On January 26, The Wall Street Journal published an op-ed from Rep. Paul Ryan (R-WI), the ranking member of the House Budget Committee, in which Ryan laid out his “Road Map for America's Future,” a “comprehensive proposal to ensure health and retirement security for all Americans, to lift the debt burdens that are mounting every day because of Washington's reckless spending, and to promote jobs and competitiveness in the 21st century global economy.”
While Ryan's plan has received some scrutiny for the way it effectively privatizes Social Security and Medicare, the media has generally swallowed whole the claim that Ryan's proposal reduces the deficit. This morning's Roll Call, for example, reported that Ryan has an “audacious plan to balance the budget by reinventing slimmer versions of Medicare, Medicaid, Social Security and the tax code.” This simply isn't true, and the explanation for why it isn't would, if the media were paying attention, blow a massive hole in Ryan's credibility.
In a letter to Ryan, Congressional Budget Office director Douglas Elmendorf did indicate that the portions of the plan CBO scored would lead to a better future budgetary picture:
Under the Roadmap, the ratio of government debt held by the public to economic output (the ratio of debt to GDP) would be lower than that under the alternative fiscal scenario in every year (see Figure 1). In particular, debt is projected to peak at 100 percent of GDP in 2043 and to decline thereafter, reaching zero by 2080. (Debt held by the public was about 53 percent of GDP at the end of fiscal year 2009.) The federal government would accumulate net financial assets equal to 17 percent of GDP by 2083. In contrast, under the alternative fiscal scenario, debt is projected to skyrocket over the next several decades.
Other Tax Provisions. The proposal would make significant changes to the tax system. However, as specified by your staff, for this analysis total federal tax revenues are assumed to equal those under CBO's alternative fiscal scenario (which is one interpretation of what it would mean to continue current fiscal policy) until they reach 19 percent of gross domestic product (GDP) in 2030, and to remain at that share of GDP thereafter.
That's right. Ryan asked the CBO to score his proposal's massive cuts to entitlement spending, which shows up as deficit reduction. But instead of also asking them to score his plan's revenue provisions, he tells the CBO to instead stick with the projected revenue from the “alternative fiscal scenario,” a budget projection which basically extends current policy, entending the path on the Alternative Minimum Tax, the Bush tax cuts, and other revenue provisions currently scheduled to expire.
Ryan's plan, however, does not maintain the status quo -- instead, he proposes numerous costly tax cuts, including:
The proposal would offer individuals the choice of paying their income taxes under the existing tax code or a highly simplified tax system. The simplified system would broaden the tax base, compress the tax schedule down to two rates, and retain a standard deduction and personal exemption. No tax would apply to capital gains, dividends, or interest. No alternative minimum tax or estate tax would exist. Taxpayers would pay 10 percent on earnings up to $100,000 for joint filers ($50,000 for single filers) and 25 percent on earnings above that amount. The standard deduction would be $25,000 for joint filers ($12,500 for single filers), and the personal exemption would be $3,500. The corporate income tax would be replaced with a broad-based business consumption tax of 8.5 percent. New business investment could be immediately expensed. Payroll taxes, excise taxes, customs duties, and other miscellaneous receipts would be maintained.
According to the Tax Policy Center's Howard Gleckman:
We don't have any idea what this plan would do to revenues, but in some ways it resembles former GOP presidential candidate Fred Thompson's campaign plan. TPC figured that scheme would reduce tax revenues by between $6 trillion and $8 trillion over 10 years. Unless Ryan can achieve unrealistically large cuts in spending as well, this is not exactly a roadmap to solvency in my book.