Paul Ryan's Budget Plan: The Good, The Bad, & The Ugly

Rep. Paul Ryan (R-Wis.) has released the official House Republican proposal for the 2012 federal budget. It compares extremely favorably to President Barack Obama's own plan, but that is damnably faint praise.

From every possible perspective, Obama's budget was and is a disaster waiting to happen, memorable only for reminding all Americans that you can't spell "Winning the Future" without WTF.

Indeed, Obama's plan for 2012 is so awful that it should make us feel lucky that he and the Democrats failed to pass a budget for the current fiscal year (the only time such a thing has happened since 1974). Obama's dream budget would mean a 2021 budget that spends $2 trillion more than we do today, increase debt held by the public from 62 percent to 77 percent of Gross Domestic Product (GDP) and maintain massive annual deficits. And that's if things go according to his plan, which they won't (built into his budget are unrealistic assumptions about the rate of economic growth, revenue collection, health care savings, and more).

So compared to such an exercise in recklessness, Ryan's plan is refreshingly engaged with reality. Unfortunately for taxpayers and citizens, Ryan's plan looks better when standing in the shadow of Obama's. Neither budget provides a good way forward for a country still battling the effects of recession and the non-stop, self-inflicted spending binge that began with George W. Bush and has proceeded unabated since then. Ryan's budget is indeed a positive break from past efforts by Republicans and Democrats alike, but it doesn't provide the solutions the American people deserve.

We made the case against Obama's budget here. Now, we discuss the good, the bad, and the ugly of Ryan's budget.

The Good

Ryan's budget spends considerably less money over the next decade than does Obama's. As the chart above shows, Obama expects to spend almost $6 trillion by 2021, while Ryan's plan comes in at more than a trillion dollars less, around $4.7 trillon (these amounts are in nominal dollars). Ryan's plan also calls for less revenue (taxes) than the president's and posits a significantly smaller set of annual deficits. So the amount of borrowing built into Ryan's plan is less too. That's all to the good. Lower levels of government spending and debt and taxes leaves more money in the hands of private citizens and businesses, who are far more likely to generate economic growth.

More important, Ryan's budget, like his 2010 "Road Map For America's Future" (from which much in the budget is inspired), is a serious attempt to think through the implications of the past decade's wild spending spree, in which federal outlays increased by more than 60 percent in real terms and debt held by the public exploded from 36 percent of GDP in 2007 to its current 62 percent level. Ryan should be commended for refusing to be passive in the face of spending trends that threaten to swamp the nation's economy. Shockingly, the "new normal" for the 21st century has been massive expansions in government spending and reach, first under Bush and now under Obama. Ryan, who voted in favor of No Child Left Behind, the Medicare Part D expansion (which gave free and reduced-price prescription drugs to seniors), TARP, and all major war funding, has certainly been part of the problem, but more recently he seems to have discovered his inner cheapskate. Better late than never.

Given that spending on Social Security, Medicare, and Medicaid comprises around 40 percent of annual outlays, Ryan's emphasis on reforming two of the nation's major entitlement programs is among the most attractive part of his plan. He is largely responsible for starting a much-needed discussion of changing "entitlements" from open-ended obligations on the government that get paid out regardless of their effectiveness or need. The three major entitlements - Social Security, Medicare, and Medicaid - are not just fiscally unsound, they have proven time and again to yield poor results (Social Security yields anemic 2 percent annual returns on investment for current beneficiaries) and increase health care inflation.

Ryan's budget proposes block granting Medicaid, which provides health care for the poor, so that states have more flexibility in how they deliver care and control expenses. Essentially, the states would get a fixed pile of money each year that they would be free to spend as they see fit. When the money's gone, that's it. According to Cato's Chris Edwards, full block-granting of Medicaid could save around $95 billion a year while delivering more effective care. Critics worry that states would simply cut care to save money, but that assumes that voters in states simply don't care about the poor or the quality of services. And it assumes the current system is actually performing well, which it is not. Most spectacularly, several studies confirm that current Medicaid recipients often have worse health-care outcomes than similar people not in the system. Changing the funding and control structure of Medicaid is the best hope lower-income people have at this point when it comes to health care.

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For Medicare, which provides health care for senior citizens, Ryan wisely suggests getting rid of the current system, in which payments are made for every procedure performed with no cap or restraint on overall spending. Instead, Ryan proposes shifting to subsidizing premiums for seniors, who would then choose from a range of plans that best suit their needs. The phase-in of this shift would take place over the next 10 years (those 55 years and older will stay in the current system), allowing for transition. By subsidizing premiums rather than covering payments for services rendered, Ryan's plan will ostensibly make seniors and their doctors think twice before ordering up whatever test or procedure they might want at a given moment. Injecting pricing into the health care system is the only way to bring prices down and his plan should help that along. In a more combative gesture, the plan also zeroes out spending on the new health care law (see S-3 here).

The other good conceptual element to the Ryan budget? He calls for simplifying the income tax by reducing the number of brackets and ending tax expenditures such as the mortgage-interest deduction. And he wants to reduce the corporate income tax from its current 35 percent rate to 25 percent, a figure that would make the U.S. competitive with other developed countries. That's all good, though it's worth pointing that the budget plan, while calling for any tax reforms to be neutral in relation to revenue raised as a percentage of GDP, has essentially no specifics in it beyond the corporate tax rate.

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  • rather ||

    I still want to know the difference between the Tea Party proposal and the Republican's plan.

    Is 100 billion realistic?

  • Corporate Drone||

    There is no Tea Party proposal. What are you talking about?

  • rather ||

    Now Tea Party Nation founder Judson Phillips, arguably the most vocal critic of GOP leaders, is pushing for a primary opponent against House Speaker John Boehner in 2012 for breaking his campaign pledge to cut $100 billion and for what he sees as hints that he's willing to cut less than $61 billion in a compromise with Senate Democrats.


    http://www.foxnews.com/politic.....dget-plan/

  • Corporate Drone||

    That's not a proposal.

  • rather ||

    I assume they had a deal for something; not just the $100 billion for the sake of saying it.

    I would like to know the specifics of their deal, and if it was feasible

  • Realist||

    "...arguably the most vocal critic of GOP....
    UNARGUABLY!

  • ||

    ryan eliminates medicare. the townhall temper tantrums were correct except for the obama part, the insurance regulation part, & the dem part. where are the protests like before?

  • ||

    ryan's not black

  • ||

    Reading comprehension fail!

  • Old Mexican||

    Re: OO,

    ryan eliminates medicare.


    Bullshit.

  • The Fringe Economist||

    I second this notion

  • Realist||

    It's all bullshit. Nothing good will happen.

  • ConfederalRepublicBy2030||

    Foord for thought from a Democrat I confronted -

    "Reagan came and brought back the American spirit with the Cold War situation. So, the greatest thing imo he probably did was restore a sense of confidence and belief in America and it's people with the Soviet collapse.

    However I have a hard time understanding why the man is so revered. Maybe you could explain this to me, Is it just for the collapse of the Soviet Union?

    What about:

    - Response or lack thereof regarding the Marine barracks bombings
    - Iran-Contra/ Weapon sales
    - Tripled deficit while cutting taxes"

    Fuck me senseless - did I just hear a DEMOCRAT praising RONALD REAGAN? Roflmfao. What's going on here?

  • strat||

    It's only fair. Mr Ryan was on C-SPAN today praising Bill Clinton for his fiscal restraint. It's an odd time.

  • ||

    Confederal -

    I defy you to explain how Reagan tripled the deficit or even contributed to it.

    LBJ's War on Poverty cost $220 billion per year for thirty years and Reagan repeatedly tried to stop the War on Poverty to be blocked in the senate, principally by Tip O'Neill.

    Any USA law goes on forever until it is cancelled by another law, and the War on Poverty was a major Democratic initiative. The Reagan increase in the national debt was almost exactly the same as the cost of LBJ's War on Poverty during the Reagan years. I defy you to explain how Reagan was responsible for a law passed by LBJ and Democrats. Don't talk rot.

  • ConfederalRepublicBy2030||

    I was quoting a Democrat I had a confrontation with a few days ago. Note the speech marks. :P

  • Old Mexican||

    Instead, Ryan proposes shifting to subsidizing premiums for seniors, who would then coose from a range of plans that best suit their needs.


    That's nasty.

  • Daniel||

    At least Ryan's...tryan

  • steve||

    Tryan and .50 will get you a cup of coffee...

  • Daniel||

    Am I the only one who always pictures Ryan with a monocle?

  • i give up (formerly some guy)||

    And an assault rifle. The revolution will not be telegraphed!

  • Old Mexican||

    Ryan, who voted in favor of No Child Left Behind, the Medicare Part D expansion (which gave free and reduced-price prescription drugs to seniors), TARP, and all major war funding, has certainly been part of the problem, but more recently he seems to have discovered his inner cheapskate. Better late than never.


    Sure. Ryan suddenly because St. Augustine...

    "Lord, make me a cheapstake... but not yet!"

  • Old Mexican||

    For all the talk about bringing some basic sanity back to fiscal policy, the budget proposes spending over the next decade that averages out to 20.5 percent of GDP. That's more than 2.5 percentage points higher than the average amount of revenue raised as percentage of GDP since World War II[...]


    But that's only because the US is fighting several wars at the same time:

    The endless War on Islamic assholes;
    The endless War on Islamic people that want the US out of their land;
    The just-starting War on those Islamic foes that the US-gov deemed they're not BFFs anymore; and
    The endless War on Economic Reality.

    I mean, those wars take a lot of resources!!!

    Another empty boast in the plan is a report from the Heritage Foundation that says following Ryan's "Road Map" would lead to a massive increase in economic growth, and a 4 percent unemployment rate in 2015 and a 2.8 percent rate in 2021.


    What? Will government send the unemployed to workcamps (or something) once 2021 arrives?

  • i give up (formerly some guy)||

    Don't forget the War on Drugs.

    That's, like, five wars. Roosevelt only had to deal with one. What a pansy.

  • Realist||

    "What? Will government send the unemployed to workcamps (or something) once 2021 arrives?"
    They'll have to. If all the make work jobs ended and all the incompetent people were fired the unemployment rate would be 50%+.

  • Tony||

    Lower levels of government spending and debt and taxes leaves more money in the hands of private citizens and businesses, who are far more likely to generate economic growth.

    Yeah except that Ryan's plan raises taxes on 98% of people--not to mention shifting more healthcare costs to the poor and elderly.

    If the GOP's version of Keynesian stimulus--tax cuts for the rich--actually worked as claimed, we should be in an employment bonanza right now.

  • Night Elf Mohawk||

    Yeah except that Ryan's plan raises taxes on 98% of people...

    Do you have some sort of documentation for that claim?

  • Tony||

    Well it's not a line item, but the plan calls for keeping the Bush tax cuts and decreasing the top individual rate by 10% more. It then calls for keeping overall revenues the same, meaning taxes have to go up somewhere--he doesn't specify, but he does say he wants to "broaden" the tax base. Sounds like regressivity to me.

  • Night Elf Mohawk||

    Sounds like fewer loopholes that those fighters for the little guy always abhor.

  • Tony||

    Sounds like a bunch of horrific bullshit.

  • Night Elf Mohawk||

    Coming from someone who apparently believes that anywhere close to 98% of people do, or will, pay federal income tax to begin with, that's not saying much.

    But, hey, if eliminating deductions -- which are used almost entirely by people in the upper brackets -- seems regressive to you, perhaps you're just too ignorant to understand the plan or too bad-faithed to discuss it honestly. Either way, see ya, wouldn't want to be ya.

  • Tony||

    Ryan seems to share your attitude, which is that not enough poor people are pulling their weight. We need to make taxes even more regressive than they already are, because we are "punishing" the virtuous rich while "rewarding" the lazy poor. As if Paul Ryan's singular assessment of people's moral worth should matter in tax policy. His plan absolutely does not raise revenues from the rich or corporations. Why would it--the whole thing is a supply-sider porn.

  • Contrarian P||

    Tony, corporations get their money to pay taxes from their customers. They don't have some magic pile of money sitting there. Higher taxes mean higher prices for goods and services provided by corporations. Those higher prices are charged to everyone: rich, poor, and middle class. It's the ultimate regressive system. Either you haven't thought about this or you just can't get over the "corporations are evil" dogma.

  • ||

    Yes, you are quite correct. Businesses do not pay taxes, their customers pay those taxes. However, how about the rich CEO forgo his 5th home in Aspen? instead of raising his prices and putting the costs back on his customers, hummm? That would probably be asking to much, I suppose. Still trying to figure out how many frigg'in beds one person can sleep in at once?? Still pondering.....

  • JmZ5||

    Paul Ryan has only "discovered his inner cheapskate" because the President is now a Democrat. If we were in a McCain administration that proposed the exact same budget as Obama has, Paul Ryan would be supporting it with religious fervor. Let's please not pretend otherwise.

  • Realist||

    An excellent point!

  • DoDoGuRu||

    That's not excellent. It's pedantic.

  • ||

    Precisely why divided government is the most libertarian vote possible in our current two party environment.

    I have to say, though, the libertarian viewpoint is gaining quite a bit of media time (relatively speaking, anyway). It'd be nice to think one day I can actually vote FOR candidates rather than having to vote against worse candidates.

  • Realist||

    The Repblicans have already caved on the current budget. They are in a pissing match after coming down to $40 billion from $61 billion, after coming down from $100 billion. Their final offer is to raise the budget $1 trillion and not a penny more.

  • ||

    Rand Paul's plan is still the only one that's serious. Ryan's plan is better than Obama's non-plan, but that's damning with faint praise.

    -jcr

  • ||

    Your comments are all well and good if Ryan was a professor or the President, but all he is, is Budget Committee chair. A lot of the detail you say he lacks is the province of other committees--the ones that authorize the programs, for the most part.

    I don't know for a fact, but it's a pretty safe guess that in order to publiocly advance this proposal Ryan had to tack very carefully around the jurisdictions of the major committees.

    The main thing is if the overall numbers (totals and for the major budget categories under the law) move us in the right direction at a reasonable speed. The program details are not Ryan's job and if he spoke to them as you wish he would antagonize the committees that will have to carry this through.

  • prolefeed||

    ending tax expenditures such as the mortgage-interest deduction.

    Not taking quite as much of my money is not an "expenditure", unless you're embracing the statist POV that everything I earn belongs to the government.

    Not arguing with the premise of lowering taxes and eliminating deductions like the home mortgage deduction, BTW.

  • A Serious Man||

    Which plan, Obama or Ryan?

    Hmm, do I want a shit-sandwich or an undercooked, but still palapable steak?

  • jacob||

    Rand Paul is serving up delicious Kentucky Derby pie!

  • ||

    Good question, why S.S. different?

    The USA made a promise to these people when it took a substantial (if not "large") part of their wages every two weeks and the integrity of the USA is on the line with social security. Income ought not to matter at all; that was NOT the deal-promise. A decent reform would be to raise the age to 72 for NEW entrees into the system and just raise taxes (gas taxes would be ideal; or income taxes on all workers would go a long way to funding) or cut spending in order to keep that promise. It's a good system and obviously privatizing it would have been a disaster ESPECIALLY in 2007 or 2008. The point of it is to force people to effectively buy "retirement insurance" or otherwise considered save for retirement ... because people tend to be slobs who do not think of the future, especially when there is welfare to be had ... so that should they arrive at 65 old and destitute they have a monthly check.

    I think I'm reasonable, ready for shared sacrifice, but I wouldn't vote that those who've been FORCED to save rooked out of the retirement savings promised them. That the USA can do it is beside the point.

  • ||

    As is so often the question with politics it's not "what is a good plan and what is realistic?" It's "what is a good plan and we'll get me re-elected."

    http://www.intellectualtakeout.....uestions#6

  • ||

    What is to happen to social security and medicare taxes? I tell you, the lack of a hands off provision to keep them out of the general fund is all the evidence I need to believe these reforms have as the major goal to produce a revenue surplus from these taxes, to be then siphoned off to the general fund. No deal.

  • ||

    Where is the hair cut for corporate welfare? I don't see it yet. Just a tax break which I support. Under the circumstances, no desl.

  • ||

    I don't see the elimination, not trimming but elimination, of

    1. Education Department
    2. Fannie Mae, Freddie Mac
    3. Energy Department
    4. Homeland Security, TSA

    and that is just before lunch!

  • LifeStrategies||

    How about eliminating ALL the Federal agencies which are not authorized under the Constitution?

    Then the States can run those programs and competition will show which ones work better...

  • ||

    If you do not know how you got here, you cannot know where you are, and you will not know how to go to where you want to go.

    ' ... self-inflicted spending binge that began with George W. Bush and has proceeded unabated since then."

    Ummm, no. Bush's own economic policies began at his election and quickly stopped the Clinton Recession in its tracks. By 2003 the Bush economy enjoyed a sharp upward turn, with unemployment falling to near record lows and the markets and GDP hitting absolute record highs by 2007. So the "self-inflicted spending binge" certainly did not proceed "unabated" because President Bush's policies abated it. The "self-inflicted spending binge" was the sole provenance of Democrats. The data is freely available in BLS, DJIA, and Federal Budget records, and clearly shows that Bush's policies led to record prosperity, if only for a brief period.

    The Bush policies were interrupted by the Democrats' Unaffordable Housing Project in 2007, to which no Republican contributed by any law or policy action. Democrats falsely but successfully blame Bush for their own folly and Gillespie and de Rugy buy into the Dishonest Democratic Narrative (DDN).

    A note on economic bubbles and recessions: The Dot.com Bubba Bubble was the third largest economic bubble (at that time) in history following the Roaring Twenties and the Japanese Bubble that popped in 1991. The Bubba Bubble crashed one solid year before the end of the Clinton Administration, and NASDAQ fell $2.5 trillion before Clinton was gone. All economic indicators were falling like a coyote off a cliff by the time Clinton left office.

    FDR worked diligently for eight solid years from 1933 to the start of WWII in 1941 and had almost no effect on the Great Depression, sometimes making the Depression worse as by the tax increases following the 1936 elections. FDR was saved, so to speak, by the advent of WWII. Similarly, the Japanese Bubble crash twenty years ago has had no recovery, and probably never will.

    So it is quite remarkable that President Bush effected a major recovery from a major economic bubble crash in three short years. It is quite believable and expected that Democrats blame President Bush for Clinton's Bubba Bubble and for the Democrats' Unaffordable Housing Project but why do so many Republicans, including Glen Beck, think so poorly of President Bush when, by any objective standard, Bush did a magnificent job in correcting the Democrats' blunders?

    The Democrats' destructive policies of foolish waste created our current national debt, and there is no hope that more foolish waste will correct the situation. The faster foolish waste is eliminated, the better off we will be.

  • jacob||

    I think you are correct that Bush can and should be credited with the prosperity we experienced in the early 00's; but if you consider the Economic Stabilization bailout he signed in 2008 as "magnificent" then you've got a lot to learn about reality. I'd add the Iraq war to the list of wasteful spending, too, but to be fair that was a bipartisan mistake.

  • ||

    "FDR worked diligently for eight solid years from 1933 to the start of WWII in 1941 and had almost no effect on the Great Depression, sometimes making the Depression worse as by the tax increases following the 1936 elections. "

    Sorry, but the taxes were hiked in 1930, 32, 34; in 36 spending was cut.

    And employment increased during FDR's first two terms at such a high rate, ~6% annually, if the same rate had been in effect while GW Bush was president, employment would be 30 to 40 million workers higher today. Beginning in the 20s, farms were mechanizing and farm labor was being cut rapidly; as jobs opened in the 30s, farm workers moved to the city and farmers began working in off the farm.

  • ||

    Jacob -

    I appreciate the comment, but would you really prefer economic destabilization? The TARP program was intended to lend stability to the economy damaged by the Democrats' Housing Bubble. The TARP budget of $700 billion was never fully spent, and all but $30 billion has been repaid, depending on how you count the screwy accounting at Government Motors. GM was never intended to be part of the stabilization program, but was a payoff to Obama's union supporters, and was absolutely outside the law.

    Had the financial institutions not been stabilized we were facing a meltdown, possibly on the scale of the Great Depression. Bush and Obama during the transition concurred on the stabilization package that was primarily the product of Bernanke, who is probably the greatest student of the Great Depression. Unfortunately, Bernanke is fighting the last war, not the current war. During the Great Depression, no credit was available, hence the need for massive injections of capital. Now credit is available and no one wants it. Obama's erratic gyrations on tax and regulations have everyone terrified of what will happen next. There is close to $2 trillion sitting on the sidelines waiting to see what is going to happen. How much will taxes be under Obama? What regulations will be passed under Obama and how much will they cost? How much will medical care cost under Obama, and who will be required to pay it? How many more ways can Obama screw up energy production? No one knows the answers to these question, and no one will invest in factories, office space, tools, and employees until they understand what they are getting into. Better to sit on your money or invest it overseas than to play a guessing game with Obama.

    The housing meltdown in 2008 was small and the worldwide reaction was humongous. What happened? It as if a mouse jumped on one end of a teeter-totter and the elephant on the other end did a double back-flip. There was something else going on here, and that was the prospect of electing a Marxist to the presidency of the United States of America. Investors watch these things closely, and no one wants to leave his assets exposed to Marxist inefficiency and corruption. When savvy investors bailed, millions of traders followed them, and pension funds and saving account holders were the last to realize what was happening.

  • ||

    Uhm... did you stop and consider the fact that since we bailed them out... we are likely to have a second and WORSE financial crisis as a result of all of the bailing them out in various ways? Including keeping the interest rate below the natural rate of interest?

    Did you stop and think that in capitalism, there should *NEVER* be bailouts... the banks made a lot of their own mistakes and deserved to be crushed by the market. Not the government... but the MARKET.

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  • ||

    Republicans will never be the answer as the Bush years proved.

  • ||

    Paul Ryan budget plan is not sound myself and lot other people in Alabama hate it

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