ATR’s Budget Plan, Round Two

by Josh Barro

Ryan Ellis has posted a response to my critique of his budget plan. I respond below, briefly.

Ellis says my “most substantial” objection to his plan is that he overstates savings on net interest. (Ellis holds 2011 net interest spending fixed through 2015, even though interest rates are expected to rise significantly over the next four years.) Ellis calls this point a “nitpick” and a “rounding error.” To recap, Ellis hopes to convert a projected $507 billion deficit in 2015 into a $12 billion surplus. Of that $519 billion improvement, $216 billion (42 percent) comes from estimating much lower interest rates than CBO does. You can decide for yourself whether that is a rounding error or not.

Ellis says CBO could be overestimating interest rates in 2015. That’s true. They could also be underestimating them. For the matter, interest rates could be even lower than is implied by Ellis’s forecast. But he doesn’t offer any reason to believe that his interest forecast—for an indefinite continuation of the lowest interest rates since the early 1960s—is more likely to be accurate than CBO’s.

He also says that, if interest rates do follow CBO’s projected path, you can still get to budget balance in 2017 with the spending freezes he proposes. That’s also true—but the concerns I raised yesterday about the sustainability of spending freezes only grow if you plan to push the freezes out another two years.

Ellis defends his dynamic revenue scoring estimates—sort of. Actually, he just restates his tax plan and then says he is “comfortable” that it would boost GDP growth by 1 percent per year, thereby generating the added revenues he expects. I still think that’s an aggressive growth forecast for the reasons I laid out before; he has not offered evidence to back up his economic forecast.

He also says that “as I know” ATR supports the Ryan Roadmap reforms on Social Security and Medicare. When I asked Ellis about this some weeks ago, his response to me was borderline incoherent—he said he supported the Roadmap “with a couple of tweaks” but described a framework for Medicare and Social Security reform that is very different from the Roadmap’s and would not achieve similar savings. He also said he thought the eligibility age would only need to rise for Medicare and that the Social Security benefit formula need not be adjusted, each of which is inconsistent with the Roadmap. His Social Security framework relies far more heavily on personal accounts than the Roadmap does, which would exacerbate budget pressures in the medium term. I suspect that Ellis has never actually read the Roadmap (or if he did, he didn’t understand it) but if he supports its entitlement provisions, I am glad to hear it.

Finally, Ellis is perplexed that I think there could be such a thing as “uncompetitive federal pay and benefits” or “an undesirably low level of Medicaid spending.” If Ellis wants to abolish the federal workforce and health insurance programs for the poor, he should say so. But his plan would retain them, while cutting real spending per capita on them indefinitely. If these programs should exist in some form, then you’ll eventually have to reach a point where you don’t want to cut anymore. If they shouldn’t exist, why not abolish them outright? The indefinite freeze policy makes no sense.

As for the idea that a conservative publication shouldn’t publish content arguing that the appropriate level of Medicaid spending is nonzero, I’d look in Congress and see who is proposing to abolish Medicaid (let alone the federal workforce). Certainly there is support for a substantial reform—I’d support one too. But, for example, neither Paul Ryan’s Roadmap nor his new plan with Alice Rivlin restrains Medicaid spending to anywhere near the degree that Ellis wants. I guess if Ellis wants to throw Paul Ryan and basically everybody else out of the conservative tent, he can try—but then he’ll be awfully lonely.

Josh Barro is the Walter B. Wriston Fellow at the Manhattan Institute.