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Five Myths of Ryan’s Budget

August 27, 2012 – Comments (7)

This blog post is a critique of Peter Orszag’s column.

1. Ryan’s budget does not reduce the debt

The CBO analysis says that Ryan’s budget will reduce the deficit, which puts a big hole in Peter’s claims. Using spending caps, can be a problem, and many politicians like to backload such caps, know that they will never occur. Ryan’s plan starts using spending caps quickly, so this is not as much of a problem as is typical.

Peter claims there are no details, then blasts Ryan’s specific decision to change medicaid funding to be block grants that are smaller than the planned increases in spending. While this will be a problem for states, it will also provide states with much more flexibility in the implementation of Medicaid.

Peter contradicts himself when talking about Ryan’s detailed tax reform proposal. Ryan proposes reductions in income tax rates with offsetting closure of loopholes. Peter points out the most popular loophole, the mortgage deduction, in an effort to upset fans of this loophole.

Ryan specifies nondefense discretionary spending which he increases at a rate which is slower than currently projected. Yet this is supposedly not a detailed proposal.

2. Ryan’s budget hurts middle class

Peter falls back on typical class warfare attacks against Ryan’s tax reforms to make them seem to hurt the middle class. Peter points out that the super rich tend to pay capital gains taxes, thus most of the increased revenue from closing income tax loopholes will come from the middle class. Peter ignores the obvious implication that income tax rate reductions must primarily benefit the middle class, since those primarily paying capital gains taxes will not receive a rate reduction by Ryan.

Since Ryan’s tax reforms are revenue neutral (CBO) and do not shift the tax burden, one might wonder why he is proposing reforms. Ryan’s tax reforms are popular with supply siders and various other schools of economic thought. The theory is that lower rates provide an incentive to work harder, longer and more profitably than higher rates. It is also based upon the notion that loopholes distort economic behavior, resulting in many people choosing to reduce their tax burden, rather than make an otherwise optimal decision. Thus the Ryan tax reforms should result in greater economic growth and increased tax revenues, even though his budget does not claim such results. This is one of the reasons why Ryan’s budget is considered a serious proposal. A political proposal would have included the increased tax revenue from such reforms, while Ryan utilizes CBO budgeting like an actual law would be required to undergo.

3. Ryan’s plan will not cut health care spending.

This is technically true. DC political speak uses the words “spending cut” when they are talking about reducing the rate of spending growth. Unfortunately, this is not what Peter is pointing out. Peter begins by pointing out that people choosing a private plan over medicare could spend more to get a better plan, and thus healthcare spending would increase. He ignores the fact that many current medicare recipients already spend money above and beyond what medicare provides.

Peter also expresses an opinion as if it is fact. Ryan believes that healthcare vouchers will result in lower cost, higher quality care than the current system. This is a central belief for center right, efficient socialism supporters. There are many examples around the world of privatization of various industries resulting in lower costs and better quality. Everyone will have an opinion on this issue, but it doesn’t mean Ryan is making a false claim. Ryan’s current plan provides retirees the option of traditional medicare or vouchers. If everyone chooses traditional medicare, then Ryan’s plan will not cut spending, but if Ryan is right, many people will choose vouchers, and that will reduce costs. Since this is a matter of opinion, Peter is just as wrong as Ryan. Had he approached this differently, he could have scored legitimate criticisms of Ryan.

4. Uncertainty will hurt the economy if Ryan’s plan is passed.

Assuming that uncertainty is bad for the economy, passing a clear specific long term budget like the Ryan plan would increase certainty. However, a long debate about the plan would result in more uncertainty. Then again debating any changes in law creates uncertainty, and I doubt Peter wants to stop any new legislation from ever being passed. Given our rapidly growing debt, there is reason to believe that doing nothing could possibly create even more uncertainty than passing a flawed plan.

5. Romney and Ryan have different budget proposals.

I did not know that a large number of people are ignorant of this fact. To the extent that Romney ran on a budget proposal, it was referred to as the Romney plan, not the Ryan plan. If Romney had campaigned on the Ryan plan, while putting forth a different budget, this would be a reason for criticism.

In conclusion,  Peter Orszag wrote a political attack against Ryan without consideration for truth or accuracy.  Sadly there are many reasons to complain about Ryan's budget, yet Peter did not manage to make one really solid point.