Posts Tagged ‘Ryan Budget’

Ryan Roundup: Everything You Need to Know About Chairman Ryan’s Budget

August 11, 2012 at 1:03 pm

Updated: Saturday, August 11, 2012

Below is a compilation of the CBPP analyses, blog posts, and graphics on the budget that House Budget Committee Chairman Paul Ryan proposed, and the House of Representatives passed, in March.  At the bottom of the compilation, we also list the Center’s analysis of the Ryan “Roadmap” budget plan.

Overview/General

  • Blog post:  Greenstein Statement
    March 21, 2012
    “The new Ryan budget is a remarkable document — one that, for most of the past half-century, would have been outside the bounds of mainstream discussion due to its extreme nature. In essence, this budget is Robin Hood in reverse — on steroids.  It would likely produce the largest redistribution of income from the bottom to the top in modern U.S. history and likely increase poverty and inequality more than any other budget in recent times (and possibly in the nation’s history).”

62% of Proposed Cuts in Ryan Plan Come from Low-Income Programs

  • Blog post: When Is a Deal Not a Deal?
    March 22, 2012
    With defense funding well above the Budget Control Act’s funding caps in coming years, and non-defense discretionary funding very far below those caps, the Ryan budget bears little resemblance to the bipartisan agreement reached last summer.

Taxes

  • Blog post:  Chairman Ryan’s Misleading Chart
    March 27, 2012
    The lead tax chart in Chairman Ryan’s budget…gives the impression that we can easily eliminate tax expenditures for the very wealthy and thereby pay for lower rates for all taxpayers — including the Ryan plan’s big reduction, to 25 percent, in the top income tax rate. The chart in question is based on data from the Urban-Brookings Tax Policy Center (TPC). But it does not show what Chairman Ryan suggests it does, for two key reasons.

Health Care

  • Blog post:  Ryan Budget Would Make Big Changes in Medicare
    March 29, 2012
    House Budget Committee Chairman Paul Ryan’s new budget provides much less detail than last year’s about his proposals in Medicare and other areas — too little for the Congressional Budget Office (CBO) to estimate their impact, as Brookings economist William Gale points out.  (CBO estimated that Chairman Ryan’s Medicare proposals last year would have driven up total health care spending and doubled the out-of-pocket costs of a typical 65-year-old.)

  • Analysis:  Ryan Medicaid Block Grant Would Cut Medicaid by One-Third by 2022 and More After That
    March 27, 2012
    The Medicaid block-grant proposal in the Ryan budget that the House of Representatives will vote on this week would cut federal Medicaid funding by 34 percent by 2022 (on top of repealing the health reform law’s Medicaid expansion) because the funding would no longer keep pace with health care costs or with expected Medicaid enrollment growth as the population ages and employer-based health insurance continues to erode.

Safety Net

  • Blog post: The Massive Hidden Safety-Net Cuts in Chairman Ryan’s Budget
    March 21, 2012
    A key misunderstood element of the Ryan budget is its proposed cut in spending for non-discretionary programs other than Social Security, Medicare, Medicaid, and other health programs.  There is no way to generate the budget’s required savings without extremely severe cuts in these programs, on which the most vulnerable Americans depend.

Analysis of Ryan “Roadmap” Budget Plan of January 2010

The Ryan Budget’s Radical Priorities — Provides Largest Tax Cuts in History for Wealthy, Raises Middle Class Taxes, Ends Guaranteed Medicare, Privatizes Social Security, Erodes Health Care
The Roadmap would give the most affluent households a new round of very large, costly tax cuts by reducing income tax rates on high-income households; eliminating income taxes on capital gains, dividends, and interest; and abolishing the corporate income tax, the estate tax, and the alternative minimum tax. At the same time, the Ryan plan would raise taxes for most middle-income families, privatize a substantial portion of Social Security, eliminate the tax exclusion for employer-sponsored health insurance, end traditional Medicare and most of Medicaid, and terminate the Children’s Health Insurance Program. The plan would replace these health programs with a system of vouchers whose value would erode over time and thus would purchase health insurance that would cover fewer health care services as the years went by.

Related analyses:

This post was originally posted March 2012.

Romney’s Budget Proposals Would Require Massive Cuts in Medicare and Other Programs

May 21, 2012 at 4:59 pm

Governor Mitt Romney’s proposals to cap total federal spending, boost defense spending, cut taxes, and balance the budget would require extraordinarily large cuts in other programs, according to an updated analysis that we released today.

If policy­makers exempted Social Security from the cuts, as Governor Romney has suggested, and cut Medicare, Medicaid, and all other entitlement and discretionary programs by the same percentage, then nondefense programs other than Social Security would have to be cut 29 percent in 2016 and 59 percent in 2022.  Without the balanced budget requirement, the cuts would be smaller but still massive, reaching 40 percent in 2022.

The cuts that would be required under the Romney budget proposals in programs such as veterans’ disability compensation, Supple­mental Security Income for poor elderly and disabled individuals, SNAP (formerly food stamps), and child nutrition programs would move millions of households below the poverty line or drive them deeper into poverty.  The cuts in Medicare and Medicaid would make health insurance unaffordable (or unavailable) to tens of millions of people.  The cuts in non­defense discretionary programs — which include a wide variety of public services such as elemen­tary and secondary education, law enforcement, veterans’ health care, environmen­tal protection, and biomedical research — would come on top of the deep cuts in this part of the budget that are already in law due to the discretionary funding caps established in last year’s Budget Control Act.

Governor Romney’s cuts would be substantially deeper than those required under the austere House-passed budget plan authored by Budget Committee Chairman Paul Ryan (R-WI).  Over the 2014-2022 period, Romney would require $7 trillion to $10 trillion in cuts to programs other than Social Security and defense; the Ryan budget would make slightly more than $5 trillion in comparable cuts.   

These updated estimates are based on new information and budget proposals from the governor, updated budget and economic projections from the Congressional Budget Office (CBO), modifications in the Center’s assumptions about “current policy” to match those that CBO and other budget analysts use, and other factors.

Click here for the full report.

Senator Lee’s Budget Would Sharply Cut Social Security, Medicare, Other Programs While Making Tax System Less Progressive

May 16, 2012 at 10:42 am

Sen. Mike Lee (R-UT) plans to introduce a budget resolution (S. Con. Res. 44) this week that would sharply cut Social Security and Medicare and most other federal programs.  Based on a plan from the Heritage Foundation, the Lee budget would slash programs that benefit low- and middle-income Americans while providing tax cuts for the wealthy.  Here are some of its remarkable features:

  • Turning Social Security into a welfare program. Social Security benefits would be income-tested.  Higher-income retirees would receive a reduced benefit or none at all.  For younger workers, retirement benefits would no longer be based on past earnings; everyone would get the same amount.
  • Replacing Medicare’s guaranteed coverage with a voucher. The Lee budget would replace Medicare’s guarantee of health coverage with a flat “premium support” payment, or voucher, with which beneficiaries would buy either private health insurance or a form of traditional Medicare.  This change, which would begin in 2017, would shift substantial costs to Medicare beneficiaries.  As with Social Security, higher-income beneficiaries would get a smaller voucher.
  • Raising the eligibility age for Medicare and Social Security. Senator Lee’s budget would raise the Medicare eligibility age from 65 to 68 over the next ten years.  It would also repeal health reform.  As a result, many 65-, 66-, and 67-year olds would have neither Medicare nor access to health reform’s coming health insurance exchanges in which they could buy affordable coverage.  Social Security’s early retirement age would rise from 62 to 65, and the full retirement age would rise to 68.
  • Reducing health coverage for those with modest incomes. Low-income, nondisabled individuals and families would no longer be eligible for Medicaid or health exchange subsidies.  Instead, they would receive a voucher to help buy insurance, but the voucher amount would often be inadequate and many families would find coverage unaffordable.
  • Cutting nondefense discretionary spending deeply. Under the Lee budget, nondefense discretionary spending — which covers a wide variety of public services such as elementary and secondary education, law enforcement, veterans’ health care, and environmental protection — would shrink to about 1.9 percent of gross domestic product (GDP) by 2022.  In contrast, this category of spending has averaged 3.9 percent of GDP over the past 50 years and has never gone below 3.2 percent of GDP during this period.
  • Making the tax system less progressive. A flat tax on consumption would replace the personal and corporate income taxes, estate tax, payroll tax, and most other federal taxes.  Most tax exemptions, deductions, credits, and exclusions that benefit low- and middle-income people would end.  Meanwhile, income from interest, dividends, and capital gains — which mostly goes to upper-income people — would be tax free.

All told, the Lee budget would fundamentally re-write federal spending and tax policy, taking from the poor and middle class, giving to the rich, and moving the country — at a time of widespread hardship at the bottom and stagnant living standards — in exactly the wrong direction.

Lower Drug Costs Don’t Support Ryan Medicare Proposal

May 15, 2012 at 9:56 am

We’ve updated and expanded our 2011 analysis of why the Medicare Part D drug benefit, which private insurers deliver, has cost much less than the Medicare trustees and the Congressional Budget Office (CBO) originally expected.

House Budget Committee Chairman Paul Ryan says the lower spending reflects efficiencies produced by competition among insurers, and he says that this supports his proposal to convert Medicare into a “premium support” system, in which beneficiaries would receive a voucher to buy private coverage or traditional Medicare.  We found, however, that reliance on private plans had little or nothing to do with Part D’s lower-than-expected spending.  That’s consistent with the results of a new Kaiser Family Foundation study.

More than half of the lower Part D costs resulted from lower-than-expected enrollment.  The rest came from lower per-beneficiary costs (see graph), but that reflected a slowdown in per-capita prescription spending throughout the U.S. health care system.

Private plans actually increased Part D costs by doing a comparatively poor job of negotiating discounts from drug manufacturers. When Congress created Part D, it assumed that private insurers would negotiate larger discounts than the ones Medicaid requires for the drugs it buys, but the opposite happened.  CBO estimates that requiring private plans to get the same discounts that Medicaid gets for the same drugs would reduce Part D costs by $137 billion over the next ten years.

Thinking About Tax Policy, Part 4: Ryan Plan a Costly Step in the Wrong Direction

April 13, 2012 at 2:18 pm

This series has explained why we need to raise more revenue and why it makes sense to start at the top of the income scale.  The budget from House Budget Committee Chairman Paul Ryan goes in exactly the opposite direction — it would cut taxes deeply at the top and raise even less revenue than if we continued all of President Bush’s tax cuts, leading to bigger deficits and worse income inequality.

Top 1 Percent Would Receive Nearly Half of Ryan Tax Cuts

The Ryan budget would permanently extend President Bush’s tax cuts, which policymakers enacted when the federal government had a large budget surplus and which have since proven unaffordable.  That would cost more than $4 trillion over the first decade alone.

Next, Chairman Ryan would dig the budget hole even deeper with new tax cuts that would cost $4.5 trillion over the first decade (according to the Urban-Brookings Tax Policy Center); he has said he would pay for them by broadening the tax base but hasn’t offered any proposals.  The tax cuts would overwhelmingly flow to the richest people in the country:

  • People with incomes above $1 million would receive a $265,000 average annual tax cut, on top of the $129,000 they would receive from extending the Bush tax cuts.  Their after-tax incomes would rise by 12.5 percent, on average — seven times more than the 1.8 percent average gain for middle-income households.
  • The top 1 percent of taxpayers — those with incomes above $630,000 — would receive 45 percent of the new tax cuts, or nearly as much as the rest of the entire population (see graph).
  • Low-income working families would actually be hit with tax increases because the Ryan plan wouldn’t fully extend President Obama’s tax cuts for working-poor households. People with incomes below $10,000 would see their after-tax incomes fall by 2 percent, on average.

Ryan Budget Would Raise Some Taxes; Guess Who Gets Hit?

April 12, 2012 at 2:26 pm

You’ve undoubtedly heard lots about how House Budget Committee Chairman Paul Ryan’s budget plan would give millionaires an average $265,000 apiece in new tax cuts, on top of the $129,000 apiece they would get from Ryan’s call to extend President Bush’s tax cuts. Have you also heard, however, that he wants to raise taxes for some other Americans?  Want to guess who would bear the brunt of his tax hikes?

The Urban-Brookings Tax Policy Center has published new numbers that show the Ryan plan would raise taxes on low-income working families — those making up to $30,000 a year.  That’s because, while he would extend the Bush tax cuts, which are due to expire at the end of this year, he would not extend President Obama’s tax cuts for those with the lowest incomes, which will expire at the same time.  Our updated report gives the details.

Chairman Ryan’s proposed tax hikes on low-income Americans would come even as, on the spending side, his budget would slash programs that assist this same population.

Specifically, people with incomes below $10,000 would see their after-tax incomes fall by 2 percent, on average.  But people with incomes above $1 million would see their incomes rise by 12.5 percent (see graph).

Ryan Plan Would Cut Taxes Deeply at the Top, Raise Them at the Bottom

While making permanent the Bush tax cuts, which disproportionately benefit people at the top of the income scale, Chairman Ryan also would cut marginal tax rates even below the Bush levels.  In fact, his plan would drop the rate for very wealthy individuals to its lowest level since Herbert Hoover’s presidency.

Chairman Ryan says his plan would fully offset the cost of his proposed tax cuts by closing tax expenditures (tax credits, deductions, and other preferences) for high-income households.  But he hasn’t said what tax expenditures he would cut.

By raising taxes on low-income Americans and cutting programs that help them, while giving high-income people large tax cuts, the Ryan budget would significantly worsen inequality and reduce opportunity.

Here’s some of what would happen:

A single mother with two kids struggling to make ends meet by working full-time at the minimum wage would lose $1,500 (over 80 percent) of her child tax credit; she could lose some or all of her food stamps as well.  Meanwhile, Pell Grants, which help students from poor families attend college, would also face cuts, making it harder for striving low-income children to make it into the middle class.

Ryan Budget Would Make Big Changes in Medicare

March 29, 2012 at 11:31 am

House Budget Committee Chairman Paul Ryan’s new budget provides much less detail than last year’s about his proposals in Medicare and other areas — too little for the Congressional Budget Office (CBO) to estimate their impact, as Brookings economist William Gale points out.  (CBO estimated that Chairman Ryan’s Medicare proposals last year would have driven up total health care spending and doubled the out-of-pocket costs of a typical 65-year-old.) 

Nonetheless, we can piece together a fair amount about Chairman Ryan’s updated plans for Medicare.  As my new paper explains, these include:

  • Replacing guaranteed coverage with a voucher. Most notably, the Ryan budget would replace Medicare’s guarantee of health coverage with a flat “premium support” payment, or voucher, that beneficiaries would use to buy either private health insurance or a form of traditional Medicare.  This would shift substantial costs to Medicare beneficiaries — especially for low-income beneficiaries also eligible for Medicaid; the Ryan plan would eliminate the supplemental benefits and help with premium and cost-sharing they receive through Medicaid without providing an adequate replacement.

    Adopting premium support would also, contrary to Chairman Ryan’s claim, likely lead to the demise of traditional Medicare by making its pool of beneficiaries smaller, older, and sicker — and increasingly costly to cover.

  • Raising the eligibility age. Starting in 2023, the Ryan budget would raise the eligibility age for Medicare — now 65 — by two months per year until it reaches age 67 in 2034.  It also would repeal health reform.  As a result, many 65- and 66-year olds would have neither Medicare nor access to health reform’s coming health insurance exchanges in which they could buy affordable coverage.
  • Rescinding health reform’s Medicare improvements. The Ryan budget would repeal health reform provisions that strengthen Medicare benefits, such as closing the gap in Medicare prescription drug coverage (known as the “doughnut hole”) and covering preventive services with no cost sharing.  These repeals would adversely affect both current and future beneficiaries.

Republican Study Committee’s Medicaid Cuts Even Bigger Than Ryan Plan’s

March 29, 2012 at 10:46 am

The House will vote today on a budget that the House Republican Study Committee has proposed as an alternative to Budget Committee Chairman Paul Ryan’s plan.  Our new analysis finds that the RSC plan:

proposes to end Medicaid and the Children’s Health Insurance Program (CHIP), and also to repeal the Affordable Care Act (ACA).  In place of Medicaid and CHIP, states would receive a single block grant payment each year equal to the amount of federal Medicaid and CHIP funding that they received in 2012, with no adjustment for increases in health care costs or the size of the U.S. population, or even for general inflation.

Because the block grant would be frozen at 2012 levels and not adjust annually for increases in enrollment (e.g., as the population ages) or rising health care costs, the RSC budget would slash Medicaid funding by $1.1 trillion — or 30 percent — over the next ten years, relative to current law.  (This does not count the loss of the substantial additional federal Medicaid funding that states would receive under the ACA to expand Medicaid but that they wouldn’t receive under the RSC budget because it would repeal the ACA.)  By 2022, federal funding would be 47 percent below what states would otherwise receive through Medicaid that year.  These funding cuts are even larger than those required under the severe proposal to convert Medicaid to a block grant and sharply cut its funding included in the Ryan budget plan.  The Ryan block grant would cut federal Medicaid funding by $810 billion — or 22 percent — over the next ten years, with federal funding 34 percent lower by 2022 (not counting the additional cuts from repealing the ACA’s Medicaid expansion).

Click here for the full report.

Ryan Roundup: Everything You Need to Know About Chairman Ryan’s Budget

March 29, 2012 at 9:30 am

Updated: Saturday, August 11, 2012

Below is a compilation of the CBPP analyses and blog posts on the budget that House Budget Committee Chairman Paul Ryan proposed, and the House of Representatives passed, in March. At the bottom of the compilation, we also list the Center’s analysis of the Ryan “Roadmap” budget plan.

Overview/General

  • Blog post: Greenstein Statement
    March 21, 2012
    “The new Ryan budget is a remarkable document — one that, for most of the past half-century, would have been outside the bounds of mainstream discussion due to its extreme nature. In essence, this budget is Robin Hood in reverse — on steroids. It would likely produce the largest redistribution of income from the bottom to the top in modern U.S. history and likely increase poverty and inequality more than any other budget in recent times (and possibly in the nation’s history).”

62% of Proposed Cuts in Ryan Plan Come from Low-Income Programs

  • Blog post: When Is a Deal Not a Deal?
    March 22, 2012
    With defense funding well above the Budget Control Act’s funding caps in coming years, and non-defense discretionary funding very far below those caps, the Ryan budget bears little resemblance to the bipartisan agreement reached last summer.

Taxes

Millionaires Would Receive More Than One-Third of New Ryan Tax Cuts

  • Blog post: Myths on Spending, Debt, and Taxes Fuel Ryan Vision
    April 5, 2012
    Chad Stone: In my post for US News & World Report, I identify three myths about spending, debt, and taxes that conservative politicians use to justify the plan of House Budget Committee Chairman Paul Ryan — one that would set the nation on a path to end most of government other than Social Security, health care, and defense by 2050.
  • Blog post: Chairman Ryan’s Misleading Chart
    March 27, 2012
    The lead tax chart in Chairman Ryan’s budget…gives the impression that we can easily eliminate tax expenditures for the very wealthy and thereby pay for lower rates for all taxpayers — including the Ryan plan’s big reduction, to 25 percent, in the top income tax rate. The chart in question is based on data from the Urban-Brookings Tax Policy Center (TPC). But it does not show what Chairman Ryan suggests it does, for two key reasons.

Health Care

  • Blog post: Ryan Budget Would Make Big Changes in Medicare
    March 29, 2012
    House Budget Committee Chairman Paul Ryan’s new budget provides much less detail than last year’s about his proposals in Medicare and other areas — too little for the Congressional Budget Office (CBO) to estimate their impact, as Brookings economist William Gale points out. (CBO estimated that Chairman Ryan’s Medicare proposals last year would have driven up total health care spending and doubled the out-of-pocket costs of a typical 65-year-old.)

  • Analysis: Ryan Medicaid Block Grant Would Cut Medicaid by One-Third by 2022 and More After That
    March 27, 2012
    The Medicaid block-grant proposal in the Ryan budget that the House of Representatives will vote on this week would cut federal Medicaid funding by 34 percent by 2022 (on top of repealing the health reform law’s Medicaid expansion) because the funding would no longer keep pace with health care costs or with expected Medicaid enrollment growth as the population ages and employer-based health insurance continues to erode.

Safety Net

  • Blog post: The Massive Hidden Safety-Net Cuts in Chairman Ryan’s Budget
    March 21, 2012
    A key misunderstood element of the Ryan budget is its proposed cut in spending for non-discretionary programs other than Social Security, Medicare, Medicaid, and other health programs. There is no way to generate the budget’s required savings without extremely severe cuts in these programs, on which the most vulnerable Americans depend.

Analysis of Ryan “Roadmap” Budget Plan of January 2010

The Ryan Budget’s Radical Priorities — Provides Largest Tax Cuts in History for Wealthy, Raises Middle Class Taxes, Ends Guaranteed Medicare, Privatizes Social Security, Erodes Health Care
The Roadmap would give the most affluent households a new round of very large, costly tax cuts by reducing income tax rates on high-income households; eliminating income taxes on capital gains, dividends, and interest; and abolishing the corporate income tax, the estate tax, and the alternative minimum tax. At the same time, the Ryan plan would raise taxes for most middle-income families, privatize a substantial portion of Social Security, eliminate the tax exclusion for employer-sponsored health insurance, end traditional Medicare and most of Medicaid, and terminate the Children’s Health Insurance Program. The plan would replace these health programs with a system of vouchers whose value would erode over time and thus would purchase health insurance that would cover fewer health care services as the years went by.

This post was last updated Thursday March 29, 2012, 9:30am

Another Quarter-Million for Millionaires Under Ryan Tax Plan

March 28, 2012 at 1:17 pm

Our new report shows that House Budget Committee Chairman Paul Ryan’s tax plan would provide $265,000-a-year tax cuts to the nation’s highest-income households.  Here’s an excerpt:

Millionaires Would Receive More Than One-Third of New Ryan Tax Cuts

Even as House Budget Committee Chairman Paul Ryan’s budget would impose trillions of dollars in spending cuts, 62 percent of which would come from low-income programs, it would enact new tax cuts that would provide huge windfalls to households at the top of the income scale.  New analysis by the Urban-Brookings Tax Policy Center (TPC) finds that people earning more than $1 million a year would receive $265,000 apiece in new tax cuts, on average, on top of the $129,000 they would receive from the Ryan budget’s extension of President Bush’s tax cuts. . . .

Underscoring how tilted the proposal is toward the top, the TPC figures show that people making more than $1 million a year would receive 37 percent of the new Ryan tax cuts even though they constitute less than one-half of one percent of U.S. households (see graph).

Click here for the full report.

Ryan Plan Unlikely to Balance the Budget for Decades

March 28, 2012 at 10:52 am

Despite its massive spending cuts, House Budget Committee Chairman Paul Ryan’s budget (which the House is considering this week) would still have a deficit of $287 billion in fiscal year 2022.  And the Congressional Budget Office estimates that it wouldn’t produce a surplus until 2040.

Chairman Ryan disagrees, saying in a report that if you factor in the great boost that his tax proposals would give to the economy, his plan could balance the budget by the end of this decade.  But his case is unconvincing.

The Ryan plan proposes to replace the current individual income tax system with two brackets — 10 percent and 25 percent — for ordinary income and no alternative minimum tax, with a top corporate rate of 25 percent.  These changes would reduce revenues by $4.6 trillion over ten years (compared to the revenue levels if Congress extended all of President Bush’s 2001 and 2003 tax cuts, including those benefitting only upper-income taxpayers), according to the Urban Institute-Brookings Institution Tax Policy Center.  Chairman Ryan says his plan will fully offset that revenue loss by cutting tax expenditures (credits, deductions, and other preferences), but he hasn’t provided any details.

Chairman Ryan’s report assumes that his tax reform, if enacted in 2013, would boost economic growth by as much as one percentage point a year for a decade starting in 2015; by 2019, that would produce enough extra revenues to balance the budget.  It cites a review of the literature on the economic effects of tax reform by economists Alan Auerbach and Kevin Hassett.  But what Auerbach and Hassett wrote — that “the literature suggests that a wholesale switch to an ideal [tax] system might eventually increase economic output by between 5 and 10 percent, or perhaps a slightly wider range” — doesn’t support Chairman Ryan’s claim for several reasons.

First, and most importantly, the Ryan tax proposals would fall far short of the fundamental tax reform that Auerbach and Hassett were discussing, which would effectively replace the current income tax with a national consumption tax.  Such reform plans would eliminate all tax expenditures, including tax breaks for such things as homeownership, charitable contributions, and employer-provided health insurance.  That the Ryan plan fails to specify any tax expenditures for cuts is just one sign of the political difficulty of substantially reducing them, much less eliminating them.

As economist William Gale notes in the Auerbach-Hassett book cited above, the type of tax reform economists are discussing would “cause significant relocation in the economy, and declines in charitable contributions, real housing prices and the number of households with health insurance.”  Furthermore, such a pure tax reform plan would be far more regressive than the current system, with lower- and middle-income taxpayers paying more and people at the top getting even bigger tax cuts than they would get from extending the expiring Bush tax cuts.  Mitigating these effects would require higher tax rates, which would reduce or eliminate the longer-term economic benefits of tax reform.

As Gale concludes, when tax reform is “subjected to the realistic considerations noted above and the higher tax rates such considerations would require, studies suggest that the [new tax system] would likely generate little if any net growth and could actually reduce growth.”

Second, Auerbach and Hassett’s conclusion that “a wholesale switch to an ideal system might eventually increase economic output by between 5 and 10 percent” (emphasis added) is far from Chairman Ryan’s claim that if Congress enacts tax reform in 2013, output will likely be 5 percent higher by 2019, as the Ryan report apparently assumes.

Third, as Auerbach and Hassett point out, the consensus in the economic literature about the possible effects of fundamental tax reform “may exist because all the models employed by economists have relied upon some simplifying assumption that will eventually be found inappropriate.  That is, it might well be that the models will be poor predictors of experience.”

The bottom line is this:  the tax reform reflected in the Ryan plan will not likely boost the economy significantly.  Even if policymakers enact and sustain the Ryan plan’s massive spending cuts, the budget probably wouldn’t be balanced much before 2040.

Chairman Ryan’s Misleading Chart

March 27, 2012 at 4:59 pm

House Budget Committee Chairman Paul Ryan recently summarized his new tax proposal this way:

[W]e’re saying get rid of all the special interest loopholes and tax shelters that are disproportionately used by those higher income earners, get rid of those tax shelters, so you can lower tax rates for everybody, and make us better wired for economic growth and job creation.

Chairman Ryan has also said that most tax-expenditure benefits go to high-income people.

The lead tax chart in Chairman Ryan’s budget document seems to support his statement, suggesting that the tax code includes a series of egregious loopholes (or “tax expenditures”) that mostly flow to very rich individuals.  It gives the impression that we can easily eliminate tax expenditures for the very wealthy and thereby pay for lower rates for all taxpayers — including the Ryan plan’s big reduction, to 25 percent, in the top income tax rate.

Who Benefits From Tax Loopholes

The chart in question is based on data from the Urban-Brookings Tax Policy Center (TPC).  But it does not show what Chairman Ryan suggests it does, for two key reasons.

First, the chart shows tax-expenditure benefits per person.  There obviously are far fewer people in the top 1 percent of the population than in the other income groups shown, each of which consists of 20 percent of the population.  So, the top 1 percent receives a much smaller share of the total benefits of tax expenditures — and the other income groups receive much larger shares —than a quick look at this graph might lead you to think.

Second, the graph covers all tax expenditures, including the preferential tax rate for capital gains and dividends.  Fully 75 percent of the benefits of that tax expenditure flow to the top 1 percent of people.  But Chairman Ryan’s budget essentially rules out raising the low capital gains and dividend tax rate.

The long document that Ryan issued on March 20 presenting his budget takes President Obama to task for proposing to let the capital gains rate on high-income households return to the 20 percent level at which it stood before the Bush 2003 tax cuts (as compared to today’s 15 percent rate) and declares, “Raising taxes on capital is another idea that purports to affect the wealthy but actually hurts all participants in the economy.”

Once you take the capital gains and dividends preference off the table, the benefits of the remaining tax expenditures are fairly evenly distributed across income groups, as the next graph shows.  This is a very different picture than that which Chairman Ryan’s graph seems to depict.

Curbing Tax Expenditures Would Affect All Income Groups

The biggest of these tax expenditures are the mortgage interest deduction and the exclusion for employer-provided health insurance.  Both are ripe for progressive reform; for example, why should the government subsidize mortgage interest at a 35 percent rate for a wealthy banker but at a 15 percent rate for a middle-income welder?   But, neither fits Chairman Ryan’s description of “special interest loopholes and tax shelters that are disproportionately used by those higher income earners.”  Elimination of the exclusion for employer-provided health insurance, for example, would hit the middle class harder than very high-income people.

Also keep in mind that the Ryan budget would use the revenue from reducing tax expenditures not to reduce our unsustainable long-term deficits but to help finance a cut in tax rates that would disproportionately benefit the wealthiest people in the country.   TPC estimates that the rate cuts (and other Ryan tax reductions) would raise after-tax incomes by 12.5 percent among people making more than $1 million a year — providing them an average annual tax cut of $265,000, on top of an average annual tax cut of $129,000 from making the Bush tax cuts permanent — but by just 1.9 percent among middle-income households.

The Ryan budget thus would lower the taxes of the nation’s most affluent people even if that means failing to contribute to deficit reduction and/or shifting tax burdens to middle- and lower-income families.