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RELEASE: How the Ryan Budget Fails Our Economy by Failing Economics

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Contact: Madeline Meth
Phone: 202.741.6277
Email: mmeth@americanprogress.org

Washington, D.C. – According to a new analysis released today by the Center for American Progress, the latest House Republican budget is not just contrary to progressive values, but it is also stems from flawed economic logic.

“Because Rep. Ryan’s fervent commitment to trickle-down economics is the framework of his latest budget, his proposal not only fails to address our economy’s actual issues, but is based on discredited economic theories,” said Harry Stein, Associate Director for Fiscal Policy at the Center for American Progress.

In “How the Ryan Budget Fails Our Economy by Failing Economics,” budget expert Harry Stein and economist Michael Madowitz unpack the Ryan budget’s policy mistakes from it’s fundamental misunderstanding of supply and demand to it’s more subtle policy flaws.

According to the analysis, as he did when there were 15.2 million, 13.7 million, 12.7 million, and 11.7 million Americans unsuccessfully trying to find jobs, Rep. Ryan looked at the 10.5 million Americans who were actively looking for work in February 2014 and somehow found a lack of labor supply. Economists have not been in greater agreement about the challenges the economy faces in at least a generation: The country has a shortfall in aggregate demand and has since Rep. Ryan started proposing budgets. The harsh austerity measures in each Ryan budget are sold as the way to get America moving, even though this is the exact opposite of what textbook economics calls for to address a demand shortfall. Unsurprisingly, the Congressional Budget Office, or CBO, projects that this latest budget will actually shrink the economy for the next three years

Other policy mistakes in the budget go beyond a basic misunderstanding of the supply in demand, but are no less damaging. The Ryan budget redistributes income upward, reducing demand and increasing drag on our slow recovery. It also proposes the block granting of assistance programs, making future recessions more severe.

Just like earlier Ryan budgets, this year’s budget makes reducing the top tax rate a centerpiece of its economic agenda. This delivers an enormous windfall to the wealthiest Americans, whose tax rate would fall from 39.6 percent to 25 percent. In addition to the top 1 percent, corporations are also big winners. Rep. Ryan proposes cutting the corporate tax rate from 35 percent to 25 percent. An analysis by the Institute on Taxation and Economic Policy finds that the average millionaire would get a six-figure tax cut from the Ryan budget.

“Like Rep. Ryan’s past budget, this year’s proposal should not be taken seriously by anyone who sat in on Econ 101,” said Michael Madowitz. “The budget relies on a simplification of economic theory that hasn’t held up in the real world, and even if it did, it still wouldn’t fit the reality of our economy’s current problems.”

Related resources:

To speak to experts on this issue, please contact Madeline Meth at mmeth@americanprogress.org.

 

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