By: Derek Thompson
August 14, 2012
I get nervous when I start feeling too certain about something, and I feel pretty certain that Paul Ryan's budget is a massive devolution of government responsibility masquerading as fiscal prudence. So I called Alan Viard, a tax and entitlement scholar with the American Enterprise Institute, to ask what was fair and not fair to criticize in the Ryan Roadmap. It was a wide-ranging conversation, but here's an edited selection:
THOMPSON: When I look at the Ryan plan for the next ten years, I don't worry about Medicare, where reforms don't kick in until 2023 or so. I worry about basically everything else. The tax changes are regressive, the Medicaid cuts are fierce, and balancing the budget seems to fall on non-defense, non-Social Security spending that is overwhelmingly designed to protect the sick, the old, and the poor. Am I wrong?
VIARD: No, I actually think that's right. We know Medicaid gets cut right away. Or at least, its rate of growth is cut. That's obviously a program that is targeted at low-income people. But I think the criticisms of Ryan [mix up the versions], because there have been [at least] three iterations of Ryan's Roadmap.
In the press coverage, the Democrats are, in some of their comments, going back to the old plans, especially on the tax side. [Ed: I'm guilty of this.] Ryan used to have no capital gains tax, but also a value-added tax, and Social Security reforms. Those things are all gone in the version that the House GOP voted for this year. In that latest plan, Social Security is not actually touched. On the tax side, rates go down to 10 and 25 percent, but there is still a capital gains tax.
I don't think it really changes your question. The short-run impact of this plan is to target lower-income people to a degree that is greater than preferable.
So you'd agree that these cuts concentrate rather heavily on the lower-income?
Social Security cuts would have put more onus on the middle class. [Ryan's] treatment of Medicare, which is more for the middle class, is much more lenient, while Medicaid, which is obviously a low-income program, is cut from the get-go. Some of the cuts affect discretionary spending, which does benefit low-income people, even if it's in an inefficient way.
But one response to [your claim] is that a strategy that focuses on cutting spending should give you better long-term growth than one that relies on tax increases. Tax increases slow growth more than spending cuts. So, in the long run, [Ryan's plan] makes the pie bigger. Then you need to think about how the pie is sliced.
What's the best part of the Ryan plan?
The Medicare reforms would be the most essential. The Medicare changes [acknowledge] the fact that we clearly have to balance Medicare spending and revenues. It's not responsible to think this is only going to be addressed by spending. A number of Democrats like Ron Wyden and Alice Rivlin have said we need to make changes to Medicare on the spending side. Obama has paid lip service to this as well. I would hope there would be bipartisan progress on that.
When you read liberals criticizing the Ryan budget, what are they getting the most right, and what are they getting the most wrong?
Well, I'm not enthusiastic about food stamps as a block grant. And I don't know about Medicaid. I think it should be funded more generously.
I think [liberals] are focusing too much on the version that included Social Security reforms and the zeroing out of capital gains taxes. Otherwise, I just think there's a tendency to treat existing programs as sacred, and there's no way we can cut them. They should give Ryan credit to make hard choices even if they're not the right choices.
On that tax side, there is a tendency as well to claim there is a huge revenue loss based on the assumption that rates are going down. The Ryan budget does not spell out base-broadening [i.e.: the elimination of tax deductions to make up for revenue losses] but it's a leap to present numbers that the rates will be cut in full without base broadening. Still, it's reasonable to point out that Ryan hasn't been specific about how he would try to make his plan revenue neutral.