There He Goes Again

Paul Ryan is at it again.

He has unveiled his new plan to cut government spending. It looks a lot like his old plan. Fiction writers like Ryan try to cultivate a loyal following by sticking with popular characters and themes. In Ryan’s case the theme is to ensure that the poor get hammered and the rich get lots of goodies. His first and much ballyhooed budget was a classic of class warfare. This next piece of work takes that same theme and expands upon it. It will no doubt become an instant classic of the genre.

This version – let’s call it Ryan II – takes as its starting point the current annual federal deficit, Ryan uses the latest CBO figure of just under $1 trillion, and projects a balanced budget in ten years. He accomplishes this by cutting spending by $4.6 trillion and while leaving taxes untouched. The cuts are front loaded: the deficit in 2014 is projected at $528 million, and that in 2016 at $69 billion after which the deficit bounces around until it shifts into a tiny surplus in 2023.

The cuts are draconian. They fall mainly on health care. Medicaid is a favorite target of the right – it funds care for the poor so why not? – and so is slashed. Then there’s the somewhat bizarre proposal to eliminate Obamacare, presumably before people realize what a good deal it is for them, but still keep the bit that cuts Medicare costs. These are the bits, you may remember, that Ryan attacked during the election as defunding Medicare. So Ryan II attacks Obamacare while keeping one or two of its cost cutting components.

The good news for our elderly is that Ryan II postpones the elimination of Medicare for ten years. Presumably this is so as to avoid annoying voters between the ages of 55 and 65. After ten years, though, we will get the original Ryan I plan to make Medicare a voucher program. This ends Medicare as we know it and substitutes it with a program wherein the government sends seniors a voucher to help them buy insurance from a private insurance company. There is no guarantee of service, and if the cost of insurance is higher than the value of the voucher seniors will have to dig into their retirement income to pay for it. Under Ryan I it was a total certainty that the vouchers would not cover all costs. Ryan II simply confirms this. So  this budget saves government spending by shifting the cost of insurance back onto the backs of retirees. It doesn’t actually cut health care costs, it shifts the burden onto our elderly. Just not yet. I suppose the ten year abeyance is designed to allow everyone to save much more so they can afford health care in retirement. Good luck with that.

The objective of the budget proposal is to arrive at a balance with both spending and revenues roughly 19.1% of GDP. To put this in perspective: spending peaked at 25.2% of GDP in 2009 while revenues bottomed out that same year at 15.1%. Since then, as the recovery gained momentum, revenues have recovered slightly and were 15.8% of GDP in 2012. Meanwhile spending dropped to 24.1% of GDP. The forecast for 2013 shows a much more rapid improvement with revenues rising to 17.8% and spending falling to 23.3% of GDP respectively. Indeed, according to the CBO, revenues hit Ryan II’s target of 19.1% by 2016 under current policy. In historical terms that level of revenue is about 1.0% less than the levels we saw at the end of the Clinton administration.

So the onus is all on spending cuts. Not only that but rapid cuts. Ryan II slashes a full 5.0% in just two years. This is a major austerity program, and will have a very significant negative effect on the economy. To put the impact in context we are expecting GDP growth of about 2.5% this year and maybe 3.3% next. That’s before any downward adjustment from the sequester cuts now beginning to bite. Were Ryan II to be implemented there is a high probability that we would edge close to recession sometime in the next two years.

Ryan clearly is aware of this and so litters his press releases with dismissals of any notions of austerity. Cutting spending is good for the economy, we are told, because it engenders confidence, good will, and lots of private sector energy. Enough, anyway, to offset the loss of spending by the government.

This is, of course, rubbish.

For an example of how terrific austerity policies are I direct your attention across the Atlantic to Britain where a variant of Ryan II has been in place for a few years now. How well is all that confidence, good will, and private sector energy going? Well, not good at all. Britain holds the dubious record of being on the precipice of a triple dip recession. That takes some doing. Worse: the Conservative government denies culpability and still clings to the absurd, and surely debunked, notion that austerity is a good policy. All the evidence suggests it isn’t.

Then there’s Europe. The less said the better. European austerity programs have also been an unmitigated failure. Yet they plod on imposing squeeze after squeeze in a vain attempt to locate the magic of confidence, good will, and private sector energy.

The odd thing is that confidence, good will, and private sector energy all vaporize in the face of austere policies. Policy makers whose reputations depend on being serious deficit cutters and austerity advocates – Ollie Rehn in Europe, and George Osborne in the UK come to mind – have all been shown to be wrong. They have wreaked havoc on their economies and done great harm to tens of millions of innocent bystanders whose lives have been wrecked at the altar of confidence, good will, and private sector energy. But they haven’t changed their minds. They put ideology and personal ego ahead of social welfare.

So it is is with here.

Ryan II is not a plan designed to address the budget deficit. It is a plan to get rid of our social programs. It achieves its goal by making a vast number of poor or sick people poorer and sicker. It leaves rich people better off and it hands more profit to big businesses.

It is not a balanced budget. It is not even a budget at all. It is out and out class warfare.

As such it is a perfect manifestation of contemporary Republicanism.

Then again, it gives the media something to talk about. No doubt Ryan will once again receive plaudits for offering a ‘serious’ plan, and for being ‘bold’.

Oh. One last thing.

Ryan II cuts the top rate of personal tax to 25%, down from its current 39.5%, whilst claiming that tax revenues will remain unaffected. It does this by eliminating loopholes and other sundry tricks. Ryan, as before, doesn’t actually tell us which loopholes of which tricks. Perhaps this is because they include the elimination of popular deductions like those for the interest on mortgages, and for state, local, and property taxes. So while taxes would go down for the very rich, they would likely go up for people lower down the wage earning totem pole. It’s hard to tell though. Ryan II is silent on details. We are left guessing.

And waiting for the sequel. Maybe Ryan III will tell all. Maybe not.