James Pethokoukis

Politics and policy from inside Washington

Why Obama’s tax pledge is bogus

Apr 12, 2011 01:42 UTC

Who does Team Obama think it’s fooling? Budget experts are already scoffing at the idea that the White House can somehow deal with America’s long-term budget woes without either a) raising taxes on the middle-class or b) adopting a Paul Ryan-style restructuring of entitlements.

But, amazingly, that’s just what White House senior adviser David Plouffe claims his boss is going to do on Wednesday in a big speech. Recall that this will be President Obama’s second bite at the apple. His previous attempt, released earlier this year, would have added an eye-popping $9.5 trillion of new borrowings over a decade, increasing debt as a share of output to 87 percent in 2021.

But that outline just looks like a placeholder now. Republican Ryan has proposed cutting Obamacare and trillions of dollars of other federal spending to keep the debt-to-GDP ratio steady at around 69 percent over the decade, adding $5.1 trillion in new borrowing and leaving a slim annual deficit of 1.6 percent in 2021 vs. a historically high 4.9 percent for Obama. And while Obama previously offered no long-term debt reduction plan, Ryan’s “Path to Prosperity” would actually eliminate outstanding U.S. debt by the 2050s — even using the slow-growth forecast of the Congressional Budget Office.

Suppose Obama actually chooses to at least match Ryan and stabilize the debt over a decade. And assume he picks the formula advocated by his debt panel, $2 in spending cuts (spread among defense, Social Security, Medicare and Medicaid) for every $1 of higher taxes. Getting there by taxing only wealthier Americans would mean nearly doubling tax rates at his own line of demarcation – households earning more than $250,000 a year, according to the Tax Policy Center.  (This analysis assumes a top marginal rate of 67 percent would have no impact on economic growth. Good luck with that.)

Or maybe Obama could adopt the balanced-budget plan being put forward by liberal House Democrats. In addition to gutting defense, the plan of this group of so-called progressives would, as Philip Klein of Washington Examiner describes it, do the following:

To extend the long-term solvency of Social Security, it would propose dramatically increasing payroll taxes on both the employer and employee side, and funnelling the money into even more generous benefits. … Yet the tax increases wouldn’t end there. The People’s Budget would rescind last year’s tax deal to raise rates on higher income levels, boost taxes on capital gains and dividends, increase the estate tax, institute three “millionaire tax rates,” with the highest reaching 47 percent, tax corporate foreign income, impose a “financial crisis responsibility fee,” and institute a “financial speculation tax. Overall, taxes would rise to 22.3 percent of the economy, compared with 18.3 percent under the Ryan proposal.

Obama won’t go that far, especially since his economic team doesn’t believe it’s necessary to dramatically reduce the deficit anytime soon. Important, but not urgent. But he might well subject the full earnings of wealthier American to the payroll tax. (The cap is currently around $107,000.) In addition, expect the president to suggest eliminating all manner of business tax breaks. He might advocate cutting the top corporate rate, too, but not enough to prevent there being a net tax increase. Wall Street and Big Oil better brace themselves.

But the president is also promising a long-term fix. The further out one goes, however, the less feasible it is to spare the middle class as Obama promises. White House economists reckon America’s aging population – and its healthcare needs — means government will need to be bigger than its post-World War Two average of around 21 percent of GDP. (And this actually assumes Obamacare’s cost controls work.)

Yet the U.S. tax system has rarely generated anywhere near so much revenue as a share of output, much less two to four points higher or more. And it sure can’t by just taxing the “rich.” In that scenario, a value-added tax hitting everyone could well be needed. A 10-point VAT, layered onto the current system, would generate $3 trillion in revenue over ten years. (Again, assuming no negative economic impact.)

You almost assuredly won’t hear such a radical proposal from Obama on Wednesday. And that’ll mean he won’t be offering a serious, long-term budget blueprint, just a purely political way of framing the 2012 election. Obama can reject the Ryan plan or a VAT, but not both.

COMMENT

I saw Ryan on Meet the Press yesterday (4/10).
Ryan said that Medicare will be insolvent in nine years
at the rate that it is on now. This was one of the examples he used to explain why tax and spend won’t get us out of our grief. Reform must be done.
Ryan was using the GAO figures.

Well, here’s a place where there needs to be some discussion. Just letting the people above 55 do things
the old way, and then all the younger ones pretty much
go into privatization isn’t a good solution.

This competition that everyone believes will lower the price of health care (the invoices that doctor’s bill)
is not going to materialize.

For instance, no one in our state of WI can have an x-ray without one of not-too-many specially certified radiologist hired to look at the film. Several years ago, the guy that did mine charged me $500 for five minutes work. The hourly rate was $6,000 per hour. It isn’t that price now.

My husband’s MRI cost well over $4,000 and the
reading bill for that was $1,000 (for probably 5 minutes work.)

It is state law that requires this charge. It is medical schools that restrict the number of radiologists in the first place.

Economics…supply and demand…this is a gold mine for medical facilities.

I’m thinking that –just as power and light companies
are regulated—the medical industry has to be as well.
Medical industries are somewhat of a monopoly and they shouldn’t be allowed to gouge the American public beyond what they can afford.

Privatizing ANY medical is redundant. Sure the costs
are thrown off the Federal Government’s back…some
onto the state’s back…but privatizing is avoiding the
one cost that’s even worse than the deficit by
telling seniors-to-be that “You’re on your own–Good luck.”

The same goes for this horrible idea of privatizing social security. What a field day for people like
Romney’s old hedge fund company, Bain!

You want to have a class system in America…
well…you just fix the federal money ills with
unregulated privatizing. And if you’re gonna
regulate, then regulate fair and square across the board, none of this exception stuff creating loopholes and (oh)– You know the usual ifs, and, and buts,
for the Senator Frists out there.

Posted by limapie | Report as abusive

Bending the debt curve

Apr 8, 2011 19:45 UTC

Some budget plans do, some don’t (via e21):

e21chart

COMMENT

Ryan’s budget won’t stabilize the public debt because it would sink the economy into a depression.

Posted by GetpIaning | Report as abusive

Is the Ryan Plan a 73-page suicide note?

Apr 8, 2011 19:38 UTC

Charles Krauthammer asks the question:

In 1983, the British Labour Party under the hard-left Michael Foot issued a 700-page manifesto so radical that one colleague called it “the longest suicide note in history.” House Budget Committee chairman Paul Ryan has just released a recklessly bold, 73-page, ten-year budget plan. At 37 footnotes, it might be the most annotated suicide note in history.

That depends on whether (a) President Obama counters with a deficit-reduction plan of equal seriousness, rather than just demagoguing the Ryan plan till next Election Day, (b) there are any Republicans beyond the measured, super-wonky Ryan who can explain and defend a plan of such daunting scope and complexity, and (c) Americans are serious people.

My guesses: No. Not really. And I hope so (we will find out definitively in November 2012).

Again, is the Ryan Plan a blueprint only Ryan can sell?

COMMENT

Are you joking? The only thing recklessly bold about Ryan’s plan is that it doesn’t do anything meaningful. According to the CBO’s analysis, Ryan’s plan will not balance the budget until sometime between 2060 and 2080, and that’s while assuming a lot of rosy things that nobody can possibly predict. Moreover, while on this path Ryan’s plan will add an additional $63 trillion to the national debt. How will that affect the economy? What if the dollar crashes and countries like China won’t buy our securities anymore… then what? This plan is a sham.

Posted by AggieEngineer | Report as abusive

Ryan plan would boost U.S. economic security

Apr 7, 2011 20:49 UTC

It’s intriguingly simple: Limit future increases in Medicare and Medicaid healthcare spending to cut debt. That’s the easy-to-understand core of House Budget Committee Chairman Paul Ryan’s budget plan, The Path to Prosperity. But the idea risks a voter backlash if medical inflation doesn’t slow, too. Otherwise, quality and service will suffer, badly fraying the social safety net. Republican Ryan thinks injecting some needed market discipline rather than sticking with President Barack Obama’s bureaucratic tinkering will do the trick. And he’s right.

Federal government healthcare expenditure for those two programs could more than double over the next four decades to nearly 14 percent of GDP, according to the Congressional Budget Office. The CBO says the new plan devised by House Budget Committee Chairman Paul Ryan would keep spending at around 5 percent of output.

ryan

Or to put it another way, without the Ryan plan, Medicare and Medicaid are a $58 trillion (net present value through 2085) unfunded liability. These two programs are the main reason the CBO sees America’s debt-to-GDP ratio hitting 344 percent (assuming the economy doesn’t collapse first) in 2050 vs. 62 percent in 2010. But with the Ryan plan, the entire federal debt is just 10 percent of GDP in 2050 before disappearing later that decade. Problem solved.

usa

There’s no fiscal miracle here. Ryan accomplishes this feat through simple math. He would increase revamped subsidies to seniors and the poor at rates far below the predicted pace of healthcare inflation. That has led the CBO to raise an eyebrow, wondering if such effective reductions would be politically sustainable. Oldsters would, for instance, eventually bear a far larger share of personal healthcare costs than under the current Medicare program.

But what the CBO misses is that Ryan bets he can square the circle by slowing medical inflation through increased competition. Instead of Medicare providing insurance, retirees would pick their own government-certified private plan, helped by a fixed subsidy from Washington. Fancier coverage would cost more. And in exchange for some protection from big bills, seniors would pay a greater share of small ones. Both features might encourage bargain hunting among competing plans. Republicans also want to lessen the role of middlemen in medical billing. Economists think heavy intermediation makes people less aware of the costs and therefore allows healthcare prices to rise faster than they should.

Competition generally works in the other five-sixths of the U.S. economy. And it should also in healthcare if government loosens its grip. Prices for laser eye surgery, a procedure commonly paid directly out of pocket, have fallen sharply over the past two decades. Then there’s the Swiss example. There citizens choose, aided by subsidies, among competing private insurers who must provide a basic benefits package. Ryan’s Medicare reform proposals bear more than a passing resemblance to that system. Costs have risen more slowly in Switzerland than the United States. The Swiss also devote just 11 percent of their economy to healthcare, counting both government and private spending. While that’s a lot compared to the UK and Scandinavia, it’s thriftier than America’s 17 percent and rising.

The only real differences between Ryan’s new plan and the one he co-authored with Clinton administration economist Alice Rivlin, is that it’s a bit stingier on increasing the subsidies and it doesn’t have a public option. That, along with the Swiss feel to it, is evidence that what Ryan has proposed is a rather centrist plan that Democrats should flock to if they want to preserve economic security for all Americans.

COMMENT

There is nothing in Ryan’s “Path To Penury” that has not been circulated in policy circles for decades. Almost everything in the plan has been tried and has failed. The plan ignores obvious economic realities, such as the bubble-induced recession that has left 25 million people unemployed or underemployed. It gives all the benfits the rich and powerful, while destroying the limited economic security enjoyed by tens of millions of middle class families.

He wants to lower the top tax rate from the 39.6 percent in current law to 25 percent. This will means billions of dollars a year in additional spending money for Wall Street bankers, CEOs of major corporations and other major campaign contributors.

At the same time, he wants to abolish Medicare and replace it with a voucher program that will rapidly fall behind the rising costs of health insurance and health services. Medical bankruptcies will skyrocket.

Oh, and he does propose cutting the $7.8 trillion in defense spending projected for the next decade by 1 percent. Apparently Paul Ryan believes in a strong safety hammock for the defense industry.

I’ll say this. The fawning coverage of America’s corporate media of it’s new rising star does jump-start
the debate over how to rebalance the government budget. But this plan falls apart under the most basic analysis.

The Heritage Foundation, who helped Ryan craft the Path To Penury, scrubbed its website as soon as real budget analysts started pointing out the impossible numbers in the projections. It’s not economic policy. It’s economic ideology. Which is why we will see daily articles by Mr Pethokoukis telling us how great it is.

Posted by GetpIaning | Report as abusive

The Ryan Path vs. Bowles-Simpson

Apr 5, 2011 19:15 UTC

Americans for Tax Reform has created a handy chart comparing the features of both:

atr

Paul Ryan’s revolution would finish Reagan’s

Apr 5, 2011 17:58 UTC

Is Rep. Paul Ryan’s “Path to Prosperity” potentially the most important and necessary piece of economic legislation since President Ronald Reagan’s tax cuts in 1981? Quite likely. The blueprint embraces free markets and individual choice to radically reshape America’s social welfare state for the 21st century and shrink government. Instead of looking for ways to finance an ever-expanding public sector, it would prevent Washington from growing to a projected 45 percent of GDP by 2050 (vs. 24 percent today) and instead reduce it to just under 15 percent by that year. Ryan would downsize government to its smallest size since 1950 and prevent the Europeanization of the American economy. The Ryan Path embraces dynamic growth, not managed decline and stagnation.

But what’s really important is that it affirmatively answers three questions: First, does the Ryan Path put the federal government on a sustainable fiscal path? Second, does it promote more economic growth and higher incomes? Third, is it politically realistic? Let’s take those one at a time:

1) Does the Ryan Path put the federal government on a sustainable fiscal path? Yes. It’s easily superior to President Obama’s 10-year budget plan which would generate average annual deficits of $947 billion and let debt as a share of the economy rise to a dangerous 87.4 percent from 62.1 percent in 2010. And Obama does nothing to alter the long-term fiscal glide path into insolvency.

By contrast, the Ryan Path would see debt-to-GDP peak in 2013 at 74.5 percent and fall to 67.5 percent by 2021, then continue to steadily decline until the entire federal debt is eliminated in the 2050s. Medicaid spending for the poor would be sent to the states in a fixed lump sum indexed for inflation and population growth. Medicare spending for seniors would be transformed into a system where recipients would choose among private plans, aided by a government subsidy that would grow more slowly than healthcare price increases. Indeed, the market-based plan would help lower healthcare inflation.

2) Does the Ryan Path promote more economic growth and higher incomes? Yes. Ryan uses extremely cautious economic growth figures, the same ones employed by the Congressional Budget Office, to arrive at his budget totals. But his plan would almost certainly result in higher growth and more jobs — generating more tax revenue and reducing debt even faster than Ryan estimates. It shifts vast resources from the public sector to the far more productive private sector. It also sharply reduces top federal individual and corporate income tax rates to 25 percent from 35 percent. (The U.S. currently has the highest corporate tax rate among advanced economies.) According to the Heritage Center for Data Analysis, the plan would create nearly a million new private-sector jobs next year and bring unemployment down to 4 percent in 2015. A flat tax on income and consumption would be even better, but Ryan significantly moves the ball forward.

3) Is it politically realistic? The risk is that Paul Ryan has created a plan only Paul Ryan can sell with his passion and deep expertise. He does make political concessions. The plan doesn’t, for instance, cut Medicare spending on current retirees or older workers. But austerity of that sort probably isn’t needed yet. Current trends, though, are leading toward a fiscal crisis that would result in both extreme and immediate benefit cuts and higher taxes.

And that, ultimately, is how the political case is made. The alternative to the Ryan Path isn’t the fiscally unsustainable status quo, but a future of harsh austerity beset by financial crisis, stifled by higher interest rates and marred by a lower standard of living. In short, the death of the American Dream and  the collapse of any social safety net.

But there is a way forward to another American Century and away from that nightmare. And Ryan has found it.

COMMENT

Purely partisan foolishness. To suggest that Ryan’s plan somehow restores “free markets” is a spectacular insult to the intelligence of anyone with enough education to be barely literate and enough sense to look one level deeper than the TMZ headline of the day.

Ryan’s plan cements the corporate cronyism that has driven our economy into the turf. What’s needed is a REAL return to free markets, and this plan doesn’t even scratch that surface.

Pethokoukis, you’re nothing more than a partisan shill. My dog could eat an inkjet cartridge and defecate a better-reasoned column than this.

Posted by JackMack | Report as abusive

Matt Miller vs. Paul Ryan

Mar 4, 2011 17:28 UTC

Over at the WaPo, the great Jennifer Rubin takes Matt Miller to task for his completely unfair and wrongheaded critique of Paul Ryan.  See, Matt Miller has a thesis shared by many in the MSM and center-left think tank community. It goes like this:

1. As societies get richer — and older — they demand bigger government to provide more services.

2. Thus to prevent a fiscal crisis, taxes much go up since it is impossible to substantially cut spending.

3. And since Paul Ryan advocates, to Miller at least, the impossible — spending less government money on entitlements and keeping taxes low — Ryan is not a serious person when it comes to dealing with America’s debt problem.

The problem with Miller’s thesis is as follows:

1. Raising taxes high enough to deal with exploding healthcare costs would kill economic growth, making the debt problem even worse.

2. Ryan, via his Roadmap for America, demonstrates a way to provide a safety net that does not require bigger government. Miller refuses to acknowledge the viability of free market solutions.

3.  There is no political evidence that Americans are ready for dramatically higher taxes.

COMMENT

So the reason Miller is pointing out the absurdities of Paul Ryan’s plan is that the country is struggling to clean up the fiscal mess left by … Republicans like Paul Ryan. Ryan voted for budgetary and economic policies that added $5 trillion to the national debt over eight years. He supported the budgetary and economic policies that took a $230 billion surplus and turned it into a $1.3 trillion deficit. He was proud to endorse all kinds of measures, including two wars and Medicare expansion, that cost a bundle, but which Ryan and his cohorts never even tried to pay for.
But now Paul Ryan has decided it’s time to clean up the mess he helped create, and to do so, he wants to go after Medicare and Social Security.
Ryan’s “roadmap” is a right-wing fantasy, slashing taxes on the rich while raising taxes for everyone else. The plan calls for privatizing Social Security and gutting Medicare, and fails miserably in its intended goal — cutting the deficit.
When Matt Miller suggests that’s ridiculous, Pethokoukis concludes that HE’s being unfair and wrongheaded? Come ON.

Posted by GetpIaning | Report as abusive

Why a Mitt Romney-Paul Ryan ticket seems unlikely

Mar 2, 2011 17:22 UTC

USA-BUDGET/At a reporters breakfast meeting with Rep. Paul Ryan today, Ryan spoke mostly about the budget. (He says the GOP version will deal with entitlements.)

He veered into some 2012 territory, too. Ryan repeated that he will not run for president next year, but added that he didn’t think it served the party well to merely nominate the “next person in line.” Most analysts would say that person was Mitt Romney. That does not mean Ryan opposes Romney. Ryan might think Romney would be a fine candidate — but should not get the gig just because he arguably was the 2008 runner up.

But then again Ryan made a few cracks about Romney’s signature public policy achievement, healthcare reform in Massachusetts. He said it was  not “dissimilar” from Obamacare and was heading into a financial “death spiral.” Ouch.

If Romney were to win the nomination and pick Ryan, you could end up with a weird situation where Obama and Romney would support the Massachusetts plan, with Ryan opposing. Politics is a strange business, but I don’t see how that one would work. Then again, finding conservatives who like Romneycare isn’t easy. So where would Team Mitt find its veep?

Photo: U.S. House Budget Committee Chairman Paul Ryan (R-WI). REUTERS/Jason Reed

Gen. Paul Ryan launches his war on Big Government

Feb 4, 2011 18:44 UTC

In the context of World War II, this was the Doolittle Raid. D-Day still awaits in the future.

I think if House Republicans consisted of Paul Ryan and 241 of his clones, the first round of budget cuts coming out of the House Budget Committee might have been more Rand Paul-esque. Something more in the hundreds of billions of dollars. A grand slam.

But, to mix metaphors, what Ryan did manage is a solid double into the gap, with the runner making it to second base standing up.  Ryan’s plan would save $74 billion relative to the Obama budget, $58 billion in non-security spending and $16 billion below Obama’s request for security spending. Non-security spending would be cut to $420 billion or about $40 billion below current levels with an additional $8 billion added for defense and security needs.

Of course, if these cuts were the end of story, they would be disappointing. But I am sure there will be more to come, hopefully accompanied by proposals to reform entitlements. Not the end of the beginning or the beginning of the end. Just the beginning of the beginning.

COMMENT

General Ryan is typical of career bureaucrats. They talk like Richard Nixon. Their mantra is obfuscation and hundreds of billions for the military gravy train. Then like Reagan they make people believe they won the Cold War which was really over before ‘Bonzo’ became President. If the so-called
consevatives really are serious about cutting the federal budget they need to take low and middle income people off income taxes; cut the military budget to $400 billion; phase out social security and medicare; repeal voluntary military; repeal the Dept. of Domestic Security; cut out agriculture subsidies; create a Dept. of Nutrition to replace all agencies which deal with food; allow medical professionals to prescribe behavioral drugs; fix the national infrasture asap; get freight of the highways and onto the rails; create a national mass transit system run by electricity generated by nuclear power; turn the District of Columbia back to Maryland and move the federal capitol to the Kansas City area; get rid of the Dept. of Interior; get rid of all socialistic federal programs that denigrate the Bill of Rights; make it illegal to receive a federal pension and work in any other job; set up by law a livable annual income which will enable every citizen to achieve individual self-sufficiency; require States to license any and all healthcare professionals; set up a national healthcare system that people can join to get healthcare, drugs and all other medical services to compete with the private system which now causes inflated healthcare costs; get rid of the FDA and the medical professionals who are in cahoots with the pharmaceutical industry. If the pols in DC could pass all of those reforms America would come back if they also dumped the Federal Reserve System which is run by Wall Street and the Judeo-Christian Big Business Coalition of fascist dictators.

Posted by McFinn | Report as abusive

What Paul Ryan hopes to do

Jan 5, 2011 15:04 UTC

In honor of the Congress, the good folks over at e21 have republished a column by Rep. Paul Ryan on what he wants to accomplish. This is good stuff:

Let me be specific: I propose to modernize Medicare, Medicaid and Social Security so these critical programs can meet their mission in the 21st century; secure access to universal health coverage where patients and doctors – not government or insurance company bureaucrats – are the nucleus of the system; restructure Federal job training programs of the past century to better prepare our workforce for the challenges in today’s global economy. There are dozens of additional policy reforms in the Roadmap consistent with the mutually reinforcing goals of individual opportunity and income security.

Those who claim the mantle of compassion and concern for the working class should consider this: The greatest threat to our social insurance programs today is the icy indifference shown by those unwilling to have an adult conversation on how to avert their looming collapse. Not only are the major health and retirement security programs approaching bankruptcy; the looming debt crisis will hit hardest those most reliant on the safety net the Federal government helps provide.

As the budget’s ominous trajectory makes clear, by asking government to do everything, it will, in the end, barely be able to do anything. Who, then, will have set us on a path back to the future, to the days when there were no effective federal safety net programs in place? Those who offer modernizing reforms to strengthen these programs? Or those who stand on the sideline, tearing ideas down rather than proposing credible alternatives – all while the programs themselves drown in debt?

The issue is not whether we ought to “zero out the state” or whether “all government action is automatically dismissed as quasi-socialist.” The issue is rather more subtle and sophisticated than that. The real debate is about whether and how government ought to create the foundations for growth and prosperity, securing a safety net for those who need it most; about how government can act now to avert a catastrophe later.

The truth is that there are two stark, competing philosophies over this matter. I know better than most that the debate will at times be uncomfortable and unpleasant. In ordinary times, political debate concerns the means, not the ends, of government. But we do not live in ordinary times; we live in a time when the first principles of governing are on the table. Nor did we seek this debate; bipartisan failures of the past and our current leaders’ acceleration of their agenda have forced America to make this choice. So we cannot advance to the “day after tomorrow” until we decide today what kind of government we want our nation to have after tomorrow. And that is, right now, an open question.

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