Chairman Ryan's Deficit Reduction Proposal: Unwise, Unfair, and Not Deficit Reduction

Although it's being sold primarily as a long-term, ten-year plan that makes the tough choices needed to reduce the deficit, Ryan's plan accomplishes virtually nothing in the way of deficit reduction.
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Co-authored by Dan Lesser, Director, Economic Security, Shriver Center.

The 10-year budget plan unveiled by Rep. Paul Ryan, Chairman of the House Ways and Means Committee, on behalf of the House Republicans this week is a departure from the recent Republican position of only being against things - the party of "no". It puts ideas on the table and perhaps signals a fresh intent to participate in solving our country's tough problems. Interestingly, it comes simultaneously with the Republican drive to shut the government down over the current year's budget, which could indicate that their approach to participating may not be all that different than not participating. But it deserves the benefit of the doubt on that score and it opens a debate.

That does not mean that the ideas are good ones. The most surprising thing about Ryan's plan is that, although it's being sold primarily as a long-term, ten-year plan that makes the tough choices needed to reduce the deficit, the plan accomplishes virtually nothing in the way of deficit reduction. This is because virtually every dollar in spending cuts to reduce the deficit is offset by a cut in taxes for the topmost income brackets that adds to the deficit. This fact unmasks the Ryan plan for what it really is - an attempt to take advantage of the deficit framework to carry out an ideological agenda and not a deficit reduction agenda.

The Ryan plan proposes $4.3 trillion in spending cuts over the next ten years that is entirely offset by $4.2 trillion in tax cuts that overwhelmingly favor the top tax brackets.

Ryan's revenue proposals include making the Bush tax cuts permanent and reducing the top income tax bracket from 35 to 25 per cent. The non-partisan Tax Policy Center estimates that Ryan's plan would produce $125,000 in annual tax benefits for persons whose annual income exceeds $1 million.

On the spending side, at least two thirds of the savings from Ryan's proposed cuts in spending on government programs would be realized from programs that create opportunities for or otherwise help people of limited means. The main programs that would be cut are Medicaid, Pell Grants, SNAP (Food Stamps) and housing. All are not only key elements of help for vulnerable people but work-enabling strategies for lower income families - they make work and upward mobility possible and they make work pay. And they ensure that the beneficiaries are also consumers who spend the benefits and their earnings in our economy, driving economic growth and job creation.

Ryan achieves much of his savings by altering the fundamental structure of three basic government programs:

Medicare (health care for seniors). Instead of the current system, where the government pays for care, Ryan's plan would send seniors into the private insurance market to fend for themselves. Participants would be given vouchers to help them buy insurance. These vouchers would be adjusted by the rate of inflation, not the higher rate of medical cost inflation, and thus would shrink in value over time, shifting an ever-greater portion of the cost of medical care from the federal government to seniors and the disabled.

Medicaid (health care for the poor, primarily children, elderly and disabled). Ryan's plan would convert it from a program of shared federal and state costs into a federal block grant, meaning states would get a fixed sum of money regardless of medical cost inflation, population growth, aging of the population, or other cost factors. It would take from the states one of the most important sources of federal support in tough economic times, by removing the basic notion that when need rises due to unemployment or natural disaster or unforeseen medical cost increases the federal support rises to help meet it.

Food Stamps would be converted from a federally funded/state administered benefit for anyone household that is eligible into a block grant. States would have to decide how to ration benefits that are intended to ensure all Americans a minimal level of nutrition. As with the Medicaid proposal, this proposal would destroy a key anti-cyclical source of federal help in time of need for hungry families and seniors and for the states they live in.

Altering the basic structure of these programs saves the federal government vast amounts by shifting costs onto the states. In Medicaid alone, the federal government would cut its costs by $1.4 trillion over 10 years. Turning food stamps into a block grant would save the federal government another $127 billion. It gains a measure of budget predictability for the federal government (in addition to simply slashing the programs), but it takes that predictability away from the states. That is not a fair way to apportion risk in the joint task of solving important problems. States have to balance budgets, so this removal of core anti-cyclical federal support will only exacerbate state budget crunches in recessions, causing either widespread unmet need just when it is the most important or pressure for revenue increases to meet the rising need.

There are other ways to bring down the deficit, including those in a report released a few months ago by President Obama's bipartisan deficit task force and from the task force's minority report. Unlike Ryan's proposal, these plans would produce real deficit reduction instead of cynically using that framing to promote ideological positions on the substance of national policy.

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