By Tim Fernholz
April 5, 2011
House Budget Chairman Rep. Paul Ryan's 2012 budget is estimated to cost $6.2 trillion less over 10 years than President Obama's plan, with an initial deficit of $950 billion next year that decreases, along with government debt, over time.
But some of the savings in Ryan's budget will be difficult to realize and others are ambiguous; further, it is not clear if his economic or revenue assumptions are credible.
Ryan's sweeping reductions in government and the social safety net -- accompanied by philosophical justifications for a shrunken public sector and dire warnings of America's debt-fueled decline -- stands in stark contrast to Obama's plan for sustainable investment and promises to make the chairman's budget a key pivot point in the 2012 elections.
The Wisconsin Republican's budget matches Obama's in terms of national security spending, but would chop $923 billion from discretionary spending over the next decade to move toward 2008-level spending, beginning with a $72 billion cut next year-an ambitious goal, as Republicans are currently stymied trying to craft a deal to cut around $33 billion from current spending this year.
A plan to move Medicaid to block grants, which has already provoked pushback from Democrats who worry the policy will result in restrictions in eligibility, not cost-saving reforms, is estimated to save $735 billion from the president's proposal-a huge change largely affecting the poor and the handicapped. A plan to shift Medicare to a defined-contribution voucher plan would save $389 billion relative to the president's budget. This, too, is opposed by Democrats and faced with skepticism by seniors groups, including the AARP.
As expected, the budget did not touch the Social Security program, which is solvent through 2037, except to lay out basic principles for reform, like Obama's plan.
One of Ryan's largest areas of savings-$1.4 trillion-comes from repealing the president's health care plan, a move that the Congressional Budget Office has insisted as recently as January would add $230 billion to the deficit over 10 years. It is not clear where the much larger savings Ryan's plan envisions would be drawn from.
Ryan's plan also contains $1.8 trillion in cuts from mandatory spending unrelated to health care and Social Security; while the budget did not offer specifics, these savings could come from cuts in unemployment funding, food stamps, and agricultural subsidies, but they are also among the most challenging areas to cut.
On the revenue side, Ryan embraces a tax reform plan laid out by Ways and Means Chairman Rep. Dave Camp, R-Mich., that would lower both the top corporate and individual tax rates to 25 percent by closing loopholes. Some tax experts are skeptical this can be done in a revenue-neutral way, but even so, Ryan's plan includes initial placeholders for higher revenue than the president's budget provided.
If those numbers are in fact lower than estimated, it could dramatically change Ryan's deficit projections, a problem that plagued an alternate budget he offered last year.
The Republican budget's economic projections are rosy, including growth rates of over 3 percent for the next three years. An analysis performed by the conservative Heritage Foundation at Ryan's request found the unemployment rate would be reduced to 4 percent in 2015 by Ryan's budget, an incredibly low number when many economists believe the economy will not return to so-called "full employment" of about 5 percent until years after that.
By Tim Fernholz
April 5, 2011