What to Look for in Rep. Ryan’s 2012 Budget

How Does It Affect the Middle Class, Senior Citizens, and Economic Growth?

Michael Linden recommends evaluating Rep. Paul Ryan’s budget proposal based on how it affects key populations and economic growth.

House Budget Committee Chairman Paul Ryan (R-WI) listens to questions at the 2013 Fiscal Summit in Washington, Tuesday, May 7, 2013. (AP/Charles Dharapak)
House Budget Committee Chairman Paul Ryan (R-WI) listens to questions at the 2013 Fiscal Summit in Washington, Tuesday, May 7, 2013. (AP/Charles Dharapak)

Rep. Paul Ryan (R-WI), the chairman of the House Budget Committee, will unveil his vision for the federal budget and his prescription for bringing down our medium- and long-term budget deficits tomorrow morning at 10 a.m. Rep. Ryan will present this blueprint for the fiscal year 2012 budget as a nonbinding resolution. But it will nevertheless represent the House Republican leadership’s official position.

Early reports suggest that Rep. Ryan’s plan will likely include some very dramatic changes to existing federal programs, such as Medicare and Medicaid, as well as significant deviations from current law tax policy. These proposals have enormous implications for every single American and for the country’s economic strength.

In particular, we should pay attention to how Rep. Ryan’s budget will affect the middle class, senior citizens, and our economic growth.

How does Rep. Ryan’s budget affect the middle class?

This question should be at the top of everyone’s mind. The middle class has taken a beating over the past 10 years. Even before the onset of the Great Recession in 2007 real median household incomes (after accounting for inflation) were actually lower than at the turn of the century. As a result, the share of all income going to the middle 20 percent of American households dropped to its lowest level since at least 1979. Then, from 2007 through 2009, median household income dropped another 4 percent. Major expenses such as health care rose dramatically even as incomes fell throughout the past decade. Annual premiums for family health coverage more than doubled from 1999 to 2008.

It’s important to note that the wealthy have done quite well over this same period. Income for the richest 1 percent rose by nearly 20 percent.

Thus far, the only response the House Republican leadership is offering to the myriad challenges facing the middle class has been a proposal to slash many public services on which ordinary, middle-income Americans rely and to insist that any tax breaks for the middle class include further tax reductions for the wealthy. Will Rep. Ryan’s budget follow suit?

Watch for these three indicators in evaluating how Rep. Ryan’s budget will affect the middle class:

  • Domestic discretionary spending. This sliver of the budget, less than 15 percent this year, has been the focus of the recent debate over funding the government. It is not, however, the driver of our long-term budget deficits. Nevertheless, it is home to many of the public services on which middle-class families most depend—public education, transportation, firefighting and law enforcement, food and product safety, and public health services such as disease control. Middle-class families are likely to bear the burden if this category of spending is sharply curtailed.
  • Medicare and Medicaid. These two health care programs are absolutely critical for a middle-class lifestyle. Medicare, of course, provides vital health coverage to all senior citizens. It allows them to live a decent retirement without having to worry about bankrupting themselves or their children. And don’t discount Medicaid’s importance for the middle class. It is often thought of as a program for the very poor, but it covers the costs of nearly two-thirds of all nursing home residents—many of whom only became poor as they spent their resources on long-term care. Think about the impact on those residents’ children—most of whom are middle income—if Medicaid is no longer there to help care for their parents.
  • Tax cuts for the very wealthy. A cardinal tenet of conservative economics is that when the wealthy succeed, the middle class does, too. Unfortunately for both conservatives and the country as a whole, this idea has been proven wrong again and again. Despite the evidence, however, conservatives continue to make tax cuts for the rich one of their highest priorities. Tax breaks for top earners and for corporations certainly benefit a select few individuals and companies. But they also produce massive deficits that conservatives seek to close by slashing public services. Every dollar Rep. Ryan spends on tax cuts for the rich is a dollar he has to pay for by taking away a service that benefits the middle class since his goal is to reduce the deficit.

How does Rep. Ryan’s budget affect senior citizens?

It is well-known that a major driver of our long-term deficit is the projected growth in Medicare, Medicaid, and to a much lesser extent, Social Security. This growth is, in turn, driven in part by rising health care costs economywide and by simple demographics. As a country, we are getting older. With more people in or near retirement it will cost more to ensure that retirement is decent and healthy.

Saving significant money in Medicare and Medicaid—beyond the savings already contained in the Affordable Care Act—can only be accomplished in one of three basic ways. First, you can implement reforms designed to bring down the costs of health care systemwide. Second, you can cover fewer people with Medicare and Medicaid. And third, you can provide people with less coverage—either by raising costs for seniors or cutting the quality of and access to care.

Any “savings” Rep. Ryan’s budget claims must be evaluated based on these three options. Cuts that end up with fewer people covered or worse care will be devastating for seniors.

How does Rep. Ryan’s budget affect economic growth?

There is a clear and consistent relationship between investment and economic growth. Countries that put more resources into basic investments such as education, energy, transportation, infrastructure, and science enjoy the dividends those investments pay out for decades to come. Private investment is absolutely crucial, but public investment provides the foundation on which private enterprise can build.

So far, the Republican leadership in the House of Representatives has shown no interest in making the necessary investments to ensure future competitiveness and innovation. Will Rep. Ryan’s budget make the same mistake? Will he include room in his budget for roads, bridges, scientific research, education, and job training?

The key measure here will again be domestic discretionary levels. This is the one area of the budget that includes nearly all public investment. If Rep. Ryan dramatically scales back this category, important investments will be scaled back, too, along with our prospects for future prosperity.

Who wins and who loses?

Closing the medium- and long-term federal deficit will require making significant changes to current policies. The choices Rep. Ryan makes regarding who pays, who forgoes, and who benefits will say a lot about the Republican leadership’s priorities.

Will he choose to protect special subsidies for profitable companies while at the same time cutting services for children? Will he institute new tax breaks for the wealthy and corporations while simultaneously pushing more and more of the costs of health care onto seniors? Will he forgo spending restraint in the Pentagon while imposing it on the Department of Education?

These are the kinds of questions we need to ask, because there will be winners and losers in Rep. Ryan’s budget. Hopefully, the losers won’t be the middle class, seniors, and our economic future.

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

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Michael Linden

Managing Director, Economic Policy