James Pethokoukis

Politics and policy from inside Washington

Paul Ryan’s Long (Deficit) Goodbye

Feb 10, 2010 23:07 UTC

Why should Tim Geithner be so confident that America will “never” lose its AAA credit rating? The White House doesn’t currently have a long-term plan to stanch America’s fiscal hemorrhaging. Hoping and wishing for a successful deficit commission does not make a plan. The Treasury secretary’s statement sounds like one of those perfunctory defenses of the dollar.

But the so-called “Party of No” does have a plan. And Republicans may have a chance to sell it should they retake Congress. Yet even if the plan works, the financial bleeding wouldn’t stop for decades.

To be accurate, Rep. Paul Ryan has a plan. The Wisconsin Republican is a rising party thinker and odds-on future Budget Committee chairman if Republicans capture the lower chamber. The Ryan plan does eventually put America into the black without raising taxes, according to the Congressional Budget Office. This is critical since growth-killing tax increases will only make budget balancing that much harder.

How does he do it? By sharply cutting future social insurance benefits and partially shifting Americans into private retirement and healthcare plans. The new Obama budget plan forecasts a total debt-to-GDP ratio of 77 percent in 2020 (vs. 53 percent in 2009) with an annual budget gap of around 4 percent (vs. 10 percent in 2009). Talk about a rosy scenario. It assumes brisk economic growth, atypical following financial crises. It also assumes some budget cuts and tax increases that are politically unlikely. An alternative CBO forecast using — by its own admission — more realistic policy assumptions predicts a 2020 budget gap of 7.4 percent and a debt-to-GDP ratio of 87 percent.

The Ryan plan tops both. In 2020, it would have a budget gap of 3.7 percent and a debt-to-GDP ratio of 67 percent. But notice: even a plan created by a conservative budget hawk accepts abnormally high budget deficits a full decade from now. So beware of any politico selling quick fiscal fixes.

The Obama outline ends at 2020, but the CBO and Ryan plans take their forecast decades out. By 2040, Ryan still sees annual deficits of over 4 percent of GDP (and a debt-to-GDP ratio of 99 percent) before a long decline toward annual surpluses in the 2060s as spending eventually dips below tax revenue. Those numbers seem alarmingly high — though not vs. the stunning CBO forecast of a 223 percent debt ratio in 2040 and over 400 percent by the 2060s.

One can quibble about Ryan’s policy choices. Democrats might prefer more taxes and fewer spending cuts. But the essential point is that politicians will, at best, push for a slow departure from massive deficit spending. The question is whether financial markets will be patient enough to allow such a terribly long goodbye.

COMMENT

This is what I heard…last year.

The plan to lower the deficit is simple.
Inflation at 100% over ten years.
The administration is engineering this
as we speak.

Posted by LP | Report as abusive

Financial reform hits double deep freeze

Feb 10, 2010 22:09 UTC

Even before the U.S. capital was buried under three feet of snow in a matter of days, Washington was frozen solid. Democratic bumbling and Republican obstructionism had sapped legislative momentum from key reforms in finance as well as healthcare and energy. That gridlocked state of affairs is unlikely to change even after Snowmageddon blows into history and the federal government reopens its shuttered offices.

Of course, even if Congress had some desire to make progress on those critical issues, Mother Nature would not have cooperated this week. A former city mayor was dead-on when he declared Washington not a snow town. Commuter trains into the city aren’t running, the Metro subway system offers only limited service, airports are closed and Amtrak closed its rail link to Wall Street (the Acela Express).

Even Pennsylvania Avenue, the main thoroughfare between the White House and Capitol Hill, is barely passable. As a result, federal agencies and departments have been shut all week, a bill that will run to about half a billion dollars in lost productivity and opportunity costs, according to government estimates. Both the House of Representatives and Senate have canceled all votes until after next week’s recess.

Of course, it’s an ill Snowpocalypse (residents’ other storm nickname of choice) that doesn’t blow someone a bit of good.

Toyota caught a break when a congressional hearing to investigate its car recall was postponed for two weeks. And lawmakers skeptical of climate change guffawed when the Obama administration chose the middle of this Arctic blast as the best time to announce a new agency to study global warming. Then there are the jokes. What’s Washington’s snow removal plan called? Spring.

But the snow will eventually melt, and there will be a general thawing out. If only the same warming could be confidently predicted for relations between Democrats and Republicans in this heated election year. As long as both sides keep things icy inside Congress, it really won’t matter much what the weather outside is doing.

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