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Latest House Budget Plan Adds to Federal Debt

Don’t Be Fooled by Rep. Ryan’s Sleight of Hand

SOURCE: AP/ Jacquelyn Martin

A real analysis of Rep. Paul Ryan's (R-WI) budget proposal reveals that despite claims to the contrary, the budget does not reduce the national debt over the long term.

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The latest House Republican budget plan asks low-income and middle-class Americans to shoulder the entire burden of deficit reduction while simultaneously delivering massive tax breaks to the richest 1 percent and preserving huge giveaways to Big Oil. It’s a recipe for repeating the mistakes of the Bush administration, during which middle-class incomes stagnated and only the privileged few enjoyed enormous gains.

Each component of the new House Republican budget threatens the middle class while doing nothing to add jobs or grow our economy. It ends the guarantee of decent insurance for senior citizens, breaking Medicare’s bedrock promise. It slashes investments in education, infrastructure, and basic research, all of which are key drivers of economic growth and mobility. And it cuts taxes for those at the top, asking the middle class to pick up the tab. It’s a budget designed to benefit the top 1 percent at everyone else’s expense.

The House Republican budget plan released today would not restrain the growth of the national debt. In fact, if implemented, the actual policy proposals laid out in the plan would result in publicly held debt rising from about $10 trillion this year to more than $22 trillion by 2022. Under their proposal, within 10 years we will be spending more on interest payments on the debt than we will on Medicare.

If this weren’t bad enough—completely failing at the one thing it claims it will do—the House budget plan utterly rejects the balanced approach to deficit reduction embraced by every bipartisan budget plan, and by the American people, making the plan’s claims of fiscal responsibility all the more flimsy.

Supporters of the newly released House of Representatives budget resolution, designed by Budget Committee Chairman Paul Ryan (R-WI), claim that it will dramatically reduce the national debt, especially as compared to a future in which we maintain all our current spending and tax policies. But those claims do not match up with the reality of the specific policy proposals contained in the budget plan, especially on the revenue side of the balance sheet.

In their budget, Rep. Ryan and his colleagues call for massive new tax cuts for the richest Americans and for corporations, on top of extending all of the Bush tax cuts. These new tax cuts include:

In total, the House budget plan contains almost $5 trillion in new tax cuts, on top of the cost of extending all the Bush tax cuts. And yet, somehow, it still claims to raise an average of 18.3 percent of gross domestic product—the broadest measure of overall economic activity in the country—in overall revenue. How is that possible? Proponents argue that they will make up for the lost revenue by “broadening the base,” but the budget itself does not name a single existing loophole, deduction, credit, or exemption that it would change in any way. In other words, the House budget contains trillions in specific tax cuts, but no specific way to pay for them.

But the House budget’s entire claim to deficit reduction is built on the foundation of those fantasy revenue levels. Without them, the debt goes up, not down. In fact, with all the House budget’s tax cuts properly accounted for, revenue would average just 15.3 percent of GDP from 2013 through 2022, not 18.3 percent. The result: deficits would never drop below 4.4 percent of GDP, and would rise to more than 5 percent of GDP by 2022.

The national debt, measured as a share of GDP, would never decline, surpassing 80 percent by 2014, and 90 percent by 2022. By comparison, President Barack Obama’s budget proposal, released in February, would stabilize the debt by 2015, and bring it down to 76 percent by 2022.

The “debt reduction” in the House budget is also dependent on massive, unrealistic spending cuts. In the first 10 years alone, Medicaid would be cut by more than $1 trillion. Education and workforce training would be slashed almost in half. Transportation funding would be reduced by nearly a quarter. These would be devastating, economically and morally.

Fortunately for Americans, there is little chance that these draconian cuts will actually become law. That’s because the House budget plan utterly rejects the only approach to budgeting that has been shown to garner the bipartisan support necessary to pass Congress—a balanced approach that includes both modest spending cuts along with modest revenue increases.

Consider the plan offered by Alan Simpson and Erskine Bowles, the bipartisan chairmen of the president’s 2010 fiscal commission. That plan included trillions of dollars in deficit reduction, culled from both the spending and the revenue sides of the ledger. President Obama’s latest budget proposed spending and revenue levels that were broadly similar to the Simpson-Bowles plan.

The House budget, in contrast, looks nothing at all like the Simpson-Bowles plan. Whereas Simpson-Bowles would bring spending down to just under 22 percent of GDP by 2020, the House Budget would slash spending all the way down to 19.5 percent of GDP. Simpson-Bowles suggested revenues at 20 percent of GDP for 2020. Even with their fantasy revenue levels, the House Budget is only at 18.5 percent. Their real revenue level for 2020 is closer 15.5 percent.

And don’t be confused when proponents of the House budget plan point to a new Congressional Budget Office report that purports to show the debt dwindling down to nearly nothing by 2050. That report is not an evaluation of the House budget. As the CBO itself warns, the numbers in its report, “do not represent a cost estimate for legislation or an analysis of the effects of any given policies. In particular, CBO has not considered whether the specified paths are consistent with the policy proposals or budget figures released today by Chairman Ryan as part of his proposed budget resolution.”

In other words, the CBO did not test Rep. Ryan’s claims about how his policies would actually affect spending or revenue. It merely showed what would happen to the debt if his claims were true. And since we already know, based on his tax proposals, that those claims are false, the CBO report tells us little or nothing about the budget plan’s real impact on deficits.

The actual proposals contained in the House budget plan will not reduce the debt. If passed, they would result in a massive tax cut for the rich, and huge cuts to critical services like Medicaid. That puts the House Republican budget far outside the mainstream of budget proposals and more importantly, the combined effect of the House’s budget policies would be to increase the debt.

Michael Linden is Director of Tax and Budget Policy at the Center for American Progress.

Endnotes

[1] Estimate based on Internal Revenue Service Statistics of Income data, calculated by the author and Seth Hanlon, Director of Fiscal Reform. In 2009, the latest year for which data is available, about $1.9 trillion of income was taxed at the 15 percent rate. Therefore, reducing the marginal tax rate on that amount of income from 15 percent to 10 percent would have resulted in a nearly $100 billion revenue loss. The 10-year cost was scaled up in proportion to nominal growth in gross domestic product.

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