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: