Why the Paul Ryan Budget Won’t Fly

Tax simplification that increases revenue plus entitlement reform are going to be the basic terms of meaningful bipartisan budget reform.

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Defending Rep. Paul Ryan's budget proposal from a flailing Paul Krugman, who accuses Ryan of relying on unspecified tax-loophole closings to reduce the deficit, National Review's Yuval Levin notes this:

The Ryan budget in fact does not count on tax reform for any of its deficit reduction. None. The budget includes a general outline of goals for a revenue-neutral tax reform. So its revenue projections are simply CBO's current-policy baseline—they are where CBO says revenue would be if today's rates remained in place, but Ryan proposes to get there in a way that would be much more conducive to economic growth. ... Ryan's deficit reduction comes from spending cuts [emphasis mine].

Levin is right. But this distinction—deficit reduction via spending cuts as opposed to tax reform—is even more problematic for Ryan, at least from the perspective of political feasibility.

[See a collection of political cartoons on the budget and deficit.]

Let's assume that, come January 2013, the GOP has regained control of the White House plus a slim majority of the Senate, and retained control of the House of Representatives. Unless Republicans are planning to push through major budget reforms in the fashion that Obamacare was enacted, they're going to want to peel off a few moderate Democrats.

Here is CNN Money's Jeanne Sahadi on the pipe-dreaming unreality of trying to balance the budget through spending cuts alone:

If lawmakers wanted to permanently freeze the debt held by the public at the today's level—62% of GDP—they would need to immediately cut spending by 35% or about $1.2 trillion, according to the Government Accountability Office. And those cuts would need to be permanent from hereon out.

How hard would that be?

Consider that in 2010, all of discretionary spending—including defense—totaled $1.35 trillion. In other words, to do deficit reduction all on the spending side means "you have to cut into the real meat," said Roberton Williams, senior fellow at the Tax Policy Center.

[Read the U.S. News debate: Will the New Ryan Budget Plan Hurt the GOP in 2012?]

Advocates of the Ryan proposal reply that it doesn't try to do everything at once; it proposes "careful, long-term structural entitlement reform that produces enormous changes over the long run," as Peter Ferrera puts it in the American Spectator.

But Democrats who are open to structural entitlement reform will almost certainly clam up if Republicans refuse to budge on revenue at the same time they're poised to deliver yet more tax cuts for the wealthy, while cutting assistance to low-income households. As New York City Mayor Michael Bloomberg observed: "Republicans have to face the reality that we need more revenue—more revenue than we can get from cuts alone."

Tax simplification that increases revenue, plus entitlement reform—these are going to be the basic terms of meaningful bipartisan budget reform, no matter how each side chooses to "frame the debate" in a presidential election year, and no matter who wins in November.

Everything between now and then is just partisan noise.

  • See a collection of political cartoons on the budget and deficit
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