Monday, August 13, 2012

The Ryan Fiscal Plan and That CBO Document

Karen Tumulty and Dean Baker are squabbling over how to describe Paul Ryan’s long-term spending proposals. Karen writes:
First, the Ryan plan would overhaul the entitlement programs that have grown to consume about 40 percent of the budget, reshaping Medicare coverage for the elderly, and cutting deeply into Medicaid, food stamps and other programs for the poor. Second, he would rewrite the tax code, slashing the rates paid by corporations and the wealthy. Finally, Ryan would cut spending on other federal programs and agencies, with the exception of the Pentagon … "The Congressional Budget Office [CBO] estimates it [the Ryan Budget] would not bring the federal books into balance until around 2040. And most of its savings come from the long-term restructuring of entitlement programs."
Dean counters:
Actually, in percentage terms by far the biggest savings in the Ryan budget comes from essentially shutting down the federal government, except for Social Security, health care programs and the military. The CBO analysis of his budget [Table 2] shows that all other areas of federal spending falls to 4.75 percent of GDP by 2040 and 3.75 percent of GDP by 2050. Military spending is currently more than 4.0 percent of GDP and Representative Ryan has indicated that he wants to keep spending at its current levels or raise it. This means that under the Ryan Budget, by 2040 there will be almost no money left for national parks, education, the State Department, the Food and Drug Administration, federal courts and all the other activities currently supported by the federal government. By 2050 there will be no money left for these activities. The Post has seriously misrepresented Representative Ryan's agenda by not pointing out thus fact to readers.
Let’s review this CBO document starting with its opening line:
At the request of the Chairman of the House Budget Committee, Congressman Paul Ryan, the Congressional Budget Office (CBO) has calculated the long-term budgetary impact of paths for federal revenues and spending specified by the Chairman and his staff.
In other words, this is not the CBO’s analysis of some detailed set of Republican policy proposals – these are assumptions as to the path of spending specified by Congressman Ryan. Dean asks us to examine table 2, which compares the fantasy paths specified by Ryan to an “extended baseline scenario”. Notice in particular, that both scenarios have Social Security being 6% of GDP from 2030 to 2050. In other words, Romney-Ryan have yet to go after this program. George W. Bush tried to bamboozle us back in 2005 and hopefully the Republicans learned their lesson back then. While the baseline scenario has Federal spending on health care growing to 10.75% of GDP by 2050, Ryan claims that replacing Medicare as we know it with a poorly funded voucher system and the virtual elimination of Medicaid and CHIP can magically reduce this share to only 5.75%. So yes – part of the big difference between Ryan’s proposal and what Democrats propose is in the area of health care. Then again – Mitt Romney is shying away from Ryan’s budget and other Republicans are criticizing President Obama on any proposed Medicare cost containments. So who knows? Even if Ryan’s draconian cuts to health care spending were to become reality, we would not see the asserted reduction of Federal spending to a mere 15.5% unless we did eliminate the rest of the Federal government. While the baseline scenario has other spending (defense and nondefense) at 7.75% of GDP, Ryan’s fantasy scenario has this at 3.75% of GDP even though Romney has promised that defense spending alone will be 4% of GDP. So maybe Dean is being generous when he claims we would have to eliminate the rest of the government as the Romney-Ryan plan asserts we can have negative spending on the rest of the Federal government. They must have some secret new fuzzy math! Or maybe this is why Romney is promising to keep Federal spending at 20% of GDP rather than Ryan’s assertion that it will be only 16% of GDP. Then again – Romney-Ryan are promising to balance the budget even as they cut all sorts of tax rates. Ryan asserted to the CBO that his tax plan would generate revenues equal to 19% of GDP even though under current tax rates, revenues in 2011 were less than 16% of GDP. While I trust we will eventually have economic recovery, the last time we tried Laffer Curve tax policies, taxes as a share of GDP fell. I wish I understood this secret new fuzzy math that leads Romney and Ryan to think this time will be different.


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