Paul Ryan’s Long (Deficit) Goodbye

February 10, 2010

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.

4 comments

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[...] Pethokouis has an interesting post which talks about the Ryan plan for eventually balancing the budget. The Ryan plan has some [...]

[...] James Pethokoukis at Reuters, in an otherwise nice piece on Wisconsin congressman Paul Ryan’s national deficit/debt-controlling designs: 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 staunch 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. [...]

You mean “stanch,” not “staunch.”

Posted by rwgreene | Report as abusive

Yawn, nothing new here. Ryan is just continuing the Bush agenda. No talks of Military tightening, no mention of reversing the Bush tax cuts or paying back the funds borrowed from the SS surplus to cover passed deficits.

Go after the “entitlement” programs. Keep them in place for those presently over 55 so not to arouse the ire of the AARP but screw those under 55. Let’s throw those folks to market forces-I mean how tough will it be to buy a medical policy without a job when your 65?

Posted by DR | Report as abusive

If Ryan’s plan doesn’t cut military spending its a waste of time.

Posted by Liberty Lover | Report as abusive

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

[...] can’t take it, solves roughly 40% of the problem.The Republican’s so-called Ryan Plan also foresees continuing deficits a decade out, though much smaller than anything that Obama would produce (with [...]