So I really don’t want this to become a budget blog, but with a government shut-down growing nearer, fiscal policy does happen to be the hot topic in Washington these days, in addition to it being the focus of my day job. That being said, Paul Ryan yesterday released the official Republican alternative budget vision and boy is it a stinker. The media has already taken to calling it “bold” and “courageous” which seems to be establishing a pretty low bar as I’ve never considered it particularly brave to tax rich people less while cutting services to poor people. I’m not going to go through all of things that are wrong with the GOP budget, instead I simply want to make a couple of points about what it actually does, as opposed to what Republicans and Fox News will say that it does.
The budget does, in fact, dramatically cut government spending and reduce the long-term debt burden. It does this by cutting funding to social programs and shifting a huge percentage of the future cost of healthcare onto individuals. And these cuts are much larger than they need to be because Ryan also includes a massive tax cut for the wealthy. The non-partisan CBO analysis explained the cuts inherent in their plan to privatize Medicare:
Under the proposal, most elderly people would pay more for their health care than they would pay under the current Medicare system. For a typical 65-year-old with average health spending enrolled in a plan with benefits similar to those currently provided by Medicare, CBO estimated the beneficiary’s spending on premiums and out-of-pocket expenditures as a share of a benchmark:…By 2030, the beneficiary’s spending would be 68 percent of that benchmark under the proposal, 25 percent under the extended-baseline scenario.
So seniors will see their out-of-pocket healthcare costs increase over 40%. Anyone who says this doesn’t happen is lying. It’s important to note that the Republican plan makes no attempt to limit the increasing costs of healthcare, they simply shift more and more of those costs onto individuals. The same goes for Medicaid, which is primarily a program for the low-income disabled and elderly. CBO reports:
Federal payments for Medicaid under the proposal would be substantially smaller than currently projected amounts…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.
I want to point out that much of the savings the GOP plan purports to generate is very long-term, while the social program cuts and upper income tax breaks occur now. This is a trick that politicians use, knowing full well that long-term cuts never materialize. It’s the classic “my diet starts tomorrow” problem. So in the short and medium term, the GOP budget actually adds to the debt. That’s right, it’s less fiscally responsible within the actual 10-year budget window. The CBO analysis is below:
I’ve highlighted the debt levels with the red arrows, but I’ve also used the blue box to show the levels of spending in the GOP plan as a percentage of GDP. You may recall that every Republican senator recently voted to amend the constitution, forbidding Congress from spending more than 18% of GDP. You’ll notice that by that standard, the GOP budget is actually unconstitutional for at least the next 30 years.
The last thing I want to note about the budget is that a lot of the numbers and predictions fall somewhere between extremely optimistic and complete fantasy land. I won’t go through them all, but as an example, they cite a Heritage Foundation analysis predicting that this plan will unleash the market’s animal spirits and spur massive economic growth. Specifically, the Heritage report predicts that it will bring unemployment down to 2.8 percent. That’s so outrageously impossible that it should give you insight into the veracity of the analysis they’re using. Below is a graph of unemployment, for a bit of context. The last time it was at 2.8 percent was August of 1953.
This is similar to Governor Snyder’s plan to balance the budget by cutting taxes for corporations. I’m pretty sure that neither one would achieve their goal of balancing the budget.
America spends more on “Defense” than the next top 15 countries combined. Defense (along with interest payments) is a huge chunk of the budget, and it grows more daily. Maybe we should slow down on the number of multimillion dollar missiles we are firing. Or perhaps we could slow down on invasions that our Grand Kids will be paying off. Then again, until we can get off oil I suppose we are willing to bankrupt ourselves so we can maintain control oil producing countries. Kudos to President Ford for forecasting this decades ago.