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How Draconian Is the Ryan Plan?

With the Romney campaign’s selection of Paul Ryan for the VP slot, the pundits have naturally focused again on the Fiscal Year 2013 House Budget Resolution [1], or what is popularly known as “the Ryan Plan.” Progressive critics deride the proposal as a merciless product of Randian thinking, but in reality it is quite timid. Even if everything happened exactly as called for in the Ryan Plan, the federal budget wouldn’t be balanced for another twenty-seven years. Indeed, if Romney and Ryan are elected and can implement the Plan with no opposition, they will still add far, far more debt in their two terms than Bill Clinton did. Is this really the work of a serious policy wonk who understands how dire our fiscal situation is?

Before diving into the numbers, let’s refresh our memories as to the reaction from many on the left when the news first broke. To take just one example, here is Ryan Lizza in a New Yorker post [2] from August 11, 2012, the morning of the announcement:

Presumably, Romney’s main reason for picking Ryan is … his more recent rise to celebrity as a crusading policy wonk determined to tame the federal government. Romney, who has been extremely vague about what he would do if elected, will now own Paul Ryan’s ideas, which include privatizing Social Security, turning Medicare into a voucher program, bloc-granting and drastically cutting Medicaid, and reducing discretionary spending to levels that would affect every popular government program. This Ryan agenda will now fill the vacuum created by Romney’s unwillingness to lay out the specifics of his own plan. Even before this (apparent) announcement, Democrats were planning on tying Romney to Ryan’s policy platform. Now Romney has done it for them.

Yet the most Absurd Quotation award goes to Jacob Weisberg, whom Paul Krugman cited [3] when Romney picked Ryan. Back in 2011 in his Slate column, Weisberg originally had thought Paul Ryan was a serious policy wonk, but then apologized to his readers [4] for being hoodwinked by the Congressman and dishonest right-wingers:

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After my last column [5], I got pummeled [6] in the liberal blogosphere for asserting that the Ryan budget represented a big step in the direction of conservative honesty. I deserved some of the abuse. Though I criticized Ryan for his unsupported rosy assumptions (shame on you, Heritage Foundation hacks [7]), I reacted too quickly and didn’t sort out just how laughable Ryan’s long-term spending projections were. His plan projects an absurd future, according to the Congressional Budget Office [8], in which all discretionary spending, now around 12 percent of GDP, shrinks to 3 percent of GDP by 2050. Defense spending alone was 4.7 percent of GDP in 2009 [9]. With numbers like that, Ryan is more an anarchist-libertarian [10] than honest conservative.

So, is this analysis right? Is Ryan’s budget plan so fiscally conservative, that it actually crosses over into “anarchist-libertarian” territory?

Hardly. The first jaw-dropping fact—in light of the commentary above—is that Ryan’s plan doesn’t even call for a balanced budget until the year 2040. Don’t believe me? Read it for yourself on page 84 of the actual proposal [.pdf] [11]. There, the analysis proudly declares: “The CBO estimates that this budget [i.e. the Ryan proposal] will produce annual surpluses by 2040 and begin paying down the national debt after that.”

Indeed, if you look at Table S-1 (p. 88), you will see that the Ryan budget estimates that over its first ten years, it will add $3.1 trillion to the federal debt held by the public. Over that decade, the lowest the deficit gets (in absolute dollar terms) is $166 billion in Fiscal Year 2018, and at the end of the decade—i.e., in FY 2022—the Ryan Plan projects the federal budget deficit will have risen back up to $287 billion. Remember everyone, this estimate of a $287 billion federal budget deficit occurs in the tenth year after the Ryan Plan kicks in.

Another interesting fact: Over the first decade of reform, the Ryan Plan calls for federal spending to average 20.0% of real GDP. Yet as the below chart from the St. Louis Fed shows, the ratio of Net Federal Outlays over GDP has typically been far less:

[12]

As the chart shows, federal spending exceeded 20 percent of GDP from the Carter years onward, with the notable exception of the Bill Clinton presidency (perhaps because of the Republican Congress). Speaking of the Clinton years, during his tenure (from FY 1993 to FY 2001), the federal debt held by the public increased a grand total of…$72 billion. (See Appendix F in the CBO’s recent fiscal outlook [13]. Remember that there were a few on-budget surpluses during these years.) Compare this to the Ryan Plan, which during its first eight years calls for an increase in the public debt of $2.7 trillion.

In conclusion, regardless of whether the Ryan Plan is specific enough about its revenue forecasts and spending provisions, the simple fact is that even on its own terms the budget resolution is woefully inadequate. It doesn’t even pretend to balance the budget for almost three decades. Far from being “anarchist-libertarian,” it shouldn’t even qualify as serious or conservative.

Robert P. Murphy is author of The Politically Incorrect Guide to Capitalism [14]. His blog is Free Advice [15]. Follow him on Twitter [16].

11 Comments (Open | Close)

11 Comments To "How Draconian Is the Ryan Plan?"

#1 Comment By Barnaby Thieme On August 22, 2012 @ 12:10 pm

Mr. Murphy,

What I find puzzling about your analysis is that you apparently believe that the basis for liberal criticisms of Ryan’s plan is that it quickly balances the budget, as though the left has an ideological commitment to a deficit.

For example, you comment:

“Progressive critics deride the proposal as a merciless product of Randian thinking, but in reality it is quite timid. Even if everything happened exactly as called for in the Ryan Plan, the federal budget wouldn’t be balanced for another twenty-seven years.”

Frankly, this premise is rather bizarre. Even a cursory glance at the substantive critiques of Ryan’s budget plan – and they are numerous – will illustrate that the central points of contention are as follows:

1) Several evaluations of the Ryan plan have found that it actually INCREASES the deficit in the next ten years, in the absence of drastic and unspecified cuts to discretionary spending – cuts which Ryan has thus far declined to specify.

2) The structure of the Ryan plan is regressive, insofar as it lowers tax rates for top income brackets, which are already at a historically-low 35%, to 25%, and pays for the loss in revenue by reduction of social services to vulnerable populations.

#2 Comment By Andrew Keen On August 22, 2012 @ 12:45 pm

Barnaby,

Anyone who refuses to reform entitlement spending has a commitment to deficits. It is not possible to cover our current deficit with revenue increases. There simply isn’t enough money for the feds to confiscate. Also, entitlement spending is far and away the largest component of the federal budget.

But that’s beside Bob’s main focus. He’s saying that people who try to paint Paul Ryan as an extreme fiscal conservative are way off base. You clearly agree with him, but nitpick that he didn’t leave room for progressive deficit hawks, a rare species few have ever encountered and many dismiss as legend.

#3 Comment By Tom On August 22, 2012 @ 3:15 pm

Whether letting people keep more of the money they earn is regressive or progressive is a matter of opinion. My opinion is it’s progress. 25% tax rates are not historically low, they used to be 0% and the country still made significant progress in living standards without accumulating huge debt. Some our greatest inventors, including our most prolific, lived during that era. The most vulnerable populations are those who have lost the ability, even the knowledge of how to provide for themselves.

#4 Comment By liberal On August 23, 2012 @ 9:27 am

Tom wrote, “Whether letting people keep more of the money they earn is regressive or progressive is a matter of opinion.”

The problem is that word “earn.” Most (though not all) of the extremely wealthy don’t “earn” anything; rather, they collect economic rents that are the fruits of government-granted privileges.

Of course, it would be far more just and efficient to tax away rents and leave alone income truly earned, either as a product of labor or capital not related to rent skimming.

#5 Comment By Augeus On August 23, 2012 @ 11:20 am

Funny how every effort to end the spending orgy is described as “draconian” or “harsh” these days. Especially when all it means is that some bonus-bloated CEO or double-pensioned public servant or addicted-to-disability parasite might not be able to feast on our lifeblood at the rate that they prefer.

#6 Comment By Tom On August 23, 2012 @ 4:14 pm

If you are being honest you cite specific examples of what you are talking about. Specifically, what government granted priveleges, what percentage of wealthy get those priveleges, What amount of income and or assests makes somneone EXTREMELY wealthy, what percentage of the wealthy didn’t actually earn their income and why exactly wasn’t it earned and who should decide that it wasn’t earned? According to the numerous IRS studies I’ve heard or read about individuals are constantly moving in and out of the 5 quintiles of income. They are hardly a static category.

#7 Comment By NGPM On August 24, 2012 @ 9:40 am

The problem with the “tax the top of the top” is that the targets people have in mind are the ultra-wealthy along the lines of Bill Gates, Warren Buffet, et. al., people who have net worths in the hundreds of millions or more, who earn multimillion dollar bonuses/stock options as CEOs of large companies or who rake in millions in dividends each year. Yet it is precisely these people, the wealthiest of the wealthiest, who are the cleverest at hiding their wealth from the bloodthirsty tentacles of government largesse and who will slip through the tight grip of any attempt to seize a larger share of their goods. Meanwhile, I am not sure how much good it does the economy to try to decimate the creative class of nouveaux-riches who make between 200,000 and 700,000 per year.

#8 Comment By don On August 25, 2012 @ 2:50 am

The entire analysis of the Ryan budget and people discussing Federal spending is absurd from the get go because it is purposefully distorted to place all US militray imperialist spending and drug war billions and trillions spent as “discretionary.” No one who starts from this fantasy point of view should be taken seriously. Over 60% of the Federal debt is due to war spending. 2.5 trillion was stolen from social security and sent to the war machine. Nearly 5 billion total has been stolen from pensions and “social trust funds.” This whole debate about the budget is a contrived collective brainwashing and anyone who accepts this discretionary spending lie has no clue or interest in reality. You won’t hear the Republicans or Democrats who are two wings of the same United American Corporate War Party say this because they are both protecting the same capitalist interests – the war machine, huge mammoth capital, and class domination of workers and ethnocidal racism.

#9 Comment By don On August 25, 2012 @ 2:59 am

To Tom above – You are woefully ignorant on class reality in the USA. First off the average mean family income in the US was at the last time I checked below 50,000 US dollars and that was in 2008 before we had drastic wage cuts. A person in the USA is quite likely to stay in their same income class and this is a long running historical fact. You probably have never looking into this or are willfully dishonest so here is a link to help eviscerate you ignorance – [17]

#10 Comment By Bruce Oldemeyer On August 27, 2012 @ 3:09 am

CBO scoring for Obama’s plan creates an additional $29 trillion of debt by 2050.
For Ryan’s plan, $26 trillion. Yawn. By 2050, three trillion is a rounding error that will probably be about what the collectivists lose in the cracks of their collective couches. Both parties now claim to be the champion/protector of the welfare state, going into convention season.

#11 Comment By John On August 28, 2012 @ 3:54 pm

We could quickly end deficits (without major cuts to current spending), and reduce tax rates dramatically by adopting The Transaction / APT Tax — [18]

A clear explanation of how it works is provided at the site, as well as a calculator to see what your tax would be under this system. (It also eliminates all other Federal taxes including SS, Medicare, Fuel, Inheritance, etc. — but funds SS/Medicare/etc. — so the number you see is your total federal tax bill.)