House Budget Committee Chairman Paul Ryan unveiled Tuesday a budget for the federal government that puts America back on a "Path to Prosperity."
The Ryan budget is a blueprint for reform of the U.S. federal government, proposing changes in everything from Medicare to the United States Department of Defense. It caps discretionary spending on education, transportation, and other government programs at $1.029 trillion—which is about $18 billion less than the White House is seeking in President Barack Obama's budget for the coming year.
[See a collection of political cartoons on the budget and deficit.]
There will be those who say the cuts Ryan is seeking are "draconian," calling them "catastrophic"—which is how Democrats describe anything that is not a cut in the defense budget—but the current economic reality is such that the United States cannot keep spending at the rate has under Obama, to the point where the government's debt is just about equal to one year's GDP.
Among the highlights are a proposed reduction of the six current rates at which personal income is taxed down to just two—10 percent and 25 percent. If enacted, that alone should be enough to get the engine of the American economy going again at full speed, creating jobs and bringing the nation back from the edge of a financial abyss.
But the Ryan budget does more. It seeks to keep tax revenues roughly where they have been since end of World War II as a percent of GDP—at just about 18 percent. The Obama budget, on the other hand, wants the government to take more than a fifth of the value of the goods and services produced here in the United States every year. It also eliminates the so-called Alternative Minimum Tax, or AMT, that was originally designed to keep millions and billionaires from avoiding paying any tax and now ensnares millions of middle-class Americans—or would if Congress didn't pass an patch to that tax each year—and lowers the tax rate on the majority of small business profits to 25 percent.
[Read the U.S. News debate: Is Obama's Corporate Tax Plan A Good Idea?]
It also lowers the federal income tax rate on larger corporate employers from 35 percent and cuts it to 25 percent, the average among the Organization for Economic Cooperation and Development nations.
A lower corporate tax rate more in line with what is levied in the rest of the world would help restore America's competitiveness in the world market. Ryan's initiative won applause from the leaders of the bipartisan Reforming America's Taxes Equitably Coalition, which advocates for such a change to the U.S. tax code.
"On April 1, the United States will have the dubious distinction as the world 'leader' with the highest corporate tax rate at 35 percent," the coalition's cochair Jim Pinkerton said. The Ryan proposal "would level the playing field for the U.S. economy and allow American businesses to invest and keep jobs in the United States."
[See a collection of political cartoons on the economy.]
"Lowering the corporate income tax provides a real opportunity for bipartisan cooperation on an issue that is critical to the competitiveness of our economy. Following a similar proposal in President Obama's State of the Union, we hope that an agreement can be reached—even in an election year," said Elaine Kamarck, the coalition's cochair and a former member of the Clinton-Gore administration.
The Ryan budget still leaves some important questions on the table but, in the main, it is a positive step forward toward a balance budget, which by some estimates should be reached in about a generation. There are those, however, who want to see it reached much faster and are backing an approach spearheaded by Sens. Rand Paul of Kentucky's and Utah's Mike Lee that would get the budget in balance in a decade.
[Check out the U.S. News Economic Intelligence blog.]
These groups, which include Freedom Works, Tea Party Patriots, and Let Freedom Ring (where I am a senior fellow), are asking for a budget that balances quickly and doesn't raise taxes. "We believe that no budget that fails to meet these two standards can reasonably call itself conservative. At kitchen tables across America, families are making tough choices as they balance their own budgets. The very least Washington can do is to do the same," they said in a letter recently sent to Capitol Hill.
Either way, the GOP approach to the issue—to present a budget that balances—is in sharp contrast to Obama's latest, which never balances. Never. Not in a decade. Not in a generation. Not ever. And in an election year that's a pretty salient point.
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ann keenan of MI 12:05AM March 31, 2012
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