How Paul Ryan's Plan Puts Politics Above Prosperity

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It's helpful to think of the debt crisis as three separate points of tension.

-- First, in the next year, the tension is about spending: Liberals want a lot more; most of Washington wants a lot less.

-- Second, in the next ten years, the tension is about spending and taxing: Democrats want to fix the budget with mostly tax increases while Republicans want to fix the budget with mostly spending cuts.

-- Third, in the next few decades, the tension is about health care: Democrats largely want to keep Obama's health care reform; Republicans want to repeal it; and Congressional Republicans, led by Rep. Paul Ryan, want to turn Medicare into a "premium support" program that basically takes the government out of the insurance business.

With that trio in mind, take a look at these excerpts from Rep. Paul Ryan's speech to the Economic Club of Chicago (lines in bold are my emphasis):

By the end of the decade, we will be spending 20 percent of our tax revenue simply paying interest on the debt - and that's according to optimistic projections. If ratings agencies such as S&P move from downgrading our outlook to downgrading our credit, then interest rates will rise even higher, and debt service will cost trillions more.

...

If you look at what's driving our debt, the explosive growth in spending is the result of health care costs spiraling out of control.

The first bold sentence is about this decade's debt crisis, which can only be solved with domestic spending cuts and tax increases. The second sentence addresses the future's debt crisis, which comes from higher health care spending. Remember: These are separate crises. You can't reduce the deficit this decade from inside Medicare (Ryan's Medicare plan debuts in 2022) just as you can't reduce long-term health care costs by cutting defense spending.

Ryan conflates short-term and long term deficits because to him, there is only one crisis: The U.S. government spending too much money. In the short term, he wants to cut spending. In the medium term, he wants to cut spending. In the long term, he wants to cut spending.

Within the realm of messaging, this makes Ryan effective and consistent. Within the scope of Washington deficit plans, it makes Ryan a radical. Here is a comparison (my graphs, Goldman Sachs projections) of the ten-year deficit reduction plans from the Bipartisan Policy Center, the Deficit Commission, Paul Ryan's budget, and President Obama's speech. Pay attention to portion of savings that comes from tax increases -- the GREEN slices of pie...


rivlindomenicisimposonbowles.png
ryanobamacomparison.png

Each of these graphs shows a mix of spending cuts and tax increases. In Rivlin-Domenici and Simpson-Bowles, the spending and tax yield almost-equal savings. In Obama's budget, tax increases outweigh cuts, but only barely. In Ryan's budget, however, it's all spending cuts. Goldman estimates a small revenue bump as richer Americans pay higher taxes over the next few years under the same tax code simply because they're making more money. But when the Tax Policy Center analyzed Ryan's Roadmap, it projected tax revenue would fall below 17% of GDP.

The upshot is you've got three plans that mix spending cuts and tax increases and one plan that marries spending cuts with ... tax cuts.

I probably have more sympathy for Ryan than most people who share my views about the budget. Among its many deficits, Washington suffers from a shortfall in big ideas, and Ryan has done his part to plug that hole. But remember, the deficit bridge is long; it will be easier to close from both sides; and we were prosperous in the 1990s and the 1980s with higher taxes. Ryan's and the GOP's resistance to tax increases looks much more like political positioning than a realistic plan for prosperity.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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