Monday, August 20, 2012

Why Do Pundits Take Ryan Seriously As A Deficit Hawk?

Paul Ryan is regarded by pundits as the budget policy guru of the GOP.  He may be the best that they have, and that may be the reason why he gets so much attention.  After all, the pundits are in the business of handicapping the electoral horse race, and they need to pretend that there are two equally matched horses in the race in order to make the race interesting.  A detailed analysis of the Ryan budget, however, shows that it is not a deficit reduction plan.  The reasons are fairly simple to explain.

Budget deficits are pretty easy to understand.  We have deficits when government spending exceeds tax revenues.  Paul Ryan's plan is pretty clear about tax cuts.  His cuts to the tax rates reduced income by $4.3 trillion.  That is a big hurdle to overcome in order to reduce deficits.  He assumes that eliminating exemptions in the tax code will make his plan revenue neutral.  He does not specify the exemptions that he will eliminate.  Most of them are very popular and would be strongly resisted.  Few believe that he could find $4.3 trillion by broadening the tax base with the elimination of deductions.

Ryan's plan also includes spending cuts.  Cuts to Medicaid and other social welfare programs might reduce spending by $1 trillion.  On the other hand, he wants to increase defense spending and he does not specify other spending cuts that would overcome the $4.3 revenue loss from tax cuts.  He also assumes the $716 billion in Medicare savings that are in the Obama healthcare bill as part of his plan.  This is rather strange since his bill repeals the ACA.

If any business submitted a plan to cut its business loses that did not specify how it would overcome a $4.3 trillion loss in revenue with specific cuts in spending, and/or other sources of revenue,  it would not be taken seriously by Wall Street investors.  In fact, they would be wondering how the creator of the plan got his job. Political pundits don't have that option.  They have to assume that there is a good horse in the race. Moreover, they have also framed the race as a battle between big government and those who favor small government.  It is also a battle over eliminating the dangers of federal budget deficits.  This framing of the race is false.  The only concrete issue in the campaign is the status of the Bush tax cuts.  Obama wants to increase taxes for the super rich and Romney/Ryan want to cut them.  Deficits, don't really matter to the super rich.  Tax cuts do matter.

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