Thursday, April 7, 2011

E.J. Dionne is right: Ryan's proposal is outrageous, not courageous

Steven Hayward is partially correct in one of Professor Eismeier’s earlier posts when he says “Ryan’s budget architecture is about much more than just fiscal balances.” Ryan’s budget is clearly about articulating his radical agenda for the nation. In fact, Ryan’s budget clearly seems to have very little to do with fiscal balancing. After all, Ryan actually gets very little new or serious deficit reduction from CBO’s baseline in the first decade. The reported nearly $1.65 trillion in deficit reduction he gets from the CBO baseline over the first 10 years depends heavily on over $1 trillion dollars in savings from assuming the same war costs that President Obama does in his budget and the resulting lowered interest payment costs. Aka, a raw-down of troops in Iraq and Afghanistan. Ryan’s lack of significant deficit reduction is due to his massive tax cuts almost entirely offsetting his massive spending cuts, which helps to explain why his budget still allows the debt-to-gdp ratio to be even higher in ten years from now. After that, Ryan's budget only achieves significant deficit reduction by slashing Medicare in a way that requires overlooking key political and health economics issues.

Ryan’s proposal really includes over $4 trillion in program cuts, but this is largely offset by the $4 trillion-plus in tax cuts he also supports. The revenue losses largely result from extending all of the Bush tax cuts that overwhelmingly benefited the richest Americans. Note that his revenue estimates have so far neither been confirmed or evaluated by any outside entity. For now everyone just has to accept Ryan’s tax policy claims (which lack essential details) about what revenue levels he is going to achieve while extending the Bush tax cuts AND lowering the corporate and individual top tax rates to 25%. He says he’s going to offset those revenue losses with unspecified changes in tax expenditures. Just remember that he said this before, after his Roadmap's assumption of raising 19% of GDP in revenues was shattered by the Tax Policy Center's analysis which showed that it would actually collect less than 17% of GDP. Combined with this cycle's failed Heritage analysis (see http://krugman.blogs.nytimes.com/2011/04/06/memory-hole-alert/), and a pattern emerges of Ryan being forced to rely on gross exaggerations in order to sell his agenda.

(Post continued in comments)

16 comments:

Patrick_L said...

SHARED SACRIFICE
What do we know, bare-minimum, about the impact of Ryan’s tax ideas like extending the Bush tax cuts? The Tax Policy Center (the leading non-government source for evaluating tax policy) has found that making the Bush tax cuts permanent would mean that people with incomes of over $1 million would receive average tax cuts of $125,000 a year. These tax cuts for the rich contrast with his significant cuts to programs like Pell Grants and low-income housing assistance (the size of these cuts are still unspecified), $126 billion in cuts to food assistance, and $1.4 trillion in cuts to Medicaid (from block granting the program and repealing PPACA’s expansion of Medicaid coverage). There is no question that these cuts to Medicaid, and the elimination of PPACA’s health insurance expansion for tens of millions of Americans, will lead to worse health outcomes. See http://healthpolicyandreform.nejm.org/?p=14122&query=home

All of this at a time when market outcomes are resulting in the top 1% of American earning more income annually than the bottom 50% of households combined! (see http://www.cbo.gov/publications/collections/tax/2010/pre-tax_income_shares.pdf )The country’s wealth distribution is even more skewed. I bring up this point to illustrate what shared sacrifice might look like, and show how Ryan’s budget clearly goes against this principle. A principle which I had assumed was shared by all. But apparently not, as Ryan’s budget shows that he clearly believes that the sacrifices for deficit-reduction should fall largely on the poor, elderly, disabled, and other low-income households in this country.

Patrick_L said...

MEDICAID:

Some conservative optimists argue that block-granting Medicaid will give states flexibility with their Medicaid programs that will enable them to cut costs without hurting care (particularly for the elderly and disabled beneficiaries who overwhelmingly consume most of Medicaid’s finances.) What does CBO have to say about this idea related to Ryan’s Medicaid cuts? “Even with additional flexibility, however, the large projected reduction in payments would probably require states to decrease payments to Medicaid providers, reduce eligibility for Medicaid, provide less extensive coverage to beneficiaries, or pay more themselves than would be the case under current law.”

Don’t forget that Medicaid’s current system of low-provider payments is the biggest flaw with the program, and that access to care would decline further if Medicaid payments were cut even further. Many Medicaid beneficiaries are in the program because they have literally exhausted all of their financial resources paying for medical expenses- they will have no more money to give. Other Medicaid beneficiaries include low-income households, disabled individuals, and seniors (who either have low or very-modest incomes).

In summary, there is little ability to cut payments to providers, many beneficiaries only have several thousand dollars to their name, and more generally there is little room for increased cost-sharing in this program. Cost-sharing increases which have been shown in the RAND Insurance Experiment and elsewhere to actually worsen the health decisions low-income individuals make. Spending cuts of this size through block-grants will reduce benefits (including coverage for people in long-term care like nursing homes- not sure what “benefits” you’ll cut for these people), reduce access to care, and reduce enrollment which will increase the ranks of the uninsured. It’s quite clear that Ryan’s plan will worsen the medical care and health of many Americans.

Patrick_L said...

MEDICARE:

Ryan only achieves significant deficit-reduction in later decades (after 2022) when his Medicare plan starts to kick-in, a plan which the CBO estimates would more than double the cost of insurance paid by a typical 65-year-old by 2030 compared to unchanged Medicare. (See: http://www.cbo.gov/doc.cfm?index=12128 ) Why? Because the private insurance plans Ryan forces people to join actually cost more than traditional Medicare to provide the same amount of benefits, and because Ryan’s annual increases to the vouchers would overtime not keep up with rising health care costs. This means that the situation would get worse with every passing year, and Ryan’s stringent annual increases would rapidly fall in value. His proposed annual voucher-increases are dramatically lower than those found in his initial proposal with Rivlin, which explains just one reason why she is distancing herself from Ryan’s proposal and saying its “unfair” that he ropes her name into his specific proposal.

Who knows if insurance pools will form for this incredibly unhealthy share of the population? After all, most senior citizens are walking pre-existing conditions.

Whether Ryan’s incredibly low-rate of growth in these vouchers can be sustained economically is a question for discussion, but what’s more apparent is that Ryan’s idea is politically implausible. Ryan’s voucher proposal would literally have some senior citizens paying dramatically more (twice?) for their health care than other elderly just one-year older than them. This is politically unsustainable- there would be a huge outcry, and Congress would never allow such a dramatic break-in support from one year’s age cohort to a next. They would almost certainly increase the voucher’s annual increases (to keep up for rising health care costs), which would dramatically reduce the cost savings from Ryan’s Medicare proposal.

Ryan’s Medicare savings rest politically on implausible assumptions about Congress, and economically depend on quickly and dramatically increasing the costs faced by predominantly low- and modest-income senior citizens. All of this while his health care proposals do nothing to lower overall national health care costs- even center-of right economists who opposed PPACA have pointed out that Ryan’s voucher idea won’t cut health care costs. That’s right- Ryan’s health care entitlement reforms do nothing for the actual problem-rising costs across the entire health care sector! All Ryan is doing is massively shifting the costs off the federal government’s books.

One last thought. Here I’ll quote from Ezra Klein on this topic (http://www.washingtonpost.com/blogs/ezra-klein/post/10-concluding-thoughts-on-ryans-budget/2011/03/10/AFP1OKrC_blog.html ): “The idea that conservatives believe the savings in Ryan’s plan are realistic while those in the Affordable Care Act aren’t boggles the mind. For one thing, Ryan includes the supposedly unrealistic savings from the Affordable Care Act; they can’t be realistic in Ryan’s budget but not realistic in the ACA. For another, the ACA’s savings are more modest, and the law has many, many more ways to attain them than simply saying “the government promises not to spend more than inflation, even if spending less means millions of seniors and disabled Americans will have no health care.”

Patrick_L said...

CONCLUSION:

The facts clearly show that Ryan’s budget is not about fiscal balance, but is about an ideologically-motivated desire to fundamentally shift the very nature of American government. He does nothing about rising health care costs- the source of our nation’s long-term fiscal troubles. He showers hundreds of billions of dollars in tax cuts on the very richest households while cutting trillions of dollars in programs for low-income households.

And what happens as a result of his massive cuts to programs for low-income households? What happens to the debt-to-gdp ratio, the most important indicator of the burden and risk of our government’s fiscal problems? He doesn’t start lowering it for at least a decade.

Just as Obama’s budget illustrates the need for deficit reduction, Ryan’s budget shows why significant revenue increases are needed to achieve serious deficit reduction. Ryan’s budget also shows what morally irresponsible deficit reduction looks like. This occurs when you try to fix decades of American politicians’ fiscal irresponsibility by overwhelmingly placing the burden on the most disadvantaged families while leaving America’s wealthy unscathed. All of this is done to a government that conservatives on this blog have conceded is far less progressive than those found in other developed countries.

It doesn’t have to be this way- fiscally and morally responsible deficit reduction plans have been proposed in the past and should be seriously considered by those who, unlike Ryan, place national interests above ideology.

One final thought: It’s also interesting to note that all 47 Republicans in the Senate have signed onto a Balanced Budget Amendment which would require even more severe and regressive policy changes than Ryan’s budget proposal from 2017 until at least 2030. See: http://blogs.investors.com/capitalhill/index.php/home/35-politicsinvesting/2564-ryan-plan-unconstitutional-under-senate-gop-balanced-budget-amendment

TJE said...

Just sayin:

http://www.realclearpolitics.com/articles/2011/04/07/ryan_steals_march_on_obama_as_fiscal_crisis_looms_109472.html

Patrick_L said...

So Ryan is basically saying he's being brave by fixing our country's fiscal problems before a debt crisis occurs that would hurt America's disadvantaged the most. He's doing that by ... enacting deficit reduction on the backs of low-income households, middle-age people with modest incomes who will turn 65 after 2022, the disabled, etc while enacting tax breaks for the rich. Who exactly is Ryan's plan helping?

Snaps for Ryan!!! He's a regular American fiscal hero. Whether he's leading the House Republican representatives to vote against the Bowles-Simpson commission report, or voting in favor of the many fiscally-unsound Bush administration policies-he's always putting fiscal responsibility first!

TJE said...

http://spectator.org/archives/2011/04/06/paul-ryans-adult-conversation

TJE said...

Mr. L, do you support the People's Budget of the Progressive Caucus?

PBM said...

From what I've heard about it (public option, new tax brackets for millionaires and up, financial transaction tax), it looks good.

Patrick_L said...

Professor Eismeier, you know I don’t support the Progressive Caucus budget proposal. I’ve already explained in great detail my preferences for deficit reduction. Why do you ask a question when you already know the answer?

Moving on, I will note that Peter is correct that some elements of the proposal are quite sensible, though I think Peter and I might disagree on various elements. Ryan places the burden of deficit-reduction on low-income households, while the Progressive caucus places it on high-income households. Both proposals are unbalanced and inadequate, though the Progressives’ strategy seems slightly more reasonable when you consider the nation’s rising and unprecedented level of inequality combined with a system of taxes and government services that is already less progressive than our peers’ systems. The Progressive Caucus budget proposal looks even better when compared to the Republican Study Committee alternative, which is proposing over $9 trillion in program cuts (or $8 trillion if you ignore them copying Obama’s Iraq & Afghanistan baseline, which I assume they do to achieve their levels). All the while they, like Ryan, extend the Bush tax cuts and enormously favor the richest Americans.

TJE said...

Actually, Mr L., I don't know your preferences. For example, would you get rid of all the Bush tax cuts?

http://www.csmonitor.com/USA/Politics/2010/0913/Bush-tax-cuts-101-What-changes-could-be-in-store-for-taxpayers

Patrick_L said...

Yes I would get rid of all of the Bush tax cuts. I have said this before on the blog

TJE said...

You would raise taxes on middle and working classes by eliminating Bush child care credit, Bush capital gain rates for those in lower brackets, Bush provision sparing millions of Americans the ATM, Bush lightening of marriage penalty, Bush cuts in rates to 10, 25,etc? As chart in article I linked shows, that's where the real money is.

Patrick_L said...

the Bush tax cuts and the AMT are completly seperate tax provisions- there is no "Bush" provision sparing millions from the AMT. He structured his tax cuts in the way he did even after JCT told him it would dramatically increase how many Americans would be hit by the AMT. What did he do? He provided a a $14 billion offset to cover the first three years, the lowest cost years of his Bush tax cuts' effect on the AMT. Bush tax cuts caused much of the increase in households impacted by the AMT, and he knew that and he signed his deficit-financed tax bill anyways. AMT revenues even now would still overwhelmingly come from families making over six-figures. It also only represents a tax increase of several percentage points- at a time when Americans are paying historically low-levels of taxes. Tax Policy Center analysis convingly shows that the Bush tax cuts are quite regressive. They also show that when you take into consideration the fact that the Bush tax cuts- all of them- must be paid for at some point through either other tax policy changes or spending changes, the Bush tax cuts clearly leave a majority of households worse off.
Most American households- particularly working-class and middle-class families, will be better off with allowing all of the Bush tax cuts to expire- as it helps preserve other vital spending programs that are quite progressive or prevent more regressive tax increases.

TJE said...

So no AMT fix?

Patrick_L said...

Some people might (and some experts do) think the AMT uneccesarily increases the complexity of the tax system. I'd be fine with eliminating the AMT and offsetting the lost revenues by acquiring revenue increases through other tax policy changes that are equally or even more progressive than the AMT.