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Paul Ryan’s “Path to Prosperity:” A Good Start, but in Need of Some Work

by Liz Malm | Duke University

F Posted in: News and Politics, Voices P Posted on: March 21, 2012
headshot Liz Malm Liz Malm

Budget season on Capitol Hill has officially begun.  With the release of President Obama’s budget proposal in February, the time has now arrived where the House and Senate will draft their respective plans and attempt to come to an agreement.  Representative Paul Ryan, the Chairman of the House Budget Committee and a Republican from Wisconsin, released his “Path to Prosperity” early on Tuesday.  It was full of the usual GOP rhetoric—too much spending is detrimental and the U.S. must find a way to reduce our  deficits and nearly crippling debt.  What makes Chairman Ryan’s plan different, though, are his tough cuts to popular social programs.

Ryan’s plan makes structural changes in a lot of controversial places— including Medicare and Medicaid–all to serve the goal of cost control and increased efficiency.  In an interview with America’s Radio News Network posted on the Representative’s website, Rep. Ryan explains that the point is “to prevent a debt crisis in America” by “locking in a long-term plan.”   The budget, often referred to as “Ryan 2.0” due to its similarities with the Chairman’s previous budget proposal, includes:

  • Deficit reduction: objectives include deficit decreases of $3 trillion, shrinking to only 3% of GDP by 2015,
  • Medicare reform:  cuts of $205 billion, reform of plan options offered to senior citizens in the future; focus on saving for future generations and directing help only to the neediest,
  • Medicaid$770 billion in cuts and increased state control of programs,
  • Healthcare:  repeal of the  recently passed federal healthcare mandate,
  • Tax Reform:  reduces the current six income brackets to only two (10% and 25%), reduction of corporate tax rate from 35% to 25%, aims to reform the “broken tax code” and implement one that “clears out special interest loopholes and lowers everybody’s tax rates to promote growth,”
  • Other Reforms: gives states more control over welfare programs, reduces support for students in higher education (arguing that it may cause tuition inflation), and various other spending cuts (totaling $5 trillion “relative to [the] President’s budget”).

Under Rep. Ryan’s proposal, the Congressional Budget Office predicts that revenues would increase from 15% of GDP in 2011 to 19% in 2030.  Medicare spending would rise overall, but this would potentially be compensated by decreases in Medicaid and other spending areas.  Social Security spending could also go up.  The debt would be 53% of GDP in 2030 and 10% in 2050. These systematic changes could potentially cause Medicare benefits to decrease, the number of uninsured to rise, increased costs for seniors, and lower access to even lower quality care—something that critics of the plan are likely not willing to risk.

Despite the predictable uproar from Democrats because of the drastic cuts and changes to social safety nets, the most interesting portion of Ryan’s plan is the recommended changes to the notoriously complicated and convoluted tax code.  Slate couldn’t have framed the issue better:

Everyone agrees that it would be better to reduce marginal tax rates and also close loopholes and deductions. That would get you the same revenue, but with less economic distortion and stronger growth.

The result of the removal of these loopholes and breaks is a broader tax base.  More people pay, but they aren’t required to pay as much and the government is no worse for the wear.  The kink in this simple, agreed-upon plan is that no one wants to commit political suicide and eliminate popular tax deductions.   Further, Democrats and Republicans refuse to compromise when it comes to tax policy.  It’s obvious that Democrats don’t want to raise taxes for the sake of raising taxes—it’s merely a tool to fix our fiscal pitfalls and shrink the debt.  Republicans see it as the worst possible means to do the job, perhaps making us even worse off in the long-run by dampening economic growth. Ryan’s plan espouses the virtues of a sound tax system, but here’s the kicker:  the plan does not list even one suggestion of a loophole removal or credit cut!

Why advocate such sound policy but fail to explain how it will be done? The Washington Post editorial board claims that Chairman Ryan would rather “leave those pesky details to the tax-writing House Ways and Means Committee.”  Some argue his plan is deliberately vague—after all, it is an important election year for Republicans.  Once again, politics have proven to be an obstacle in the way of putting America back on a sustainable fiscal path.

Paul Ryan’s plan is a step in the right direction because it recognizes that for a solution to be reached, drastic institutional changes need to be explored and tough cuts will likely have to be made.  But his “Path to Prosperity” certainly needs to provide us with a little more navigation along the way, even if that makes the overall plan less popular.

Liz Malm Liz Malm Liz is a graduate student in the Economics Department at Duke University. Prior to North Carolina, she attended college at the University of Wyoming where she completed undergraduate degrees in history and economics.

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