It isn't rocket science: one must balance spending with revenue.
Rep. Paul Ryan selected revenue as 20% of GDP and proposes that spending go down to 20% of GDP.
Of course, he and his plan is being attacked! Shocking, eh?
Would those who oppose his plan please pick a number?
UPDATE: Below is a screen grab from a CBO analysis of Rep. Ryan's plan.
Looks like Rep. Ryan split the difference ... spending is almost 24% GDP and revenue at 15% GDP. The middle ground would be 19-20% bringing down spending 4-5% and bringing up revenue 4-5%.
We need to decide how much government we want. If we want government to be 30% of GDP (baseline scenario - wonder if that is what happens if nothing is done to current policy? Alternative scenario has spending greater than 40%.) then we need to have revenue rise (double) to more than 30% GDP to begin to pay for it and begin to pay down the accumulated debt.
Will his critics come up with a number?
UPDATE: Cato weighs in on his proposal. They feel it is positive step to begin the conversation on restraining spending. But they do have a few complaints. Excerpts:
Ryan doesn’t provide specific Social Security cuts ...
Would rather see Ryan’s Medicare reforms kick in sooner ...
Ryan adopts Obama’s proposed defense (security) savings, but larger cuts are called for ...
Ryan includes modest cuts to nonsecurity discretionary spending. Larger cuts are needed, including termination of entire agencies ...
UPDATE: Of course, in the confused language of Washington DC, draconian cuts (what they are saying of the Ryan plan) are actually not cuts but reductions in growth! This item at Reason of a segment on Bloomberg explains.
5 comments:
How about zero?
You had it aptly put: spending must be balanced with revenue. Revenue is what Paul did not talk about in the video.
Did you know that the same plan also calls for a tax rate of 10% for income up to $50,000 and 25% for anything above that? It also would eliminate AMT, taxes on interest, capital gains, dividend, etc. The income tax alone will probably cut the revenue by 25+%!
Why the drastic cut in revenue if the GOP is serious about cutting the deficit? The plan seems to cut revenue faster than it will on spending.
There is more to this plan than meets the eye...
With that kind of reduction in revenue, you might as well scrap the Federal government.
Read more for yourself:
http://www.roadmap.republicans.budget.house.gov/plan/summary.htm
According to the CBO, screen grab just added to post, the spending side is at 23.75% GDP and the revenue side is at 15% GDP.
The challenge is closing that gap.
According to the CBO, the Ryan plan raises revenue from 15% to 19% of GDP.
The cut in tax rates is countered with elimination of deductions:
"Provides taxpayers a choice of how to pay their income taxes - through existing law, or through a highly simplified code that fits on a postcard with just two rates and virtually no special tax deductions, credits, or exclusions (except the health care tax credit)."
http://www.roadmap.republicans.budget.house.gov/plan/summary.htm
The bottom line is the big picture question of picking a spending/revenue number and then drawing up plans to hit that number.
In the CBO scenarios, spending will grow to somewhere around 30.25 to 45.25% of GDP while revenue will grow to somewhere between 19.25% and 26% of GDP, thus, the spending/revenue numbers don't line up.
Rep. Ryan has put a number out there.
His critics need to put a number out there too.
How about 20% and no tax cut? The current spending is about 24% according to your table. I don't see cutting it to 20% catastrophic.
why risk increasing the deficit with such a huge tax cut?
You said:
"According to the CBO, the Ryan plan raises revenue from 15% to 19% of GDP."
Even the CBO is not sure how Paul Ryan came up with that number:
"The path for revenues as a percentage of GDP was specified by Chairman Ryan’s staff. The path rises steadily from about 15 percent of GDP in 2010 to 19 percent in 2028 and remains at that level thereafter. There were no specifications of particular revenue provisions that would generate that path."
You can argue lowering taxes may increase economic activity and thus revenue as per Laffer Curve. That is a big if, however (an example where it did not work is the Bush tax cut). What about the years between 2010 and 2022 that wasn't on the table? The spending is still high during those years and yet the revenue low. What happens to the deficit there?
You said:
"The cut in tax rates is countered with elimination of deductions"
The elimination of deductions will probably not replace the loss from the cut in tax rates or else why the tax cut?
The screen grab graphic is from one of the documents from the CBO ...
http://cbo.gov/doc.cfm?index=12128
From a practical point of view, if the Congress and the White House would agree on 20%, I'd say declare victory and compromise on the tax reform ideas because most of the problem is on the spending side.
On the two scenarios that the CBO projects, spending will rise to 30% GDP on one scenario and 45% in the other!
Thus, I'd be all for modest changes to the tax code to get revenue up to 20% in exchange for a plan to bring down spending to 20%.
Unfortunately, I suspect many in DC want a number somewhat higher than 20%.
To me, the real story in Ryan's plan is the huge tax cut and not reducing the deficit. The cut in Medicare is big but who cares if it does not take effect until 2022. 11 years is forever in politics. Of course, that is not how Mr. Ryan sells the plan. Note that he did not mentioned the tax cut at all in the video. The media was, as always, distracted and failed to pay attention to it.
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