James Pethokoukis

Politics and policy from inside Washington

Conflict of visions: Obama vs. Ryan

April 15, 2011

So the House just passed Paul Ryan’s highly-detailed “Path to Prosperity” Plan. It almost immediately achieves primary balance and reduces debt as a share of the economy. It balances the budget in the 2030s and eliminates outstanding debt in the 2050s by cutting and restructuring government healthcare spending. And it does all this without raising taxes while also lowering tax rates on companies and investors, both big and small. Even more impressive, the plan uses the slow-growth economic assumptions of the Congressional Budget Office, which, by the way, has scored the lengthy fiscal blueprint.

Then we have President Obama’s plan, as outlined in his speech earlier this week. Despite an economy plagued by high unemployment and falling wages, somewhere between 40 percent and 60 percent of his debt reduction would come through higher taxes over the next decade.  And there is no long-term plan to bring the budget into long-term balance. Achieving that while also keeping Obama’s high level of spending — even assuming unproven, Washington-imposed healthcare cost controls work —  would require raising middle-class taxes, a reality the White House wishes to hide.  Even worse, Obama assumes growth will be stronger than the CBO does, making a comparison with the Ryan plan even less flattering. And will the White House ever submit this plan to the CBO? Who knows? The fiscal scorekeeper would have a tough time scoring it in its present shape. (The propeller-heads in the White House budget office apparently had no role in in creating Obama’s new plan. Neither did the defense department despite the defense cuts.) And it was all bundled in a thick wrapping of class-warfare rhetoric.

At least, that’s how I see things.

Comments

Mr. Pethokoukis, how you see things seems to have a pretty strong partisan tilt. This article seems to be little more than an exercise in biasing your description of the two plans one way or another.

You talk about “unproven, Washington-imposed health care controls”, but the health care controls are based on Medicare and Medicaid, which have most certainly been tested. Meanwhile Mr. Ryan’s budget does nothing whatsoever to control health care costs.

Obama’s plan cuts the deficit by 4 trillion over 12 years. Ryan’s plan INCREASES the deficit over the next 10 years – you note yourself that it doesn’t balance the budget until the 2030s and doesn’t eliminate the debt until the 2050s. Budget projections twenty and forty years out, particularly in a democratic country where you can’t make future Congresses stick to them, are pure fantasy.

And your entire article takes as a given that higher taxes are bad for the economy. Yet the S&P 500 is lower today than it was the year before the Bush tax cuts. GDP growth since the Bush tax cuts has been lower than in any ten-year period since the Great Depression. Not to mention that we had a surplus the year before the Bush tax cuts. I simply don’t understand your supreme confidence in this theory. The highest tax revenue as a percentage of GDP since WW2 was in 2000 – I don’t recall the economy hurting very badly that year.

Posted by percy1 | Report as abusive
 

Percy, cost controls have created far more problems than they have solved. It’s economics 101. When you keep the price down, supply cannot be filled because it is unprofitable to do so. No profit, no business, no action.

Medicare and Medicaid have tested poorly – they are the chief reasons the federal debt is edging towards logarithmic. For many years, the government has been pulling the surplus out of social security, which hasn’t even fully funded current budgets. We still run at a huge annual deficit (which is the amount lost per year, versus the debt which is the sum total). Debt reduction that is not absolute is not an option for the next generation. However, it will take time to reduce such a massive oversight. 30 years sounds pretty reasonable to me, given past debt reduction episodes our country has been through.

As I recall, the economy was hurting badly. Remember the dot com bubble? In many ways, the current crisis is linked to previous crises, as we continue to try to inflate our way around misallocated resources. The realization of misallocated resources that ended in the dot com bust lies directly parallel to the misallocation of resources that created the housing bust. As long as we continue to forcibly distort markets with intervention and excessive monetary manipulation, we will continue to witness the business cycle at its most destructive – useless and costly.

P.S. After you adjust for inflation, the stock market has been basically flat for a substantial period of time.

Posted by LifePilgrim | Report as abusive
 

So both plans fall woefully short of addressing all of the challenges confronting the Nation’s fiscal state. Once again, no doubt, politics has clouded the better judgement of our representatives and forced our “Better Angels” to be driven away. As usual for most complex problems, the real solutions lie somewhere in the middle between the typically delivered two extremes. The question for us to answer is does any of our Congressmen Possess the intestinal fortitude to risk their political futures, step away from the party lines/positions and reach across the political aisle and embrace compromise and consensus building. Everyone, and I really mean everyone, has to sacrifice their current socioeconomic positions in this great Nation and give back to demonstrate to the rest of the world (and financial markets) that we are very serious about addressing our debt situation. Credit worthiness is truly a matter of perception. If the lender believes you are a credit risk, then you are a credit risk regardless of the details or numbers. The same applies for the nation. So our near-term objective should be to change the perceptions of our creditors. The first step toward that end is to generate a fiscal plan that reassures them we are serious about addressing our debt situation. Start there, focus are actions accordingly and work our way back to that AAA ratings the world is accustomed to seeing from the United States!

Posted by Norm_Al | Report as abusive
 

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