estimable Bill Gale we cannot rule out “impossible” plans, since those are the only ones that are possible! Take that, Bartlett!