Paul Ryan’s 2015 Budget: Playing It Safe — and Disciplined

by Patrick Brennan

The House Budget Committee released its Fiscal Year 2015 budget today, and it’s a lot like the committee’s 2014 budget — which isn’t terrible, but isn’t great (the PDF is here).

The 2014 budget, due to an agreement reached in early 2013 by House leadership and some members of the conference, had to find a way to balance in ten years, a goal Ryan also set out to accomplish with this year’s budget. That requires huge cuts across all aspects of the federal government, with the exception of Social Security, which the House has not addressed in the last few budgets. It’s an act of huge fiscal discipline: Balancing in ten years may not sound like much, but deficits will drop to under 1 percent of GDP by 2016. (I’ll have more on this issue later.)

This time around, as the budget acknowledges, they had to contend with updated CBO projections of slightly lower economic growth over the next ten years, while still getting to balance.

Even slightly slower economic growth blows a significant hole in the budget, and one they appear to have plugged two ways.

One, significantly steeper cuts to non-defense discretionary spending. While that category was expected to spend $249 billion less over ten years than current policy in the 2014 budget, now it’ll be cut by $460 billion, with all of that and then some coming from domestic programs, since the budget plans to spend slightly more than the Budget Control Act authorizes for defense spending over that time period. Here’s the different between spending planned in this budget versus what’s current policy:

And two, the budget is dynamically scored – that is, the budget reflects what the writers think will be the economic effects of its policies. Usually this is done to reflect the benefits of tax reform, but here the House uses it to bank the benefits of fiscal discipline. Because of lower spending, lower deficits and debt, and lower interest costs, called a “fiscal dividend,” the Ryan budget estimates that deficits will be $186 billion lower over the next ten years than they would be otherwise — a whopping $82 billion lower in 2024 alone (the budget projects a surplus of $5 billion that year; it would have a deficit without dynamic scoring). They score these savings based on some work done by the Congressional Budget Office, which explains more of the issue here; a similar idea was included in the 1997 budget resolution.

Despite the fact that it’s the CBO’s that projects such a “fiscal dividend,” a CBO score of the Ryan budget wouldn’t take it into account. They score statically, and sometimes include macroeconomic consequences as an addendum (they do this with their long-term budget outlooks, which get a lot worse when mounting debt costs are taken into account). President Obama’s budget this year did include a different kind of dynamic scoring, too — the White House banked the economic effects of some stimulus spending and of comprehensive immigration reform.

The Ryan budget’s dynamic-scoring benefits aren’t that great, and they’re backloaded, so they don’t make a big difference in the overall picture, as this chart from the Committee for a Responsible Federal Budget shows:

The other big change in the budget, though it’s not huge, is another tweak to Ryan’s Medicare plan, which is intended to put the program on solid financial footing, promote innovation, and save money. The system will be marginally more generous this time around: For the last few years, Ryan’s proposed to change Medicare into what’s called a “premium support” model, which works like Medicare Part D, with a range of options available that the federal government will pay for part of, depending on how expensive they are.

In 2014, to accommodate political concerns about seniors’ losing access to traditional Medicare, Ryan (in his budget and in a separate but similar joint effort with Democratic senator Ron Wyden) proposed to link the premium support payment to the cost of the second-cheapest private plan available in the program — which has to cover the benefits Medicare does now — or Medicare fee-for-service, whichever is cheaper. Now, in the 2015 budget, the payment will be calculated based on an average of all the plans submitted by private providers. This saves slightly less money than Ryan’s 2014 proposal (though his Medicare savings over the ten-year budget window mostly don’t come from premium support). It will make staying in and paying for traditional Medicare slightly more expensive for seniors than the 2014 plan, while making the other options, which in theory should provide the same coverage, slightly cheaper.

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.