The Paul Ryan Non-Budgets

8/13/2012 07:34:00 AM
What is in a budget? It sounds like a silly question, but in light of Romney's choice of VP, a highly relevant one. Every year, Congress is supposed to pass a budget, but why? It does not set tax rates per se--that is done through other bills. It doesn't necessarily authorize the treasury to spend money--that is done in the debt ceiling votes. It does not create or define the programs that need money to function--that is done when congress passes spending bills. We didn't always have a budget--it is an invention of the post World War II era. Nay, a budget is something on top of all these spending authorizations, debt ceiling increases, and tax bills. It is a stop-gap, an annual review of the nation's finances that modern government finance rules require Congress to pass before the treasury can finance the government in full. The point is to lay out the history of public spending and revenues, the current year's spending allocations and revenue sources, and a plan for the future. We expect specific numbers based on the best of all possible evidence, and realistic, detailed, and fully enumerated plans for future spending.

In otherwords, a budget is everything that the Ryan non-budgets for the past two years weren't. Here is a reprint of some of an email I sent a while back on the problems in Ryan's non-budget:

Some facts about the Ryan plan:
The plan included replacing medicare (which pays for medical care directly) with a lump-sum voucher, and mandating that the voucher be spend only on private health insurance, not medical care. First of all, this has nothing to do with the deficit because medicare is funded out of its own trust fund and not formally part of the federal deficit. Second, the total savings to the government from this plan is very slight--the sum cost of the vouchers in Ryan's plan is only slightly less than what we would spend on the current medicare system. So really the only effect of the change is that instead of being able to spend their medicare money directly on medical care, Ryan would mandate that they use it to buy private health insurance which would then pay for medical care. The problem with this is that the medicare spending would go from the current system that pays around 80% of all medical costs for seniors to a voucher system that pays only 35% of medical coverage. And not to be too repetitive here, but I need to highlight this--Ryancare would worse than halve senior's benefits with almost no reduction in Federal medicare spending.
Now about those magical asterisks: 
Currently discretionary spending (that is, not medicare, medicaid, and social security) is about 12% of GDP. The Ryan budget projects that that under his "plan" that would fall to 3% of GDP by 2050, without ever specifying what would be cut to make that happen. To give an idea of exactly how anarchist that 3% proposal is, in 2009 defense spending alone was 4.7% of GDP. There is absolutely no discussion in the budget on how we would reduce government spending by that much, yet we can't achieve any of the reduction of the national debt that it calls for unless spending does fall that much. 
Then there is the \$3 trillion revenue unicorn. Right after proposing tax cuts that according to the official Congressional Budget Office scoring of Ryan's proposal will reduce revenues by \$3 trillion this decade (bigger than the Bush tax cuts--largest tax cut in history), Ryan's budget declares itself to be "revenue neutral." He assumes that as soon as the budget is enacted the economy will take off, the unemployment rate will instantaneously drop by 2% and then keep falling, and revenues will rise instantaneously by \$33.8 billion, with future revenues rising even more, despite lowering taxes to less than any time since FDR. Let me just add that while most of Bush's tax cuts went to the wealthy, he did also lower taxes a bit for everyone else. Ryan doesn't waste his time with that crap--all of the Ryan tax cuts, 100%, go to corporations and the top tax brackets. Nothing for the middle class. Period.
Finally, we have the unemployment unicorn. As you may have noticed now, the Ryan budget crucially depends on an unexplained, spontaneous, but truly massive amount of economic growth instantaneously happening upon passage of the plan. To give an idea of how extraordinary this growth would have to be, the Ryan budget actually "forecast" unemployment to fall to less than 2.8% by 2021. I'd try to put that in historical perspective but I'm not sure I can. The unemployment rate came close to that during world war 2 when more than 10% of the population was enlisted and fighting in Europe and the South Pacific, and most of everyone else was employed in government war factories. Generally, unemployment never falls below 4% to 5%. Part of the reason is that really low inflation causes inflation to accelerate (and world war 2 was no exception), so in that sense Ryan was also projecting hyperinflation by 2021.