House Budget Committee chairman Paul Ryan (R., Wis.), who also sat on President Obama’s deficit commission (and voted against its final report), has released an initial analysis of the $3.7 trillion deficit-reduction proposal unveiled by the Gang of Six on Tuesday. The plan, which Ryan points out “is not a budget,” is woefully short on details (e.g., it instructs Congress to “encourage greater economic growth” and “spend health care dollars more efficiently”), but the House Budget chair does his best to tease out the plan’s shortcomings and unanswered questions, as well as its “potential for worthwhile budget and tax reforms.”
On the positive side, Ryan praises the plan for acknowledging the need for tax reform and he approves of many of its recommendations, for example: lowering the top marginal tax rate to 29 percent, transitioning to a territorial tax system, and requiring any unexpected surplus in revenue be used to further reduce rates, rather than fuel new spending. However, Ryan argues that the latter proposal, while “laudable,” falls short because it appears to lack an enforcement mechanism, such as a firm cap on total spending and revenue.
As for the negatives, Ryan blasts the plan, which “appears to increase revenues by $2.8 trillion,” for relying far too heavily on tax increases. He also raises concerns over the composition of the proposed spending cuts in the plan, which appear to achieve most of their “savings” through cuts to the defense budget — for example, a $890 billion reduction to “security programs.” And last but not least, Ryan is not pleased with the plan’s failure to address the budget-busting consequences of Obamacare, which was a primary reason why he opposed the deficit commission’s recommendations.
Additionally, Ryan raises the following questions:
Unspecified Savings Relative to What? The plan is described as savings relative to a “baseline.” The plan appears to use three different baselines for showing savings: 1) CBO’s current law March baseline; 2) an undefined modification to that baseline (what it calls a “plausible baseline”); and 3) the Fiscal Commission’s baseline. It does not provide annual spending and revenue totals by category, relying instead on savings relative to three different baselines. So, it is unclear what exactly the spending and tax proposals are.
Where Does the Revenue Come From? It sets a tall order for tax reform with what appear to be conflicting assumptions: 1) raise $1.2 trillion in revenue; 2) repeal the alternative minimum tax at a cost of $1.7 trillion; 3) lower tax rates to encourage economic growth (top rate of no higher than 29%); 4) do not eliminate tax expenditures for health care, charitable giving, homeownership, retirement, and low-income workers and families (the largest of the tax expenditures); 5) raise $133 billion in revenue by 2021 for the highway trust fund without raising gasoline taxes.
Where Do Health Care Savings Come From? It claims $117 billion in additional federal health care savings over 10 years by assuming that health care spending per capita grows no faster than economic growth (GDP) plus one percent. The new health care law already requires the Independent Payment Advisory Board (IPAB) to cut Medicare spending growth per beneficiary to achieve this growth rate starting in 2020. CBO currently projects that Medicare spending will stay within that growth rate through 2021. Therefore, it is unclear how the savings are derived.
Also, if there are savings to be achieved, there is no enforcement mechanism for achieving them since the plan would “require action by Congress and the President” to limit growth to these levels. Current law requires the President to submit a plan and Congress to enact legislation to make additional savings in Medicare that the President and Congress have ignored.
Where are the Missing Mandatory Savings? The plan lists $516 billion in mandatory savings for Committees to achieve (including program integrity savings and savings from modifying the CPI), but then claims $641 billion in mandatory savings, leaving $125 billion in missing savings.
Pathway or Roadblocks to Social Security Reform? While the plan seems to be a well-intentioned effort to move Social Security reform forward, it sets out procedures that could derail both Social Security reform and additional spending savings called for in the plan. First, it does not allow a Social Security reform bill to proceed until the Senate has gotten 60 votes to pass additional deficit reduction. Second, it blocks the additional deficit reduction bill if the Senate does not get 60 votes to pass the Social Security bill.