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May 16, 2011 / J. Shaw

Ten Myths of Paul Ryan’s House Budget Plan

by Brian Riedl , Robert Moffit, Ph.D. and Romina Boccia ….Runaway spending and deficits continue to grow unabated in part because any attempts to rein them in are relentlessly demagogued by defenders of big government. The latest example is the budget recently authored by House Budget Committee chairman Paul Ryan (R–WI) and passed by the House of Representatives.

Most critics have failed to provide any credible alternative to the House budget. Yet that has not stopped them from relentlessly misrepresenting the House budget with the following myths.

Myth #1: The House budget recklessly cuts taxes by $4 trillion.

Fact: It cancels a future tax increase.

Critics charge that the House budget is not serious about deficit reduction because it includes a $4 trillion tax cut. This is patently false. The budget would keep tax rates at current levels. What critics call a $4 trillion “tax cut” is actually the cancellation of a $4 trillion tax increase that is currently scheduled to go into effect in 2013. Only in Washington is keeping tax rates at current levels considered a reckless tax cut. The House budget would leave tax revenues slightly above their 18 percent of GDP historical average.

Myth #2: The House budget increases the deficit by giving tax cuts to the rich.

Fact: The proposed change is a revenue-neutral tax reform plan that simplifies the tax code.

The House tax plan proposes reducing the top individual and corporate tax rates from 35 percent to 25 percent—and this is fully paid for by eliminating extraneous tax deductions, exemptions, and loopholes that currently allow some wealthy individuals and businesses to escape their fair share of taxes. Because this plan raises the same amount of revenue year by year as does current policy, it is not a net tax cut. The President’s fiscal commission endorsed similar tax reforms because these reforms would make the tax code more efficient, fair, and pro-growth.

Myth #3: The House budget represents only minor deficit reduction.

Fact: It substantially reduces both short- and long-term budget deficits.

Critics claim that the House budget cuts just $1.7 trillion out of the 10-year deficit. As stated above, this measures the House budget against a baseline that already assumes $4 trillion in tax increases—which even President Obama largely opposes. Since the House budget is relatively revenue-neutral compared to current tax policies, the main deficit reduction consists of $5.8 trillion in spending reductions over the next decade. The savings include $1 trillion from phasing down overseas contingency operations, $1.6 trillion from non-defense discretionary spending, $2.2 trillion from repealing Obamacare and block-granting Medicaid, and $1 trillion from other entitlement and net interest savings.

Overall, the House budget would run $5.1 trillion in deficits over the next decade, compared to President Obama’s proposed $9.5 trillion in deficits.

And these savings grow immensely in future decades. The Congressional Budget Office’s (CBO) long-term baseline shows runaway spending driving the national debt to 95 percent of gross domestic product (GDP) within a decade and a staggering 344 percent by 2050.[1] By contrast, the House budget would quickly stabilize the debt around 70 percent of GDP before reducing it to just 10 percent by 2050.

Myth #4: The House budget exaggerates the long-term spending challenge.

Fact: The challenge is real and potentially calamitous.

Some suggest there is no long-term fiscal crisis. This is demonstrably false. The coming retirement of 77 million baby boomers is not a theoretical projection. Social Security is already in deficit, and the trust fund represents IOUs that must be redeemed by immediately raising taxes, cutting spending, or running additional deficits. Obamacare is projected to increase federal spending by trillions of dollars over the next few decades. Small reforms like eliminating corporate welfare, ending foreign aid, or repealing the 2001 and 2003 tax cuts for upper-income families would close merely a small fraction of the long-term debt.

In reality, the CBO estimates that the absence of fundamental entitlement reform would push the debt to levels that would create an economic catastrophe.[2]

Myth #5: The House budget balances the budget on the backs of seniors.

Fact: Current and near-retirees are exempt from reforms.

Much of the attention given to the House budget has focused on the effects on retirees. However, virtually none of the $5.8 trillion in spending reductions in the first decade would affect Social Security and Medicare. In fact, seniors would benefit from averting the large tax increases planned in current law and from tax reforms that lower their rates while closing unneeded loopholes. Those currently older than age 55 would be exempt from any future changes to their Social Security and Medicare benefits.

Myth #6: The House budget would privatize Medicare and hand seniors vouchers.

Fact: Seniors would receive government support to purchase health insurance coverage on a tightly regulated government exchange system.

A “voucher” is usually a certificate of specified cash value that is redeemable for the purchase of goods or services. Under Ryan’s House budget plan, seniors would instead choose health plans and the government would make direct and adequate contributions to the premium cost of the plans of their choice. This “premium support” would go to Medicare-certified and -regulated plans that would compete in a Medicare “exchange,” which Ryan himself has described as “tightly regulated.”

In effect, this premium support system is broadly similar to the kind of system that Members of Congress and federal employees and retirees enjoy today in the widely popular and successful Federal Employees Health Benefits Program (FEHBP). As for “privatization,” virtually all participating Medicare doctors and hospitals (except public hospitals) are private, a quarter of all seniors are enrolled in private plans in Medicare Advantage, and 60 percent of seniors already purchase drug benefits through private plans in Medicare Part D. So, in effect, the House budget proposal extends the successful Part D financing model to the coverage of benefits under Parts A and B.[3]



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