If you’ve been following the debate over the House Republican budget proposed by Wisconsin congressman Paul Ryan, you have probably heard that it savagely cuts programs for the poor in order to fund tax cuts for the rich, that its numbers don’t add up, and that in the short run it expands the deficits. These claims, though asserted confidently, either depend on highly contestable assumptions or are demonstrably untrue.
• David Frum writes in The Week that Ryan’s “debt reduction plan actually increases the debt over the medium term — by even more [than] President Obama’s budget would.”
The CBO’s actual projections for the Ryan plan show a debt level in 2021 that is $4.7 trillion lower than its projections for Obama’s budgets. Ryan’s plan is designed to rapidly stabilize federal debt as a share of the economy: That percentage peaks in year three and then starts falling. The CBO projections for Obama’s budgets just show the number rising higher and higher over the decade.
•“In fact, the [Congressional Budget Office] finds that over the next decade the [Ryan] plan would lead to bigger deficits and more debt than current law,” writes Paul Krugman in the New York Times.
What Krugman doesn’t mention is that current law includes automatic tax increases, including middle-class tax increases that both parties have consistently said they want to avoid. Current law includes cuts in payments to Medicare providers that both parties oppose and have acted against in the past. It includes the expansion of the Alternative Minimum Tax to hit more and more middle-class taxpayers, which — well, you get the idea. Krugman is comparing the Ryan plan with an alternative that is both unrealistic and much more painful than he lets on.
• Jonathan Chait writes in The New Republic: “[Ryan] is making a choice — not just [to] cut Medicare to save Medicare, but also to cut Medicare in order to cut taxes for the rich.” Krugman, again, cites the CBO to write that “a large part of the supposed savings from spending cuts would go, not to reduce the deficit, but to pay for tax cuts.”
These claims are misleading in two ways. First, Ryan’s plan assumes that Congress enacts a tax reform that keeps revenues slightly above historic averages. It is “revenue neutral” with respect to the tax code as it exists following Bush’s tax cuts. Current law automatically raises the tax rates to pre-Bush levels in 2013. So if you’re comparing the tax level with current law, including that automatic tax hike, Ryan’s plan represents a tax cut. If you’re comparing it with today’s tax rates, on the other hand, it’s not a tax cut. If you adopt the latter perspective, what Ryan is proposing is to restrain the growth of Medicare and other spending programs in order to reduce deficits and avert a tax increase.
Second, Chait’s claim that Ryan’s plan “includes a massive, regressive tax cut” is certainly true only on a very specific definition of “regressive.” The plan assumes that the tax reform reduces tax breaks and lowers the top tax rate to 25 percent. If you’re among the very richest Americans — in the Forbes 400, for example — then your tax bill will certainly fall. You’ll lose some tax breaks, but you’ll gain more from keeping a higher share of your income above the threshold for the top tax bracket. On the other hand, a lot of Americans who are well-off could end up paying more under such a reform. Progressives who care about the distribution of the tax burden between the richer half of taxpayers and the poorer half will have to wait and see what tax plan the Ways and Means Committee devises before making a judgment about it. Progressives who primarily worry about how the super-rich are doing relative to the upper middle class, on the other hand, already know what they need to know. But it’s not at all clear that this definition of “regressive” is the most important one.
• Annie Lowrey writes in Slate: “The theory is straightforward enough: Tax cuts to wealthy Americans foster prosperity that moves millions of (less wealthy) Americans back to work, with increasing wages. High earnings and employment bolster tax revenue. When combined with huge cuts in domestic spending and radical changes to Medicaid and Medicare, the budget balances out in about 20 years.” She says that Ryan’s plan “relies” on economic forecasts that are too optimistic.
Which they almost certainly are. But that has nothing to do with whether Ryan’s plan reduces the debt as he says it will. The plan’s projections for debt reduction do not assume that any extra revenue comes in from higher economic growth. The CBO applies the same economic assumptions to Ryan’s plan that it applies when making projections about Obama’s budget and current law. Lowrey and like-minded critics have identified a flaw in the plan’s marketing, not its design.