Take a closer look, and you’ll see that the Ryan budget rests on three pillars that rely on capping and punting — limiting spending to a certain level but providing no specifics on how to achieve that number.
First, federal Medicaid spending is currently forecast to double by 2040, from 2 percent of gross domestic product to 4 percent. Under Ryan’s budget, it is projected to be cut in half over that period. This dramatic turnaround will supposedly occur by turning Medicaid over to the states through block grants. Anyone want to bet that will work? If states can’t find huge efficiencies in Medicaid, expect them to pressure the federal government to avoid the fanciful reductions in federal support assumed in the Ryan budget.
Second, the Wisconsin congressman has specified $4.5 trillion in tax cuts, counting on massive rollbacks of tax breaks — such as the mortgage interest deduction — to pay for them. But he offers no details as to how to achieve such reductions, and most serious tax analysts don’t think such changes are politically feasible.
Third, Ryan assumes that other spending, including nondefense discretionary spending, will fall from more than 12 percent of GDP last year to less than 5 percentby 2040. Again, he provides scant details on how to get there.
If you take out everything Ryan is assuming and look at his concrete proposals, his budget is not fiscally conservative. Without the magical reductions in Medicaid, other spending and tax breaks, his plan would expand the deficit in 2040, not reduce it.
2. The Ryan budget would help the middle class.
Ryan says he would cut tax rates for all families, but that doesn’t mean the middle class would be any better off. Even after the Bush tax cuts, Ryan’s reductions would amount to about $1,000 a year for families with annual incomes between $50,000 and $75,000— compared with a cut of more than $250,000 a year for those with incomes above $1 million.
Ryan says he would pay for these cuts by broadening the tax base, which means scaling back tax breaks. But he is also committed to maintaining low taxes on capital gains, a bigger source of income for wealthier people. Most of the other big tax breaks — such as the mortgage interest deduction, state and local tax deductibility, and pension and health tax benefits — help the middle class.
So any attempt to broaden the tax base without raising taxes on capital income would almost inevitably place a higher burden on middle-class families. And if those middle-class tax breaks were not slashed to pay for Ryan’s high-income tax cuts, other spending would have to be reduced further or the deficit would spiral — either of which would also hurt the middle class.
Furthermore, unlike the proposal from the nonpartisan Domenici-Rivlin deficit-reduction commission, the Ryan budget does not include any provisions to create jobs immediately. With unemployment above 8 percent, we should couple any long-term deficit reduction with additional support for the economy today. That would help the middle class more than promises of a tax cut that will probably turn out to be a mirage.