Today was not a good day for Rep. Paul Ryan. The conservative wonk's fiscal roadmap would dramatically change US tax policy and revamp our entitlement system in the name of deficit reduction. But as two tax policy centers announced today, Ryan's deficit reduction plan doesn't actually reduce the deficit. Whoops.
What does it do exactly? Well, a lot of things. On the tax side, it turns the income tax into a two-rate system, eliminates most deductions and the Alternative Minimum Tax, exempts all interest, dividends, and capital gains, and institutes a broad based consumption tax, or value-added tax. On the spending side, it slashes federal outlays and turns Medicare into a tightly budgeted voucher program. I think Ryan's plan comprises mostly useful contributions (I like VAT, and raising the standard deduction would create political space to tax mortgage interest and kill other distorting tax expenditures) or distant cousins of interesting ideas (I don't want to voucherize Medicare, but I think means-testing and cost-controlling entitlements should be on the table).
But two reports -- from the Center for Tax Justice and the Tax Policy Center -- uncover serious holes in Ryan's vision. CTJ concludes that turning the income tax into a two-rate system and slapping a VAT on top would raise effective tax rates for 90 percent of Americans over the Obama baseline, while at the same time reducing overall tax revenue (that's what happens when you cut taxes on 40 percent of America's wealth in the top brackets). TPC finds that Ryan's plan would add $500 billion to the debt by 2020. Using their revenue estimates, Ryan's plan would send the debt-to-GDP ratio soaring past our historic WWII record in the 2020s.
Matt Yglesias has a great kicker: "So that's the Ryan Ripoff in a nutshell--much lower taxes for the rich, higher taxes for ninety percent of Americans, and no balanced budget. All in the name of balancing the budget!"
Heh. I still think Ryan's plan is a valuable contribution to the debate because it has a clear moral. We can completely revamp our entitlement program, dramatically limit defense spending, and even send discretionary outlays back to their 1950s levels, and still -- still! -- we stand no chance of controlling the debt if conservatives insist on slashing taxes, especially on the rich. In a way, Ryan's Roadmap is like an accidental Trojan Horse. What looks like a wonky gift to conservative philosophy is actually hiding a stark rebuke of antitax conservatism.
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