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Self-Inflicted Wounds: Top 3 Reasons Ryan Plan Hurts North Carolina While Failing to Balance the Federal Budget

Over the next three months, North Carolinians will get to hear a lot about Wisconsin Congressman Paul Ryan and his plan for the federal budget [1]. Last week the Budget and Tax Center co-released a report [2] with the Center on Budget and Policy Priorities analyzing the Ryan budget and its impact on the states, including North Carolina.

Although touted by supporters as an effort to address the nation’s federal budget deficit, the Ryan budget is actually a blueprint for transforming the nation’s seven-decades-old compact on Federal taxes, public investments, and critical safety net programs, shifting the cost of key services to the poor, the elderly, and the states, while enacting large-scale tax breaks for the wealthiest Americans. Even worse, in a clear example of self-inflicted wounds, the Ryan plan doesn’t even balance the federal budget for another 30 years and inflicts significant harm on North Carolina’s economy.

Here are key points on the impact of the Ryan Budget in North Carolina:

#1.  The Ryan budget sharply reduces funding critical for keeping the North Carolina state budget in balance by cutting state support for Medicaid and other key investments by 22%—a total of $635 million next year and more than $5.6 billion over the next decade, according to recent estimates [2].  Coming on top of the 11% reduction in state spending from pre-recession levels enacted by the General Assembly since last year and an additional $2.9 billion in federal spending cuts from last year’s federal deficit reduction deal, the Ryan budget cuts key federal investments in schools, roads and bridges, safe communities, and disaster relief that would severely damage the North Carolina’s sputtering recovery from the Great Recession.

#2.  The Ryan Budget includes no new revenues, instead focusing entirely on spending cuts that shift costs to North Carolina’s seniors and the poor. Everyone supports fiscal responsibility, but deficit reduction should require a balanced approach [1] that includes new revenues and minimizes spending cuts to the safety net programs that help support the most vulnerable among us.  By refusing to include any more revenues (and in fact reducing revenues by $9.6 trillion through the tax cuts discussed below), however, the Ryan plan fails this basic test. In fact, the Ryan plan actually makes an even bigger hole in the budget, one that he attempts to fill with deep spending cuts affecting seniors and the most impoverished.

Nowhere is this more evident than with healthcare.  Medicaid is reduced by $800 billion [1], turned into a voucher program, and handed off to cash-strapped states to administer—which, given the budget shortfalls North Carolina could continue to experience, will likely translate into even deeper cuts for a program that provides critical healthcare services for lower- and middle-income families.  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 [1], 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.

#3.  The Ryan Budget raises taxes on the middle class to pay for tax breaks for the wealthiest Americans.  Ryan’s budget collapses [1] the current progressive income tax system into two brackets, in which middle-income households pay a 10% tax rate and the wealthiest Americans pay a 25% rate (a 10-percentage point drop from the Bush-era tax rate for the highest income earners).  The Ryan plan also eliminates all taxes on investment income and inheritances, which when combined with permanent extension in the Bush-era tax breaks, will result in a $9.6 trillion in tax cuts [1], the overwhelming majority of which goes to the wealthiest Americans.

In order to make the plan “revenue-neutral,” however, the Ryan plan claims to eliminate an unspecific number of equally unspecified tax loopholes, deductions, and credits.  The only way to make the Ryan proposal mathematically possible would be to eliminate key tax credits that benefit the middle class [1]—the mortgage interest deduction, the child tax credit, and deductions for higher-education.  The net result is about $265,000 in additional tax cuts to people earning over $1 million a year (giving these earners the lowest tax rates since the Hoover Administration [3]) and big tax increases for the middle class.

And most troubling of all, despite these spending cuts, the Ryan Plan’s emphasis on more tax breaks for millionaires ensures that the federal budget won’t even balance until 2040 [1].  These are nothing more than self-inflicted wounds for North Carolina’s budget and struggling economy.