Government Spending

Why the new GOP/Paul Ryan Budget is Better Than Obama's But Still Ain't Good Enough For Gov't Work.

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The new Paul Ryan/congressional GOP budget has been released. As a starting point, consider this: The Ryan plan says that we will spend $3.6 trillion this year while bringing in $2.4 trillion in FY2012. In contrast, President Obama's budget says that we will shell out $3.8 trillion in FY2012 and bring in $2.5 trillion.

In brief, the Ryan plan is not as bad as President's Obama budget, which wants to spend $3.8 trillion in FY2013 and envisions spending $5.8 trillion in FY2022. Over the next 10 years, Obama assumes that federal spending would amount to 22.5 percent of GDP while revenues would average just 19.2 percent of GDP. That ain't no way to run a country.

In this sense, Ryan's plan is slightly better but still doesn't pass the laugh test. He would spend $3.5 trillion in 2013 and $4.9 trillion in 2022 (all figures in the post are in current dollars unless otherwise noted). Spending as an average of GDP would average 20 percent of GDP and revenue would amount to just 18.3 percent. Go here to read the whole plan; figures on outlays and revenue are in Table S-1.

Ryan's budget proposes a new tax plan and zeroes out spending on President Obama's health care; it doesn't add nearly as much debt either. As Reason's Peter Suderman noted yesterday, it also includes a plan to very gradually shift Medicare to a system of premium support subsidies that would kick in over time (that is, by 2050). All of that is interesting and worthy of debate. And certainly it shows some level of seriousness that is almost completely lacking from the president's own plan. And let's not even talk about the sad-sack Senate Democrats, who haven't passed a budget in three years and whose leader (if he deserves the title), Sen. Harry Reid (D-Nev.) has said that his crew won't be voting on a budget resolution for 2013 because last year's debt deal is good enough.

Yet Ryan's plan is weak tea. Here we are, years into a governmental deficit situation that shows no sign of ending. How is it that Ryan and the Republican leadership cannot even dream of balancing a budget over 10 years' time? All of the discussion of reforming entitlements and the tax code and everything else is really great and necessary—I mean that sincerely—but when you cannot envision a way of reducing government spending after a decade-plus of an unrestrained spending binge, then you are not serious about cutting government. If Milton Friedman was right that spending is the proper measure of the government's size and scope in everybody's life, then the establishment GOP is signaling what we knew all along: They are simply an echo of the Democratic Party.

And keep in mind that reducing government spending isn't simply an ideological point of pride. Government spending crowds out private spending, which tends to be more efficient and effective. Raising taxes to pay for government spending (or even to reduce deficits) is a tough slog. Former Obama chief economist Christina Romer's reputation-making works shows that raising taxes 1 percent of GDP to cut deficits leads to a 3 percent reduction in GDP. And as Veronique de Rugy has written, the most-proven way countries with advanced economies have reduced debt-to-GDP ratios is by cutting spending. It's not by raising spending and raising taxes.

The feds can't control revenue (though they are more hopeful than a racetrack tout betting on a crippled nag in the last race of the day), they can't control the economy (try as they might), they can't control the weather (here's hoping, anyway). The one thing that they can control is what we spend next year. And the year after that. And the year after that. A budget that zooms from spending $3.5 trillion to $4.9 trillion over the next decade—and never once envisions a year in which outlays and revenue pass each other like strangers in the night—is not serious from a fiscal point of view.

There are other plans out there that manage to balance the budget while maintaining defense spending, social welfare spending, and other things at manageable levels. Back in the May 2011 issue of Reason, Veronique de Rugy and I offered one up that would bring balance to the budget over 10 years essentially by keeping spending constant while revenue crept back up to the historical average. It wouldn't be hard and it wouldn't kick grandma off the cliff or open up Montana to Islamic terrorists from Mexico. It would require trimming the fat from a budget that's more bloated than a circus fat man. Check it out now. Others, such as Sens. Mike Lee (R-Utah) and Rand Paul (R-Ky.), and the Republican Study Committee, have offered up plans that would balance the budget and create a far more stable framework for getting on with the 21st century. Check them out too.

Predictably, the Ryan plan is being assailed by Democrats as the equivalent of pulling the plug on old people's Medicare-provided Rascal scooters and worse. But the problem with it isn't that it doesn't spend enough. It's that it spends too much.

Update: I appeared on Fox Business' Varney & Co. to discuss the Ryan budget. Here's the clip:

NEXT: A.M. Links: Bloomberg Outlaws Food Donations to Homeless People Due to Fat and Salt Content, More Evidence of the OWS Schism, Democrats Attack Paul Ryan Plan

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  1. Truly cutting the size and scope of government would mean that average dudes couldn’t become millionaires merely be getting elected to Congress. And we can’t have that.

    1. It would significantly decrease the ROI for lobbying, and that would be a tragedy.

  2. The democratic reaction is the same reagardless of the proposal. So why not go for it? Why settle for the Ryan plan as the centerpiece when the Paul plan is much better?

    1. That would require the Republicans first growing a pair of balls. And it would also require them to give up the delusion that no, the Washington Post and the “in” crowd in Washington will some day like them if they are just reasonable enough.

      Not going to happen. Ryan is the best plan we can ever expect.

      1. Rush says the same thing every week.

        1. I just don’t get it. Do they actually think liberals are going to like them?

          1. Apparently so. It must be a DC thing. See also the Cosmotarian love for commie front groups like the ACLU vs. outside-DC libertarians.

          2. it’s not about liberals liking them; it’s about their not being unlike liberals. The only difference is spending priorities; both parties love to spend, just not on the same things.

            1. ^^^Yes^^^

          3. Of course they do. Because they know those people off stage, and they are reasonable, not really all that different than themselves.

    2. The same thing can be said about the Republican reaction to anything Obama puts forward. Liberals always say “that guy might as well have done X, because they are going to have what he proposes.”

      The answer to why the GOP and Obama don’t is simple: independents.

      1. Really? I guess that is why Republicans don’t support him when he basically continued all of Bush’s anti terror policies. Oh but they have.

        Name two immanently reasonable ideas Obama has put forth and please link to the Republicans criticizing them as being unreasonable. I would be curious to see those.

        1. – Ending DADT
          – Banning waterboarding and other forms of torture
          – Cutting NASA

          1. – Marginally trimming the Pentagon budget
            – Trimming Medicare

      2. And Republicans were ready to make a far reaching deal with Obama during the debt ceiling talks and Obama walked away out of fear of his base.

        http://www.washingtonpost.com/…..story.html

        So tell me again how it is the Republicans who are unreasonable?

        1. What are you talking about? Obama considered and offered SOME cuts, it was the GOP who said NO tax increases…That’s not meeting anyone at the middle.

          The GOP idea of compromise is to draw the line at several areas and not budge at all, but be flexible about how much of what you want to get you eventually do get.

          1. They agreed to 800 billion in additional revenue. But I guess if they don’t agree to increase marginal rates, that doesn’t count in your book, because it is not grounded in class warfare.

          2. Read the link. They had a deal and Obama backed out of it.

    3. The republicans don’t actually want to cut spending at all either. They just want the votes of people who do.

  3. If the American electorate ever gives any credibility to a budget drafted by a man who named his child after Ayn Rand we’re finished.

    1. A – he’s not named after Ayn Rand

      B – please explain how we would be “finished”

      1. Everyone knows that Ayn Rand is short for Ayn Randal.

        1. Damn. You beat me to it while I was fumbling with the link.

    2. Randal Howard Paul was named after Aynward Randal? I didn’t know that!

      1. Don’t be ridiculous. He was named after Howard Rand.

        1. You mean the holistic veterinarian? Who knew?

  4. How is it that Ryan and the Republican leadership cannot even dream of balancing a budget over 10 years’ time?

    Predictably, the Ryan plan is being assailed by Democrats as the equivalent of pulling the plug on old people’s Medicare-provided Rascal scooters and worse.

    That’s how.

  5. So the Ryan budget still sucks balls, but at least the sack is shaved.

    1. Teabagger reference?

  6. There’s a typo in your alt text. It says “ten” where it’s supposed to say “two hundred and twenty three.”

  7. predictably, the Ryan plan is being assailed by Democrats
    ———————-
    and, just as predictably, assailed by Nick. No, it’s not perfection but it IS a plan. On paper. With details. Something exactly zero Dems have done since The One’s coronation.

    1. OT: What happened to that Obama savior shrine image Reason used a few years ago? My Google-foo is not conjuring it up.

    2. Its not being compared to Dem plans. Its being compared to other R plans. Or to L plans.

      Many of which are also on paper.

      1. fair enough..but Nick’s proposal is not going to pass. The Rand/Lee/DeMint plan is not going anywhere. Now, there is this one. Bottom line is, there are at least three plans on the table, none of which has even the first Dem fingerprint on it, and I contend that, at some point, THAT has to become the narrative. Or at least a part of it.

  8. Government can’t control revenue? Well, as a statement of fact it’s not exactly wrong, as it can’t control revenue while antitax zealots are in charge of the budget. That’s the main reason Ryan can’t seriously address the deficit, of course.

    And why the GOP will get all the criticism it deserves for a) claiming deficits are the most important problem and b) we can’t do anything serious about them except destroy the social safety net.

    1. Well, on one side you get people who point to data showing that in the US revenue has never risen past a certain point. On the other hand are people who say “there’s a first time for everything” and point to the contrary experience of other nation’s as proof it’s certainly not impossible.

      To me it’s marginally interesting, but not that important. When the “hard-liners” on the budget can’t tackle defense spending we’re doomed.

      1. On the other hand are people who say “there’s a first time for everything”

        One of the most famous fallacies in the financial world is “this time its different.”

        and point to the contrary experience of other nation’s as proof it’s certainly not impossible.

        Do these other nations have states and municipalities skimming off 20% of their own?

        1. Well, it is true that for every phenomena that has occurred, there was a first time…

          1. No question.

            That first time was generally much longer ago that people realize, and the vast majority of first times aren’t repeated because they were failures.

            And, saying “there is a first time for everything” implies that everything that can occur, will occur. Leaving aside the philosophical debate over whether this is true, it is not the way to bet. For example, I would not bet that there will be a first time for unicorns to gambol through my yard eating acorns.

            1. It might not be the way to bet, but it does mean it can’t be ruled out. Supporting examples in other nations only reinforces that.

              But yeah, betting on something that has never happened is a poor strategy in general.

      2. there are no budget ‘hardliners’ in congress. none.

      3. On the other hand are people who say “there’s a first time for everything”

        True, but when you’re setting tax rates to places they’ve been set before, in the same country, and expect different results, it’s called insanity. Pointing out that it worked somewhere else is interesting, but irrelevant.

      4. Well, on one side you get people who point to data showing that in the US revenue has never risen past a certain point. On the other hand are people who say “there’s a first time for everything” and point to the contrary experience of other nation’s as proof it’s certainly not impossible.

        This seems a false dichotomy to me. You have people one the one hand pointing to one set of data and people on the other pointing to a different set of data. Both are right and wrong, depending on the particulars, but the debate is not at the level of those particulars, but is waged in generalities at a couple of levels more abstract.

        And, as for the “first time” thing, RC is wrong. In the financial world the most famous fallacy is “it hasn’t happened before, so it won’t happen this time.”

        1. Re: Neu Mejican,

          but the debate is not at the level of those particulars, but is waged in generalities at a couple of levels more abstract.

          Occam’s razor: It is simpler to point out that both sides are missing the point. The issue is what can you control: Your revenue, or your spending? People like Tiny think that spending is inevitable like an act of nature whereas you can control your revenues.

          Instead, those of us that understand economics (i.e. reality) know that revenue can only come from voluntary exchange which calls for will. Unless you control minds, you CAN’T control exchange.

          Instead, SPENDING is ENTIRELY your action, 100%. THAT can be controlled by you to the last penny – you can CHOOSE NOT TO SPEND, but you cannot make a person choose to give you money. At least, not without calling it “stealing.”

    2. tony,
      your talking points are no less nonsensical today than in previous efforts. Where is your side’s plan to do something, anything, about the deficit besides add to it?

      Ryan has twice put forth proposals; a group of Senate Repubs has drafted one; even the Reason staff crafted a budget. The Dems? Not so much. Harry insists on keeping the Senate AWOL and the House Dems do what the accuse the Repubs of doing – nothing.

      Obama’s right; he does a have a do-nothing Congress..but he’s too much of a hack to realize the do-nothings are on his side of the aisle.

      1. Obama put forward a budget. It’s terrible, like the Ryan one.

        Neither side is worth much on spending. The Democrats in the Senate just killed a pay FREEZE for federal workers. A freeze. It’s mindboggling.

        On the other hand the GOP can’t stop it’s obsession with 500 dollar toilet seats as long as they go on toilets on military bases. We’re doomed.

        1. Unfortunately, it appears that the entire edifice will have to collapse before the clowns on both sides of the aisle decide to do something. Even then I have my doubts.

          1. Well, we should just let these budgets, all of them, fail. Won’t the automatic supercommittee cuts kick in? Military and entitlements take a hit, that’s who should anyways.

            1. The sequester postpones, but does not prevent, fiscapocalypse.

      2. It is indeed odd that the party now resisting any changes that might save the “safety net” is accusing the other party of wanting to kill it. The bottom line is that failing to cut entitlements is the surest path to their ultimate destruction. No amount of tax increases can pay the $37 trillion in unfunded liabilities.

    3. Needs more obliviousness and Bush’s Fault!

    4. Tony, you really need to review the history of tax rates and government revenue in the country you live in. Tax rates have been set very high contrary to the influence of any anti-tax zealots, and government revenue stays essentially flat: always around 17% GDP.

      You’re not going to fix that unless you do a serious tax overall. That’s very difficult to do, especially with political motives like yours, because taxes and regulations go hand-in-hand. You can’t subsidize this behavior and punish that behavior while reforming the tax code significantly. So, we’re stuck with what we have.

      I find it ironic how much the tax-regulate-subsidize policies that you support the expansion of actually stand in the way between yourself and your precious revenue.

      1. Re: Brian,

        Tiny doesn’t care about that. He will still believe that the one thing the government can control is, somehow, the amount of money it can levy from millions of self-interested and rational human beings, whereas the spending is simply an act of nature and akin to the Rock of Gibraltar.

    5. The social safety net that has contributed to the now-retiring boomers have eschewed saving? “We spent all our money, now give us yours” should be their slogan.

      http://www.reuters.com/article…..LN20111219

    6. Re: Tiny,

      Government can’t control revenue?

      Here we go.

      Well, as a statement of fact it’s not exactly wrong, as it can’t control revenue while antitax zealots are in charge of the budget.

      Sure it’s the fault of the anti-tax zealots – not that people act with purpose and hide their assets – nah.

      we can’t do anything serious about them except destroy the social safety net.

      An admission to the fact that you’re not really serious about reducing deficits.

  9. The budget is pretty pathetic, it passes on even the meager defense cuts the Obama admistration proposed. Because, you know, when you are the on brink of being Greece you must spend more than the next fifteen largest defense budgets combined because, well, alien attack or something.

    1. I agree with MNG here.

    2. “you must spend more than the next fifteen largest defense budgets combined because, well, alien attack or something.”

      A meaningless comparision. Most of the rest of the world that wasnt’ part of the old Communist block has been getting military protection welfare from the U.S. ever since the end of WW2.

      Their defense budgets would be a hell of a lot bigger if they weren’t.

      1. then let’s cut the welfare and force the other nations to become big boys. THIS is the key reason why so many Western European countries have the social states that US liberals drool over: they don’t have to spend much on defense. That and the lack of the permanent welfare class that we have.

        Let the US defense budget cover US defense. We can be allies but we do not have to be bankers.

        1. Many overseas bases at this point are just a form of global welfare. How many foreign towns would dry up and blow away without GIs spending their bucks in those local economies?

  10. Back in the May 2011 issue of Reason, Veronique de Rugy and I offered one up that would bring balance to the budget over 10 years…

    Fret not, Nicholai. Ryan’s plan has as much chance of passing as yours does.

  11. Abolish the wages system

    1. Abolish the wages system

      Don’t you believe in helping your fellow man?

    2. what does this even mean?

      1. what does this even mean?

        It’s a reference to the Wobblies. The marxists evidently want everyone to work for nothing.

        1. I thought it was a pro-serfdom statement. The serfs would get to keep a small percentage of their produce and the rest goes to the Commissar/Count. None of that nasty payment for goods and services rendered. Everyone is free to serve the Collective.

          And of course there is the whole ‘Primae Noctis’ to add to the fun of being Commissar.

    3. Re: shrike,

      Abolish the wages system

      Agreed! Let workers issue invoices to their customers – the employers – just like any service provider. Why would labor be considered any differently from an economic standpoint than, say, painting a house?

  12. I think the supposedly automatic cuts triggered by the supercommittee would be the best option right now.

    One reason to detest the Ryan budget is that it plainly aims to prevent that.

    1. if it prevents the supercommittee from doing anything, that is a reason to SUPPORT the Ryan plan. The whole super committee business is an abomination in and of itself, a mechanism designed to protect Congressmen from having to do anything beyond posture for the cameras.

      1. Yeah, i’ve no love for the committee, I’m talking about the default cuts that kick in when the committee fails.

      2. Agreed. The level to which our legislators have abdicated their core responsibilities is astounding. It’s like watching congressmen grill a general on when they’re going to be told that they can withdraw troops. If you want, you can do it now, damnit. They’re supposed to perform missions chosen by civilian leadership, not the other way around.

        Maybe someone from the IRS can tell Congress what to do…

  13. Why settle for the Ryan plan as the centerpiece when the Paul plan is much better?

    Are you trying to induce apoplexy in Mitch McConnell?

    Try harder.

    1. Rand has pleasantly surprised me quite a bit, but that budget was not one of them. I guess he let DeMint write the “love letter to defense spending” part of the budget.

      1. Re: MNG,

        No argument here that the Rand Paul budget is nowhere near as good as his father’s but it is certainly much better than Ryan’s.

  14. But Ryan’s plan calls for draconian cuts to government spending! At least, that’s what the news and Nancy Pelosi told me about it.

    You people just want to destroy the government. Spending anything less than $4 trillion per year on the federal government is unthinkable!

    1. Also, Somalia!

      You forgot to throw that in.

  15. America is sunk because the average American is a greedy simpleton. I have friends that spout the “I want smaller government” but the minute I start talking specific stuff to cut – especially SS and medicare/medicade – you would think I just said lets kill grandma in the town square. I used to blame politicians, but truthfully, they are merely a reflection of those who vote for them.

    1. Amen lightning. A democracy is only as good as its dumbest voter.

      1. Well, only as good as its median voter, anyway.

        And, as of now, that median voter is pocketing more from the government than he/she/it is either paying to the government, or realizes it/she/he is paying to the government.

        So, my optimism is not exactly off life-support quite yet.

    2. If only they cut earmarks, Obamacare and green energy subsidies, and “presto!” – the budget will be balanced, and we’ll have enough surplus to spare to deport 12 million illegals AND attack Iran! Awesome!

  16. I keep reading that the Dems haven’t introduced a budget in three years.
    So what happens to the budget Obamessiah trots out every year?
    Perhaps if the Dems don’t want to introduce it in the Senate, then the Republicans should! That would put it on the table (the Republicans don’t have to vote for it, just intro it)and the Dems would have to defend it or not pass it and admit it is a piece of crap.

    1. Mitch McConnell beat you to the punch. My understanding was he introduced the Presidents most recent budget. I’m a democrat and embarrassed by Harry Reid’s so called “leadership”

  17. Newt and Bill Clintion balanced the budget. How? Cutting defense spending reforming welfare and having pay as you go rules for new spending. Withdraw from Iraq and Afgahistan, cutting defense spending dramatically, plus healthcare savings and restoring paygo would go a long way to solving this mess

    1. To be fair, they also raided the SS trust fund to help fill in some holes as well…sort of like a lot of these states that proclaimed “balanced budgets” when they used the stimulus money to plug holes in their budgets. But yea, I will gladly take 18% spending again, as long as it doesn’t involve Noob Gingrich…

      1. I would take 18% spending again if it involved the Devil himself. Every politician is a scumbag. So why hate one more than another? It is the results that matter.

      2. as long as it doesn’t involve Noob Gingrich…
        ——————–
        I’m not a Noot guy but who gives a shit? Results are results.

    2. Re: Libertarian liberal,

      Newt and Bill [Clinton] balanced the budget.

      No, they didn’t. They simply dragged the amount in the SS Trust Fund into the asset box to give the budget a semblance of balance.

  18. The new GOP is the same as the old GOP lol. Bought and paid for.

    http://www.real-world-anon.tk

    1. As opposed to the Obama administration? LOL. You need to start your own act with that kind of comedy.

    2. unfortunately, the new Dems are worse than the old. Folks like Sam Nunn, Scoop Jackson, Zell Miller would be ostracized by the current crop.

  19. The title of the graph should be “Spending This Decade” not “Spending Increases This Decade”.

  20. Military spending is not cut because there is no majority backing for military spending cuts. What, 10% of Republicans (Ron Paul people) and 25% of Dems maybe (just so it ain’t in my district or affects the shipbuilders union)? So it would be the rare congresscritter who is going to vote to cut military spending in any appreciable amount and not worry about a primary challenge and, if he survives that, a general election challenge from someone calling him soft on terror. Even if a 50% coalition could be cobbled together to support such candidates, it would never hold because their views on non-military spending are all over the lot.

  21. Call GDP $15TT, and admit that the most the fedgov can extract from that is 20% (to be generous/optimistic). Let’s roll forward a few years, to 2015, and assume the historical average of 3% GDP/year growth. That gives the fedgov $3.25TT in 2014.

    Half a trillion will go to debt service in 2015 (I know, shocking, you never hear about this, etc., but there it is):

    http://www.bloomberg.com/news/…..ecord.html

    That gives the fedgov $2.75TT in 2014 to spend on other stuff. Assuming a massive tax hike, that is, to get us up to 20% of GDP, and assuming the tax hike doesn’t cause the usual dynamic contraction of the private economy/tax base. We’re being very optimistic here.

  22. The transfer programs (SocSec, Medicare, Medicaid, CHIP) accounted for around $1.5BB in 2010, and will likely be around $2TT by 2015, what with Boomers retiring and all.

    That leaves, call it $750BB. Pretty much the current defense budget.

    You can raise taxes all you want, but without cuts of around 40% of the total budget, it won’t balance. Period.

    1. But, but . . . shared sacrifice!!

  23. So Where’s your plan Nick?

    1. Can be found by clicking the hyperlink in the text where he talks about it. Durr, the Internet, how does it work?

  24. cuts in food stamps social security and medicare but nothing for defense http://redd.it/r7yke

  25. Very good article.

  26. Cheap Beats By Dre I would do my best to find some shred of progress which might offer him hope. A light at the end of the tunnel which he could look forward to. So will Martin ever be normal? My answer may surprise you. Moreover if you are the parent of a newly diagnosed Aspie, wondering if your child ever be normal may feel like the most difficult question you have to deal with. My thoughts? Before I offer you an answer (and I will), I first need to tell you something about me. You see, I have Asperger’s too, like Martin, a rather serious case. In fact, if asked to rate my own level of severity, I’d have say my Asperger’s is just as serious as Martin’s. This then begs the question, how have I managed to attain so much of what society would say makes me normal when a man as smart as Martin can’t seem to find his way out of his meltdowns? What in fact makes Martin’s life and mine so different? For that matter, why make such a big deal of the differences between Martin and I Beats with Dre?

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