Spurious claims, debunked
If you’ve been following the debate over the House Republican budget proposed by Wisconsin congressman Paul Ryan, you have probably heard that it savagely cuts programs for the poor in order to fund tax cuts for the rich, that its numbers don’t add up, and that in the short run it expands the deficits. These claims, though asserted confidently, either depend on highly contestable assumptions or are demonstrably untrue.
• David Frum writes in The Week that Ryan’s “debt reduction plan actually increases the debt over the medium term — by even more [than] President Obama’s budget would.”
The CBO’s actual projections for the Ryan plan show a debt level in 2021 that is $4.7 trillion lower than its projections for Obama’s budgets. Ryan’s plan is designed to rapidly stabilize federal debt as a share of the economy: That percentage peaks in year three and then starts falling. The CBO projections for Obama’s budgets just show the number rising higher and higher over the decade.
• “In fact, the [Congressional Budget Office] finds that over the next decade the [Ryan] plan would lead to bigger deficits and more debt than current law,” writes Paul Krugman in the New York Times.
What Krugman doesn’t mention is that current law includes automatic tax increases, including middle-class tax increases that both parties have consistently said they want to avoid. Current law includes cuts in payments to Medicare providers that both parties oppose and have acted against in the past. It includes the expansion of the Alternative Minimum Tax to hit more and more middle-class taxpayers, which — well, you get the idea. Krugman is comparing the Ryan plan with an alternative that is both unrealistic and much more painful than he lets on.
• Jonathan Chait writes in The New Republic: “[Ryan] is making a choice — not just [to] cut Medicare to save Medicare, but also to cut Medicare in order to cut taxes for the rich.” Krugman, again, cites the CBO to write that “a large part of the supposed savings from spending cuts would go, not to reduce the deficit, but to pay for tax cuts.”
These claims are misleading in two ways. First, Ryan’s plan assumes that Congress enacts a tax reform that keeps revenues slightly above historic averages. It is “revenue neutral” with respect to the tax code as it exists following Bush’s tax cuts. Current law automatically raises the tax rates to pre-Bush levels in 2013. So if you’re comparing the tax level with current law, including that automatic tax hike, Ryan’s plan represents a tax cut. If you’re comparing it with today’s tax rates, on the other hand, it’s not a tax cut. If you adopt the latter perspective, what Ryan is proposing is to restrain the growth of Medicare and other spending programs in order to reduce deficits and avert a tax increase.
Second, Chait’s claim that Ryan’s plan “includes a massive, regressive tax cut” is certainly true only on a very specific definition of “regressive.” The plan assumes that the tax reform reduces tax breaks and lowers the top tax rate to 25 percent. If you’re among the very richest Americans — in the Forbes 400, for example — then your tax bill will certainly fall. You’ll lose some tax breaks, but you’ll gain more from keeping a higher share of your income above the threshold for the top tax bracket. On the other hand, a lot of Americans who are well-off could end up paying more under such a reform. Progressives who care about the distribution of the tax burden between the richer half of taxpayers and the poorer half will have to wait and see what tax plan the Ways and Means Committee devises before making a judgment about it. Progressives who primarily worry about how the super-rich are doing relative to the upper middle class, on the other hand, already know what they need to know. But it’s not at all clear that this definition of “regressive” is the most important one.
• Annie Lowrey writes in Slate: “The theory is straightforward enough: Tax cuts to wealthy Americans foster prosperity that moves millions of (less wealthy) Americans back to work, with increasing wages. High earnings and employment bolster tax revenue. When combined with huge cuts in domestic spending and radical changes to Medicaid and Medicare, the budget balances out in about 20 years.” She says that Ryan’s plan “relies” on economic forecasts that are too optimistic.
Which they almost certainly are. But that has nothing to do with whether Ryan’s plan reduces the debt as he says it will. The plan’s projections for debt reduction do not assume that any extra revenue comes in from higher economic growth. The CBO applies the same economic assumptions to Ryan’s plan that it applies when making projections about Obama’s budget and current law. Lowrey and like-minded critics have identified a flaw in the plan’s marketing, not its design.
• David Brooks, who finds many things to like in Ryan’s proposal, criticizes it because it “doesn’t have an answer to rising health care costs.” On “controlling health-care costs,” writes Ezra Klein in the Washington Post, “the reality is that Democrats have a plan and Ryan doesn’t.” The Democratic plan to which Klein refers is to allow all the allegedly cost-saving reforms in the new health-care law to take effect.
Ryan’s plan could have gone further in controlling health-care costs by, for example, changing the tax treatment of health insurance. But its reform of Medicare (and to a lesser extent Medicaid) could impose quite a bit of cost control by encouraging the senior citizens of tomorrow to be more cost-conscious. James Capretta makes this case in detail elsewhere in this issue (“Paul Ryan’s Medicare Fix,” page 30).
The Congressional Budget Office assumes that Medicare will go bankrupt in 2021 even if the Affordable Care Act (a/k/a Obamacare) remains the law. It certifies that the Ryan plan prevents bankruptcy. In a January hearing, Rick Foster, the chief actuary of Medicare, was asked about the relative potential of Obamacare and Ryan’s plan to control costs: “I would say that the Roadmap” — Ryan’s plan, that is — “has that potential. There is some potential for the Affordable Care Act price reductions, although I’m a little less confident about that.”
• William Galston complains in The New Republic that the Ryan plan does not allow the governmental share of the economy to rise with the aging of the population and that it shrinks the discretionary share of the budget to unacceptably low levels.
Note the sleight of hand. Entitlements as a share of GDP should grow because the population is aging, but at the same time discretionary spending as a share of the budget should not fall below some arbitrary number. In other words, as the population ages, the correct amount of federal spending on roads, Head Start, and everything else should rise. Why? Other, that is, than because the growth of government is a positive good?
• According to too many sources to quote, the plan is cruel to the poor. Replacing Medicaid with capped block grants to the states will force states to reduce benefits for some low-income people and end them entirely for others.
There are many assumptions involved here. One is that either Washington would enact the Ryan plan but shrink from enacting other conservative reforms to make health insurance more affordable to the working poor, or these reforms would prove ineffective. Another is that states would engage in a “race to the bottom” in benefit levels. That is the exact claim that opponents of welfare reform made when that program was converted into a system of block grants to the states in 1996, and they threw around terms such as “cruel” and “heartless” as well. They were wrong then, and they could be wrong now. It is worth remembering that patient outcomes show no difference between having Medicaid benefits and having no health insurance at all.
• Dana Milbank writes in the Washington Post that Ryan’s plan “isn’t a serious budget proposal because it fails at the central mission of ending the deficit and taming the debt”: It adds to the debt over the next decade and ends the deficit only in future decades. He compares it to the bipartisan Bowles-Simpson commission’s plan, which would “reduce deficits by $4 trillion through 2020, stabilize the debt by 2014, and keep Social Security solvent for 75 years.”
Milbank gets one thing right here: Ryan’s plan doesn’t address Social Security, and probably should. But the rest of his critique is unserious. The plan does indeed “tame” the debt by stabilizing it by 2014 — just like Bowles-Simpson. The Bowles-Simpson plan doesn’t end the deficit until the 2030s, just like Ryan’s plan. Bowles-Simpson achieves more deficit reduction early because it has front-loaded tax increases, while Ryan relies on phased-in spending cuts. But Bowles-Simpson’s spending cuts are left vague. And there is no bipartisan plan — and certainly no Democratic plan — that reduces the deficit and the debt more aggressively than Ryan’s does over the long run.
Milbank also suggests, as many other commentators have, that if deficit reduction were really Ryan’s primary concern he would raise taxes. But deficit reduction isn’t Ryan’s stated primary concern: American prosperity is. That’s why he calls his plan “the path to prosperity.” He doesn’t want to raise taxes, because he believes doing so would at best address his secondary concern at the expense of his primary one. Perhaps he has also reviewed research by Kevin Hassett, Andrew Biggs, and Matt Jensen of the American Enterprise Institute, which shows that tax increases have played little role in successful budget-balancing efforts abroad (“successful fiscal consolidation consisted, on average, of 85% spending cuts”).
• Too many commentators to quote, again, have argued that Ryan’s plan shows the need to raise taxes.
The government could, of course, raise taxes on the wealthy to pay for somewhat higher benefits for the middle class and the poor than it could otherwise afford. But to really protect future benefit levels for middle-class retirees we would have to raise taxes on today’s middle-class workers — and it is not at all obvious that it makes sense to do so. It is even less obvious that, stated honestly and directly, this point of view would prove popular among the middle-class people involved, many of whom would surely prefer to pocket the money themselves and save it for their own retirements.
One argument against the Ryan plan falls in a special category for bad faith. This is the criticism that Ryan unfairly exempts today’s senior citizens from cuts. Who can doubt that if he cut their benefits, too, most of the people who have made this claim would add it to their indictment of him as extreme? They would say that it is unfair to cut benefits for people who had been given no time to prepare for the policy change — and they would have a point. None of the liberals who have made this criticism have spoken a word in rebuke to those Democrats who have done everything in their power to convince today’s senior citizens that the Ryan plan is an abomination because it cuts their benefits. Allyson Schwartz (Pa.), the second-ranking Democrat on the House Budget Committee, wrote an op-ed on the Ryan plan accurately summarized by its headline: “Seniors, Say Goodbye to Your Healthcare.” Debbie Wasserman Schultz, the new head of the DNC, says the plan would “literally be a death trap for seniors.”
It’s bad enough that Ryan’s critics do not have good ideas of their own for solving the country’s fiscal problems. For the most part, they don’t even have solid criticisms. If they prevail politically, it won’t be because of the strength of their arguments.