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Ryan Plan Unlikely to Balance the Budget for Decades
Despite its massive spending cuts, House Budget Committee Chairman Paul Ryan’s budget (which the House is considering this week) would still have a deficit of $287 billion in fiscal year 2022. And the Congressional Budget Office estimates that it wouldn’t produce a surplus until 2040.
Chairman Ryan disagrees, saying in a report that if you factor in the great boost that his tax proposals would give to the economy, his plan could balance the budget by the end of this decade. But his case is unconvincing.
The Ryan plan proposes to replace the current individual income tax system with two brackets — 10 percent and 25 percent — for ordinary income and no alternative minimum tax, with a top corporate rate of 25 percent. These changes would reduce revenues by $4.6 trillion over ten years (compared to the revenue levels if Congress extended all of President Bush’s 2001 and 2003 tax cuts, including those benefitting only upper-income taxpayers), according to the Urban Institute-Brookings Institution Tax Policy Center. Chairman Ryan says his plan will fully offset that revenue loss by cutting tax expenditures (credits, deductions, and other preferences), but he hasn’t provided any details.
Chairman Ryan’s report assumes that his tax reform, if enacted in 2013, would boost economic growth by as much as one percentage point a year for a decade starting in 2015; by 2019, that would produce enough extra revenues to balance the budget. It cites a review of the literature on the economic effects of tax reform by economists Alan Auerbach and Kevin Hassett. But what Auerbach and Hassett wrote — that “the literature suggests that a wholesale switch to an ideal [tax] system might eventually increase economic output by between 5 and 10 percent, or perhaps a slightly wider range” — doesn’t support Chairman Ryan’s claim for several reasons.
First, and most importantly, the Ryan tax proposals would fall far short of the fundamental tax reform that Auerbach and Hassett were discussing, which would effectively replace the current income tax with a national consumption tax. Such reform plans would eliminate all tax expenditures, including tax breaks for such things as homeownership, charitable contributions, and employer-provided health insurance. That the Ryan plan fails to specify any tax expenditures for cuts is just one sign of the political difficulty of substantially reducing them, much less eliminating them.
As economist William Gale notes in the Auerbach-Hassett book cited above, the type of tax reform economists are discussing would “cause significant relocation in the economy, and declines in charitable contributions, real housing prices and the number of households with health insurance.” Furthermore, such a pure tax reform plan would be far more regressive than the current system, with lower- and middle-income taxpayers paying more and people at the top getting even bigger tax cuts than they would get from extending the expiring Bush tax cuts. Mitigating these effects would require higher tax rates, which would reduce or eliminate the longer-term economic benefits of tax reform.
As Gale concludes, when tax reform is “subjected to the realistic considerations noted above and the higher tax rates such considerations would require, studies suggest that the [new tax system] would likely generate little if any net growth and could actually reduce growth.”
Second, Auerbach and Hassett’s conclusion that “a wholesale switch to an ideal system might eventually increase economic output by between 5 and 10 percent” (emphasis added) is far from Chairman Ryan’s claim that if Congress enacts tax reform in 2013, output will likely be 5 percent higher by 2019, as the Ryan report apparently assumes.
Third, as Auerbach and Hassett point out, the consensus in the economic literature about the possible effects of fundamental tax reform “may exist because all the models employed by economists have relied upon some simplifying assumption that will eventually be found inappropriate. That is, it might well be that the models will be poor predictors of experience.”
The bottom line is this: the tax reform reflected in the Ryan plan will not likely boost the economy significantly. Even if policymakers enact and sustain the Ryan plan’s massive spending cuts, the budget probably wouldn’t be balanced much before 2040.
http://www.offthechartsblog.org/ryan-plan-unlikely-to-balance-the-budget-for-decades/
Chairman Ryan disagrees, saying in a report that if you factor in the great boost that his tax proposals would give to the economy, his plan could balance the budget by the end of this decade. But his case is unconvincing.
The Ryan plan proposes to replace the current individual income tax system with two brackets — 10 percent and 25 percent — for ordinary income and no alternative minimum tax, with a top corporate rate of 25 percent. These changes would reduce revenues by $4.6 trillion over ten years (compared to the revenue levels if Congress extended all of President Bush’s 2001 and 2003 tax cuts, including those benefitting only upper-income taxpayers), according to the Urban Institute-Brookings Institution Tax Policy Center. Chairman Ryan says his plan will fully offset that revenue loss by cutting tax expenditures (credits, deductions, and other preferences), but he hasn’t provided any details.
Chairman Ryan’s report assumes that his tax reform, if enacted in 2013, would boost economic growth by as much as one percentage point a year for a decade starting in 2015; by 2019, that would produce enough extra revenues to balance the budget. It cites a review of the literature on the economic effects of tax reform by economists Alan Auerbach and Kevin Hassett. But what Auerbach and Hassett wrote — that “the literature suggests that a wholesale switch to an ideal [tax] system might eventually increase economic output by between 5 and 10 percent, or perhaps a slightly wider range” — doesn’t support Chairman Ryan’s claim for several reasons.
First, and most importantly, the Ryan tax proposals would fall far short of the fundamental tax reform that Auerbach and Hassett were discussing, which would effectively replace the current income tax with a national consumption tax. Such reform plans would eliminate all tax expenditures, including tax breaks for such things as homeownership, charitable contributions, and employer-provided health insurance. That the Ryan plan fails to specify any tax expenditures for cuts is just one sign of the political difficulty of substantially reducing them, much less eliminating them.
As economist William Gale notes in the Auerbach-Hassett book cited above, the type of tax reform economists are discussing would “cause significant relocation in the economy, and declines in charitable contributions, real housing prices and the number of households with health insurance.” Furthermore, such a pure tax reform plan would be far more regressive than the current system, with lower- and middle-income taxpayers paying more and people at the top getting even bigger tax cuts than they would get from extending the expiring Bush tax cuts. Mitigating these effects would require higher tax rates, which would reduce or eliminate the longer-term economic benefits of tax reform.
As Gale concludes, when tax reform is “subjected to the realistic considerations noted above and the higher tax rates such considerations would require, studies suggest that the [new tax system] would likely generate little if any net growth and could actually reduce growth.”
Second, Auerbach and Hassett’s conclusion that “a wholesale switch to an ideal system might eventually increase economic output by between 5 and 10 percent” (emphasis added) is far from Chairman Ryan’s claim that if Congress enacts tax reform in 2013, output will likely be 5 percent higher by 2019, as the Ryan report apparently assumes.
Third, as Auerbach and Hassett point out, the consensus in the economic literature about the possible effects of fundamental tax reform “may exist because all the models employed by economists have relied upon some simplifying assumption that will eventually be found inappropriate. That is, it might well be that the models will be poor predictors of experience.”
The bottom line is this: the tax reform reflected in the Ryan plan will not likely boost the economy significantly. Even if policymakers enact and sustain the Ryan plan’s massive spending cuts, the budget probably wouldn’t be balanced much before 2040.
http://www.offthechartsblog.org/ryan-plan-unlikely-to-balance-the-budget-for-decades/
We've gone around and around on the different philosophies behind getting the debt down, the deficit reeled in, and the bow of this ship sailing to calm waters so many times. Again, party line philosophies will not allow any collective flexibility.... it won't as long as it is "us against them".
I don't think there are too many people in politics that are that concerned with us, "we the people". They have good paying jobs and as long as they keep "kissing the right babies" and "keep fighting for what's right (under party line affiliation, that is" they assume we will keep voting for them. Traditionally, we do. We are bought and sold into believing that "our guy" is "doing what he can and we need more just like him" and it is that mentality that keeps us stuck in the mud.....
I don't think there are too many people in politics that are that concerned with us, "we the people". They have good paying jobs and as long as they keep "kissing the right babies" and "keep fighting for what's right (under party line affiliation, that is" they assume we will keep voting for them. Traditionally, we do. We are bought and sold into believing that "our guy" is "doing what he can and we need more just like him" and it is that mentality that keeps us stuck in the mud.....
How does the left feel entitled to your money? Explain that to me cause that is one point I have never understood. Why praytell does a democrat stand for someone either on welfare or taking your money? I work for the extremely wealthy and many of those people are dems and many are republicans and many of them are independents and nowhere have I ever heard any of them refer to each other in such disrespectful tones. Never. Whatever happened to we the people achieving things together? When and how did it become left vs right? What in gods name is happening to our country.
Wow... typo city!
My last comment was LOADED with spelling mistakes and wording errors. I guess I'm still drunk from last night! Ha, ha;-)
My last comment was LOADED with spelling mistakes and wording errors. I guess I'm still drunk from last night! Ha, ha;-)
I can't answer that question Teko, you know that. I do not low the party-line. There are things that I agree with and things I disagree with.
That said, as raising taxes only puts a very tiny dent in the deficit, I think I understand the Republicans position. "Half measures availed us nothing", I think is what they're thinking.
I have a feeling that the "raise taxes" argument from the Left is seen as a bandaid (by the Right), so they don't want to concede, as they know that the Left will be knocking on their door a year from now looking for ANOTHER tax increase.
Budget cuts, in my opinion, will have to most profound impact on the deficit, not tax increases.
That said, if it's make the Left happy and get them off my back, I'll pay more taxes, but you only get ONE increase, no more. Increase my taxes, fine, but only do it ONCE, then lets all go to work on slashing spending.
Deal?
But I don't think the Left will agree to that, because as my income goes up, thee Left feels like they are entitled to more of it, and they feel that my taxes should be raised again (because it's not fair that I got a raise and ma making more money, and they're not getting any part of it).
That said, as raising taxes only puts a very tiny dent in the deficit, I think I understand the Republicans position. "Half measures availed us nothing", I think is what they're thinking.
I have a feeling that the "raise taxes" argument from the Left is seen as a bandaid (by the Right), so they don't want to concede, as they know that the Left will be knocking on their door a year from now looking for ANOTHER tax increase.
Budget cuts, in my opinion, will have to most profound impact on the deficit, not tax increases.
That said, if it's make the Left happy and get them off my back, I'll pay more taxes, but you only get ONE increase, no more. Increase my taxes, fine, but only do it ONCE, then lets all go to work on slashing spending.
Deal?
But I don't think the Left will agree to that, because as my income goes up, thee Left feels like they are entitled to more of it, and they feel that my taxes should be raised again (because it's not fair that I got a raise and ma making more money, and they're not getting any part of it).
I think we are on the same page el. I would agree to both. Most of us would, so whats with the refusal on the part of the republicans then?
Like I said, lets raise taxes... fine.
But raising taxes ISN'T going to solve the problem completely.
Even you have to be able to see that you'll never be able to raise taxes enough to solve this problem.
It has to be coupled with deep budget cuts.
No?
But raising taxes ISN'T going to solve the problem completely.
Even you have to be able to see that you'll never be able to raise taxes enough to solve this problem.
It has to be coupled with deep budget cuts.
No?
Simple. For the last several years, under their pledge to Norquist, not one of them want to raise revenue in any way. Remember the debt ceiling debacle? It is time for all those defaults to kick in now as a result and everyone is panicking, yet the republicans still dont want to come up off of any revenue along with those spending cuts. I have not forgotten the history of all of this.
"When do republicans agree to some revenue again?"
I'm not understanding that question. Can you rephrase?
I'm not understanding that question. Can you rephrase?
Allow me to point you in the direction of the economists who will tell you el, running the budget for the country is not quite like your household budget. But in answer to your question concerning my household budget. If I find myself in a bind I do both. I quit spending where I can and I raise revenue or take a second job. Same thing the majority of Americans think is needed. So. When do republicans agree to some revenue again?
If your boss gives you a raise, it'll solve the problem in the near-term, but eventually, you'll start spending at a higher level (it's human nature... as we make more, we spend more).
Cutting expenses is the only way our budget is going to get under control & become manageable.
I'm not saying it shouldn't be coupled with an increase in taxes, but I promise you this... if you raise taxes this year, you'll be coming to me with your hand open looking for another tax increase in a year or 2. You'll never be able to tax the wealthy/rich/elite in this country enough to solve our budget issues.
Even if you took ALL their money, we'd still have a budget crisis on our hands. Why? Because our government spends too much money.
Cutting expenses is the only way our budget is going to get under control & become manageable.
I'm not saying it shouldn't be coupled with an increase in taxes, but I promise you this... if you raise taxes this year, you'll be coming to me with your hand open looking for another tax increase in a year or 2. You'll never be able to tax the wealthy/rich/elite in this country enough to solve our budget issues.
Even if you took ALL their money, we'd still have a budget crisis on our hands. Why? Because our government spends too much money.
I'll say it again... "You've got to start somewhere".
Anyone that thinks the budget can be balanced overnight, or our national debt paid for in a few years, or our budget deficit spending solved in a fiscal year, is delusional.
The debt took YEARS to accumulate, and it's going to take DECADES (more than several) to reign in.
SO, since it's going to take "decades", should we just not do anything about it? Just curious how you think the problem should be solved, if not with proposals like Ryan's.
Yes, raising taxes should be PART of it, but budget-cuts should play an extremely large role in getting our spending under control.
Let me ask you think, Teko: when you get paid, and you do your monthly budget, and you find that you're going to run out of money prior to getting paid again, do you approach your boss for a raise, or do you look at your expenses and decide what's necessary and what's not, and plan to reduce your spending?
Anyone that thinks the budget can be balanced overnight, or our national debt paid for in a few years, or our budget deficit spending solved in a fiscal year, is delusional.
The debt took YEARS to accumulate, and it's going to take DECADES (more than several) to reign in.
SO, since it's going to take "decades", should we just not do anything about it? Just curious how you think the problem should be solved, if not with proposals like Ryan's.
Yes, raising taxes should be PART of it, but budget-cuts should play an extremely large role in getting our spending under control.
Let me ask you think, Teko: when you get paid, and you do your monthly budget, and you find that you're going to run out of money prior to getting paid again, do you approach your boss for a raise, or do you look at your expenses and decide what's necessary and what's not, and plan to reduce your spending?
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