Two weeks ago, U.S. House Budget Committee Chairman Paul Ryan (R-WI) unveiled his long-awaited proposed Federal budget for FY 2013. Ten days ago, this budget passed out of the Budget Committee by a single vote, and less than one week ago, the entire House of Representatives agreed along a party-line vote to adopt the Ryan plan.
And after two weeks of intense scrutiny and heated debate, the budget doesn’t look any better for working families than it did the day it was released—the House budget couples deep tax cuts for the wealthiest people in America with even deeper spending cuts to everything from Pell grants to highways to healthcare. It represents a fundamental transformation of the role played by the Federal government in the nation’s economy, will likely increase income inequality, and it doesn’t even manage to balance the budget until 2040.
Revenues. On the revenue side, not only does the plan refuse to raise any new revenues, it actually proposes to dramatically reduce them. The plan extends the Bush tax cuts permanently for a cost of $5.4 trillion over ten years, and then cuts an additional $4.6 trillion in taxes by collapsing the current progressive tax code to two rates—a 25% rate and a 10% rate, which will end up providing an additional $265,000 in tax cuts to people earning over $1 million a year and giving these earners the lowest tax rates since the Hoover Administration.
Despite these deep cuts to revenues, Ryan has claimed that this revenue plan will actually be revenue neutral—e.g., it will result in no net loss of revenue—due to closing tax loopholes and eliminating tax expenditures. Unfortunately, he neglects to provide any real specifics on the tax expenditures he’d eliminate and the loopholes he’d close. In order to find sufficient revenue to offset the costs associated with his tax cuts, Congress would have to eliminate some of the most popular tax policies, like the Mortgage Interest deduction, the Child Tax Credit, the business deduction for health insurance, and deductions for student loans. Ryan’s only exception to closing loopholes: his budget keeps the preferential treatment for investment income, taxing capital gains at a lower rate than ordinary income.
In order to finance these tax cuts—most of which would clearly benefit the wealthiest Americans—the budget proposes unprecedented cuts to discretionary and mandatory spending. The budget cuts include:
Medicaid is reduced by $800 billion, turned into a voucher program, and handed off to cash-strapped states to administer—which, given the budget shortfalls many states are experiencing due to the sluggish economic recovery, will likely translate into even deeper cuts for a program that provide critical healthcare services for lower- and middle-income families. Moreover, the budget eliminates the Medicaid expansion funding provided in the Affordable Care Act, in effect reducing the program’s overall funding by one-third.
Medicare, the healthcare program for seniors, is converted into a “premium support” program for workers younger than 55. In effect, this premium ends guaranteed medical care for seniors, and instead replaces this guarantee with a voucher that will help seniors pay for their own personal insurance on the private market. It is likely that this transformation will result in pushing premiums beyond the ability of many seniors to afford insurance at all.
Nondefense discretionary spending—programs like K-12 education, transportation, scientific research, and food safety—are cut by $1.2 trillion, while defense spending is increased by $200 billion, effectively eliminating the defense cuts contained in last year’s Budget Control Act.
Non-health mandatory spending—programs like Food Stamps (the Supplemental Nutrition Assistance Program, or SNAP), Pell grants, federal workers’ pensions—were cut by $300 billion. The budget also contained an additional $900 billion in unspecified spending cuts to this account—there’s that lack of specificity again—which must come from safety net programs like Temporary Assistance to Needy Families, school lunches, and other programs that directly benefit the poorest American.
Taken together, these spending cuts will transform the scope and scale of the nation’s safety net and shrink the share of the government’s role in the economy to 16%, a level last seen in 1950. At the same time, the proposed tax cuts will serve to dramatically distribute wealth upwards to those that already have it and increase income inequality with those who do not.
This reverses a long-standing bi-partisan commitment to ensuring that deficit reduction that does not occur on the backs of the nation’s most vulnerable.
After two weeks of looking at the Ryan plan, it is clear that this budget is less an exercise in fiscal discipline and more an attempt to reduce the role of the Federal government in the nation’s economic life to a level not seen since before World War II.