The Paul Ryan Week That Was, Week Two

Paul Ryan’s “A Roadmap For America’s Future” website

Tim Fernholz at Tapped:

Republican Rep. Paul Ryan was in the news earlier this year after releasing a budget designed to eliminate the deficit and federal debt. Many argued that, though it contained radical changes in Social Security and Medicare as well as draconian budget cuts, it also represented a good-faith effort to make hard choices about the budget. But several new analyses show that not only is the plan incredibly regressive, it fails to actually solve the debt problem. Here’s your background on the issue:

  • Ryan’s Plan:A Roadmap for America’s Future” [PDF] was released in January; it promises major changes in social insurance, tax policy, and spending cuts that would cut deficits and gradually eliminate the national debt.
  • Tax Policy Center Analysis: However, the respected Tax Policy Center highlighted an important problem [PDF] in these calculations: The expected tax-revenue figures — approximately 19 percent of GDP — were assigned arbitrarily. When TPC ran the numbers, they found that Ryan’s plan was billions of dollars short and would also result in extraordinary regressive tax policy, with large cuts for the wealthy but tax increases [PDF] for almost everyone else.
  • Center on Budget and Policy Priorities Analysis: The CBPP took the TPC analysis and went one step further, looking at the impact on other government programs, noting that the plan “would eliminate traditional Medicare, most of Medicaid, and all of the Children’s Health Insurance Program (CHIP).” It’s funding for private Social Security accounts “would leave the program with a deep financial hole.”
  • The President’s Budget: For comparison, here is the Congressional Budget Office’s analysis of President Barack Obama’s preliminary budget proposal, which, while it does not purport to eliminate the deficit and the debt, it does propose the (barely) feasible goal of lowering the deficit to the point where the national debt is sustainable.

You can argue whether this cost control is better or worse than other forms of cost control. But it’s a blunt object of a proposal, swung with incredible force at a vulnerable target. Consider the fury that Republicans turned on Democrats for the insignificant cuts to Medicare that were contained in the health-care reform bill, or the way Bill Clinton gutted Newt Gingrich for proposing far smaller cuts to the program’s spending. This proposal would take Medicare from costing an expected 14.3 percent of GDP in 2080 to less than 4 percent. That’s trillions of dollars that’s not going to health care for seniors. The audacity is breathtaking.

But it is also impressive. I wouldn’t balance the budget in anything like the way Ryan proposes. His solution works by making care less affordable for seniors. I’d prefer to aggressively reform the system itself so the care becomes cheaper, even if that causes significant pain to providers. I also wouldn’t waste money by moving to a private system when the public system is cheaper. But his proposal is among the few I’ve seen that’s willing to propose solutions in proportion to the problem. Whether or not you like his answer, you have to give him credit for stepping up to the chalkboard.

Ramesh Ponnuru at The Corner:

I don’t share the liberal objections to it, particularly those that assume that his reforms would have no effect on medical inflation and then complain that he would leave people unable to keep up with it. I do, however, think that his tax proposal is flawed. The alternative, simpler tax structure he would allow people to opt into would have a child allowance smaller than current law, which already makes it too small. The effect would be to shrink the overall tax burden but to leave families with children paying a larger share of it. I think that this is lousy politics and policy, although one that Representative Ryan could easily correct.

Our entitlement programs overtax families with children. People who make the financial sacrifices needed to raise children are paying twice for those entitlements, both via their payroll taxes and via those sacrifices. Those who don’t have kids benefit in retirement from the fact that others have made those financial sacrifices. The tax credit for children should not be considered a special-interest tax break that we should try to move away from. It should be seen, rather, as a partial corrective to the bias against children in federal fiscal policy — and it should be expanded in order to provide a complete offset.

Jake Sherman at Politico:

Last Friday, Rep. Paul Ryan looked like President Barack Obama’s new Republican best friend. The president showered praise on everything from his substantive budget proposal to his family during the now-legendary question-and-answer session with House Republicans.

But rather than opening a hopeful new avenue for bipartisanship, the White House and Hill Democrats quickly went to work ripping apart Ryan’s “Roadmap for America’s Future” — which Obama himself said he had read.

Democrats accused the Wisconsin Republican of trying to privatize Social Security, cut taxes for the rich and increase them for the middle class. Medicare would be allowed to “wither on the vine.” Here we go again, Rep. Xavier Becerra (D-Calif.) said Thursday of Ryan’s proposal. On Capitol Hill, Office of Management and Budget Director Peter Orszag deconstructed the plan, saying it would address long-term fiscal problems but in a way that many policymakers might find “objectionable” because it would shift risks and costs onto individuals and their families.

In just a week, Ryan had gone from being seen as the smart conservative whom Obama might take seriously to being seen as the symbol of how Democrats believe Republicans would dismantle the social safety net if the GOP took control of Congress.

Republicans believe the criticism was a setup.

Matthew Continetti at The Weekly Standard:

Key fact: Ryan’s plan preserves the current entitlement system for everyone over the age of 55. The rest of us will see dramatic changes in the structure of Social Security, Medicare, Medicaid, and the tax code–changes the CBO says will solve the long-term budget problem, in ways that increase individual choice and limit government’s scope. If nothing is done, America faces high interest rates, inflation, and economy-crushing tax rates. Is this the future Democrats prefer? After all, they have provided no alternative way to achieve the Roadmap’s outcomes.

Why is the assault on Ryan irresponsible? Because Democrats are pretending that America’s future budget obligations aren’t a serious problem. They have no proposals to limit the growth in entitlements other than phantom reductions in Medicare reimbursement rates, a parodic “spending freeze,” and independent commissions whose recommendations Congress will probably ignore. Democrats clearly hope they can preserve their majorities by demagogic attacks on Ryan. Meanwhile, the crisis approaches.

Obama has no ideas to balance the budget. Ryan has a big one–one that nonpartisan analysts say would work. Thus, he’s now a target.

More Continetti at TWS:

Liberals have seized on the Roadmap in order to say that Republicans want to leave seniors in the cold. Today, the Wisconsin Democratic party organized a conference call, featuring Democratic Rep. Xavier Becerra of California and left-wing economist Dean Baker, devoted entirely to attacking Ryan and his plan. (Ryan participated in a conference call of his own to respond.) Meanwhile, the liberal Talking Points Memo website reports that House Democrats are planning to hold a vote on a resolution condemning the Roadmap and other attempts to introduce personal accounts into Social Security. This week’s blizzard interfered with the Democrats’ plans, however. Now the vote is up in the air.

The critics make two specific charges against Ryan’s plan. One involves revenues. It’s true that the Congressional Budget Office (CBO) did not score the revenue side of the Roadmap. (It would reduce the current six tax brackets to two, replace the corporate income tax with a business consumption tax, and eliminate the Alternative Minimum, dividend, capital gains, and estate taxes.)

But that’s because macro-economic volatility makes it close to impossible for the CBO to estimate revenues in, say, 2070. Instead, the CBO assumed that in the long-term, the Roadmap’s revenues would be similar to the historical average of 19 percent of GDP. You can agree or disagree with that assumption, but it seems fair enough to me — especially considering the growth potential of Ryan’s tax reform.

The second charge against the Roadmap is that “ends Medicare as we know it.” Yes, but only for Americans 55 or younger — these are the same people, in other words, who face a fiscal nightmare as entitlement spending surges in the coming decades and Medicare and Social Security become insolvent.

Expect liberals to focus heavily on Ryan’s “cuts” to Medicare. The Ryan camp’s response is that these are a far cry from the Medicare cuts in the Democratic health care reform. The $500 billion in cuts there would affect current beneficiaries — Ryan’s do not. Moreover, in the Democratic health bill, the cuts to Medicare would be pocketed and used to pay for … another entitlement!

Stephen Spruiell at NRO:

Ryan has put a credible plan on the table. It isn’t perfect, but no plan for controlling the cost growth at the heart of the entitlement problem is going to be uncontroversial. As Ryan put it to me, “If we are going to get serious about controlling costs, then either the individual is going to be in control of their health-care decisions or government is going to be in control.” Putting the individual in control sounds like the no-brainer choice, but in the past voters have expressed a preference for less risk, not more control, when it comes to their post-retirement well-being. Getting Republicans to embrace the politically perilous task of explaining to people that the status quo entails more risk, not less, will be no easy feat.

For now, the GOP leadership wants to proceed along two tracks: Stay away from big, specific reforms until the most dangerous items on the Democrats’ agenda have succumbed to the politics of the election cycle; and, meanwhile, develop a “Contract with America”–style set of positive agenda items on which to run. The plan is to pivot to this second track at some point between now and November. But details about this new contract have not been forthcoming. Will it include a specific plan for getting us out of the debt trap? Or will it eschew these for broad platitudes, so that the focus stays on the Democrats’ unpopular agenda?

The desire to remain vague is understandable as long as there is a threat that Obamacare might pass. And the political dangers of including something like the Ryan plan in the platform for 2010 are clear. But here’s the contrarian case:

The Democrats have already put forward a health-care bill that cuts Medicare, complete with the rationing board that inspired Sarah Palin’s memorable bit of resonant hyperbole. Medicare cuts are on the table, and we know how the other side would do it: price controls that force providers to leave the system and a federal apparatus that thinks it knows better than you or your doctor what treatments you need.

The Ryan alternative — reduced spending, but in voucher form, which allows patients to comparison-shop on quality and price —would likely prove to be effective at controlling costs, balancing out the spending reductions. And if we do nothing, we’ll get Medicare cuts anyway, in the context of a debt crisis that leaves us with no choice but to ration care.

Politicians do not generally consider elections to be good times for serious conversations about the nation’s problems. This year, the nation’s problems are so great that it’s possible the calculus has changed. If they want to appeal to the growing number of Americans whose heads are spinning at the size of Obama’s deficits, Republicans might need to start that conversation. Ryan’s plan provides as good a starting point as any.

Ramesh Ponnuru at The Corner, answering Spruiell:

Many Republicans have complained that President Obama’s agenda is too ambitious: that it attempts to do too many things at once, indeed to transform America. Conservatives have said that health-care reform should take the form of modest steps that reduce our problems with cost, access, and portability rather than an attempt to have Congress rationalize the entire system. Rep. Ryan’s plan is the mirror image of Obama’s agenda. It attempts to move America in a free-market rather than social-democratic direction, and I support that goal; but it is just as transformational, just as ambitious, just as immodest. I don’t think that the public, or the political system, can bear this type of comprehensive change. Nor do I believe the public really wants our politicians to offer a complete 100-year solution to making entitlements solvent; I suspect it would need them to prove first that they are equipped to make headway against the problem before it would trust anything so sweeping.

Rep. Ryan’s plan is a great way to provide the conservative movement with long-term goals, but it is not a practical agenda for incremental progress, and that’s what conservatives need more urgently.

Howard Gleckman at Tax Policy Center:

However, TPC found Ryan’s plan generates much less revenue than he projects. If all taxpayers chose the simplified system, it would produce about 16.8 percent of GDP by 2020, far below the 18.6 percent he figures for that year. If taxpayers chose the system most favorable to their situation, the Ryan plan would produce even less revenue—about 16.6 percent of GDP.

What does that mean in dollars? CBO’s most realistic projection of revenues (assuming  most Bush tax cuts are extended and many middle-class families continue to be exempted from the Alternative Minimum Tax)  figures the existing tax system would raise about $4.2 trillion in 2020. By contrast, Ryan’s plan would generate about $3.7 trillion, or $500 billion less in that year alone.

While TPC didn’t model the Ryan plan beyond 2020, the pattern of revenues it generates suggests it would be decades before it reaches his goal of 19 percent of GDP—very likely sometime after 2040.

Top-bracket taxpayers would overwhelmingly benefit from Ryan’s tax cuts. By 2014 people making in excess of $1 million-a-year would enjoy an average tax cut of more than $600,000. To put it another way, their after-tax income would rise by nearly 30 percent.

By contrast, the average taxpayer making $75,000 or less would pay higher taxes if they  chose Ryan’s two-rate alternative. If they chose the tax plan more favorable to them, they’d do a bit better. For instance, people making between $50,000 and $75,000 would typically get a tax cut of $157 in 2014, while those making between $40,000 and $50,000 would pay $128 more on average.

These estimates are subject to lots of uncertainty. For instance, we assumed Ryan’s 8.5 percent VAT—the new business tax—would generate about 4.3 percent of GDP in revenues. TPC’s Joe Rosenberg, who modeled the Ryan plan, believes that estimate is generous. But since no such tax currently exists, it is hard to know for sure.

One other caveat: TPC did not assume that taxpayers would change their behavior in response to this new tax structure. We know they would, of course, in some ways that would generate additional revenue and in others that would lose revenue. But because these changes are so uncertain, TPC did not include them in our revenue estimates.

As I’ve written before, Ryan deserves kudos for highlighting the nation’s fiscal challenges and putting out a real deficit reduction plan. But it is hard to see how this one adds up.

Paul Ryan:

The Tax Policy Center has completed a 10-year revenue estimate of “A Roadmap for America’s Future” that suggests that the tax reforms would raise slightly less revenue than claimed.  With respect to TPC’s analysis, Congressman Paul Ryan issued the following statement:

“I appreciate the Tax Policy Center’s effort to advance the debate on our need to get a grip on the explosion of spending and put the government on a sustainable path.  Our nation’s fiscal crisis is the result of Washington’s unsustainable spending trajectory, not from a lack of sufficient revenue.

“The tax reforms proposed and the rates specified were designed to maintain approximately our historic levels of revenue as a share of GDP, based on consultation with the Treasury Department and tax experts.  If needed, adjustments can be easily made to the specified rates to hit the revenue targets and maximize economic growth.  While minor tweaks can be made, it is clear that we simply cannot chase our unsustainable growth in spending with ever-higher levels of taxes.  The purpose of the Roadmap is to get spending in line with revenue – not the other way around.

“I look forward to continuing the dialogue with the Tax Policy Center and working with my colleagues in Congress to advance real solutions to our fiscal crisis.”

The following additional points should be considered when interpreting these results:

1) The Tax Policy Center’s revenue analysis of the Roadmap is not an “official” score of this plan.  The Joint Committee on Taxation (JCT) is responsible for providing the official revenue score of legislation before Congress.

2) The Roadmap’s revenue baseline was constructed last year, using CBO’s long-term “alternative fiscal scenario.”  This baseline incorporated an economic forecast from early 2009.  Since that time, economic forecasts have generally been lowered, which would tend to cause lower-than-predicted revenues over the near term.  The Tax Policy Center’s revenue analysis of the Roadmap uses an updated economic forecast from the one originally used to construct the Roadmap revenue baseline.  The different economic assumptions in these baselines likely explain a portion of the lower revenue prediction.

3) The Tax Policy Center analysis covers a 10-year period, but the Roadmap is a long-term plan with spending and revenue projections covering 75 years.  As such, the analysis is not consistent with the long-term horizon of the plan.  Staff originally asked CBO to do a long-term analysis of both the tax and spending provisions in the Roadmap.  However, CBO declined to do a revenue analysis of the tax plan, citing that it did not want to infringe on the traditional jurisdiction of the JCT.  JCT, however, does not have the capability at this time to provide longer-term revenue estimates (i.e. beyond 10 years).  Given these functional constraints for an official analysis, staff relied on its original work with the Treasury Department and other tax experts to formulate a reasonable expected path for long-term revenues given the tax policies in the Roadmap combined with the economic growth projections available at the time.

J.D. Foster at Heritage:

The TPC analysis is a good first step, but critically leaves out some important information on economic effects. By way of analogy, imagine the Congressional Budget Office providing an analysis of health care reform and ignoring any references to the consequences for health care costs or whether the ranks of the uninsured would rise or fall. Policymakers want to know if the legislation would “bend the curve” and that it substantially reduces the ranks of the uninsured. Analysis lacking this information would obviously be woefully incomplete.The TPC has done much the same by ignoring the stronger economy that would follow from enactment of the Ryan plan. As with health care reform and the uninsured, a fundamental motivation for tax reform is to improve economic performance, yet the TPC acknowledges its analysis is essentially static. Revenue forecasts aside, this is a substantial shortcoming of the TPC analysis that will hopefully be remedied in their follow-on work.

Foibles to Resolve
One foible in the TPC analysis is that it combines a rigorous methodology for assessing the revenue effects from the tax on individuals with a back of the envelope approach to estimating tax revenues from the new Business Consumption Tax (BCT) tax contained in the Ryan plan. If TPC does not have the tools for a rigorous assessment of the BCT, then so be it, but TPC should clearly indicate the difference in approaches and admit that its revenue forecast of the BCT carries an unusually high degree of uncertainty.

Another foible in the TPC analysis deals with the treatment of pass-through entities such as sole proprietorships. This is a difficult area and the TPC analysis usefully highlights an issue in the plan its designers may want to revisit. However, TPC arbitrarily assumes small business owners will take all their income in tax-exempt dividends rather than taxable wages. To be sure, this is a troubled area in the existing tax code, but the TPC assumption is most unreasonable, and creates an obvious downward bias in the total revenue estimate.

Finally, the TPC is known for its distributional analysis and it refers to distributional effects in its analysis. But where are the tables?

Philip Klein at The American Spectator:

I’d also add that “TPC did not assume that taxpayers would change their behavior in response to this new tax structure.” Yet in reality, if we had a new simplified tax code that didn’t tax savings or investment, and that eliminated the corporate income tax (while replacing it with a business consumption tax), as the Ryan plan does, it would generate more economic growth. While this economic growth may not make up for all of the revenue that TPC estimates would be lost, there’s good reason to believe, based on economic theory and empirical experience, that at least some portion of that “lost” revenue would be recouped by higher GDP. But the overaching point is that the Ryan plan, as scored by the CBO, shows that there’s a way to balance the long-term budget by keeping taxes at historical levels rather than raising them to levels that would cripple the economy. If critics acknowledge that Ryan’s reforms to Social Security, Medicare, Medicaid, and the health care system can make our nation solvent as long as we maintain historical levels of tax revenue, and the only argument left is over how to maintain historical levels of taxation, then I’d say that’s a major victory for Ryan.

Josh Marshall at TPM:

I guess it wasn’t such a hot idea after all to let Rep. Ryan (R-WI) score his own budget.

This is a story that deserves a lot of attention. For weeks, DC has been fawning over Rep. Paul Ryan’s ‘courageous’ Social Security and Medicare-slashing budget as a brave attempt to deal with mounting federal deficits. But it turns out the CBO didn’t really score his budget as he suggested. He asked him to score it on the basis of assuming his numbers were right.

But now an outside group has actually scored it and it turns out it leaves deficits much bigger than President Obama’s budget plan.

But hey, he’s the toast of Washington even though his numbers are pure fantasy.

Matthew Yglesias:

The CBO score that people are relying on to reach that conclusion doesn’t actually estimate how much revenue Ryan would raise, instead it just takes Ryan’s word for it that his ideas would raise 19 percent of GDP. That’s because the CBO doesn’t score tax issues, that’s done by the Joint Committee on Taxation. But if you look at what Ryan’s ideas would actually do, the truth is rather different:

3-10-10bud-f1

So that’s the Ryan Ripoff in a nutshell—much lower taxes for the rich, higher taxes for ninety percent of Americans, and no balanced budget. All in the name of balancing the budget!

Matthew Yglesias:

Paul Ryan’s “budget roadmap” has terrified the GOP leadership, but thrilled conservative intellectuals with its calls for sharp cuts in Social Security, Medicare, Medicaid, defense, and all other government programs combined with privatization of Medicare so that a larger share of your diminished benefit goes to for-profit insurance companies. Less widely discussed is the tax aspects of Ryan’s plan. As you would expect from a conservative plan, compared to Barack Obama’s tax ideas Ryan would raise less government revenue. This is why he needs sharp cuts in Social Security, Medicare, Medicaid, defense, and all other government programs combined with privatization of Medicare so that a larger share of your diminished benefit goes to for-profit insurance companies.

The interesting thing, however, is that when the Center for Tax Justice (PDF) ran the numbers, they discovered that this isn’t the kind of tax cut that makes your taxes lower. On the contrary. Most Americans will pay higher taxes under Ryan’s plan than under Obama’s. Only the very richest will pay less.

Paul Ryan:

Yesterday, the Center on Budget and Policy Priorities [CBPP] published an error-riddled attack on what remains the only proposed solution to our nation’s fiscal crisis – “A Roadmap for America’s Future.”  Congressman Paul Ryan put forward this plan (H.R. 4529) to lift our nation’s crushing burden of debt, fulfill the mission of health and retirement security for current and future generations, and makes possible future economic growth and spurs sustained job creation.  The CBPP report is the latest is a series of partisan demagoguery against Ryan and the Roadmap – reminding the American people why bold, serious solutions are so rarely proposed in Congress.

In reviewing the CBPP’s analysis, it is important to keep in mind the lengthy series of factual errors and misleading statements – including the following:

Tax Reform

Claim: CBO was directed not to score revenues for the Roadmap by staff.  (pg. 2 – http://www.cbpp.org/files/3-10-10bud.pdf)

Reality:  False. In fact, Congressman Ryan and his staff did ask CBO to analyze both the revenue and spending provisions in the Roadmap.  However, CBO declined to do a revenue analysis of the tax plan, citing that it did not want to infringe on the jurisdiction of the Joint Committee on Taxation (JCT).  The JCT is responsible for providing the official revenue score of legislation before Congress.  JCT, however, does not have the capability at this time to provide longer-term revenue estimates (i.e. beyond 10 years) that Ryan’s long-term solution requires.

Given these functional constraints for an official JCT cost estimate, Ryan relied on its original work with U.S. Treasury Department tax experts to formulate a reasonable expected path for long-term revenues given the tax policies in the Roadmap combined with long-term expectations for economic growth.

Claim: The Roadmap does not bring in the amount of revenue specified to the CBO according to the Tax Policy Center, and therefore it does not reduce the deficit as is claimed. (pg. 2)

Reality:  The Tax Policy Center does not give official revenue estimates, and in their analysis admit to significant uncertainty and unfamiliarity with a proposal of this size and scope. The tax reforms proposed and the rates specified were designed to maintain approximately our historic levels of revenue as a share of GDP, based on consultation with the Treasury Department.

Congressman Ryan stands by his numbers, and of course would be open to adjustments in the specified rates under his tax reforms if in fact TPC’s estimates are closer to reality than Ryan’s estimates.  We clearly cannot chase our unsustainable growth in spending with ever-higher levels of taxes – and the purpose of the Roadmap is to get spending in line with revenue – not the other way around.

Health Security

Claim: The Roadmap imposes no requirement that private insurers actually offer health coverage to Medicare beneficiaries at an affordable price. (pg. 10)

Reality:  Title III, Sec 301 of the Roadmap requires the Department of Health and Human Services to certify plans and publish an annual list of Medicare-approved plans, at least one of which must be targeted to the “special needs of Medicare’s highest cost seniors.”

Claim: The Roadmap provides no specific standards for Medicare benefits. (pg. 10)

Reality:  Title III, Sec 301 of the Roadmap defines qualified health coverage for Medicare.  The Medicare reforms are modeled on the Federal Employees Health Benefit Plans – giving all Americans the health coverage options enjoyed by Members of Congress.

Claim: The Roadmap would eliminate most of Medicaid and the entire SCHIP program. (pg. 10)

Reality: The CBPP described similar provisions in a health care proposal introduced by Democratic Senator Ron Wyden of Oregon (the Wyden-Bennett plan) as “converting Medicaid and SCHIP into effective supplemental wrap-around programs.”  The CBPP provides two dramatically different descriptions of the same policy.  This raises the question on whether CBPP’s analysis is dependent on the party affiliation of a proposal’s author.

Social Security

Claim: The Roadmap privatizes Social Security (title and on pg. 12)

Reality: The Roadmap makes no change for those 55 and older. It provides future retirees with the option to either stay in the traditional government-run system or to enter a system of guaranteed personal accounts. Neither option is privatized. In the personal-accounts system, the accounts are owned by the individual, and managed and overseen by a government board — not a stockbroker or private investment firm. People choosing the reformed system select from a handful of low-risk, government-regulated options — just as Members of Congress and Federal employees do.Claim: The Roadmap’s inclusion of personal accounts requires $4.9 trillion in general revenue transfers, more than the entire Social Security shortfall. (pg. 13)

Reality: The CBO concludes that the Roadmap reforms would result in zero general revenue transfers (pg. 44, Table C-1).  The CBPP analysis either relies on faulty or outdated data – or is simply dishonest.

Claim: CBO did not analyze the cost of the guarantee for personal accounts. CBPP estimates the cost of the guarantee would equal $2.9 trillion on a risk-adjusted basis. (pg. 14)

Reality: False. The Roadmap guarantees that all Americans that choose to take part in the personal account option would get back at minimum what they’ve contributed, adjusted for inflation.  The CBO explicitly modeled the cost of the guarantee for personal accounts, which they included in their cost estimates.  The CBO makes clear that the Roadmap reforms – including the cost of this guarantee – makes Social Security permanently solvent.

Claim: The Ryan plan would cut traditional guaranteed Social Security benefits compared to the benefits now scheduled to be paid. (pg. 12)

Reality: The Roadmap reforms, in fact, increase benefits for low-income individuals, and places Social Security on a sustainable path through common sense reforms.  To be clear, the current trajectory for Social Security would require a 24% cut in benefits or 31% increase in taxes on workers.

Reihan Salam:

If Paul Ryan’s office is right about the CBPP analysis of the Ryan Roadmap, I’ll be very disappointed. CBPP is an institution with a richly-deserved reputation for doing its work with great care.

The CBPP report does provide a very valuable service in its revenue estimates, which seems more plausible than others I’ve seen.

But note that attacks on the Roadmap haven’t primarily been about the revenue estimates, etc. Rather, they’ve centered on the idea that shifting to premium support and the Medicare Advantage model represents a dismantling of the welfare state, as does the use of personal accounts in a public retirement system. This is, in my view, highly misleading, and it’s easy to see why Ryan’s office might feel unfairly maligned.

In my view, the Roadmap is too optimistic on the revenue side and possibly too politically optimistic on the spending side, i.e., if we shift to a defined contribution model rather than a defined benefit, as I think we must, it is very plausible that upward political pressure on the contribution will be higher than the Roadmap assumes, consonant with health inflation overall. To be sure, the hope is that the shift to a defined contribution model will itself encourage a shift in the ecosystem that will help restrain health inflation, but we don’t have any guarantee of that, just as we have guarantee that the projections of how the Senate health bill will “bend the cost curve” in its second decade.

Ross Douthat:

But the bottom line is this: Paul Ryan has attempted, admirably in my view, to sketch out a vision of the welfare state that forestalls the massive tax increases that will be required if we remain on our current fiscal trajectory. But as a matter of policy and politics alike, this vision only make sense (and only stands a chance of appealing to the broader public) if it forestalls tax increases for everybody — and especially for those Americans who stand to have a very difficult time of it, if current trends persist, in the 21st century economy.

Jonathan Chait at TNR:

Ryan’s plan would make the federal tax code regressive, especially at the top, on top of an already-regressive state and local tax base. According to the Tax Policy Center, the richest 1% of all taxpayers, who earn more than 21% of the national income and currently pay about 25% of federal taxes, would pay 13% of federal taxes under Ryan’s plan. (Ryan’s response argues that the corporate income tax he’d eliminate is already born by consumers anyway, a contention most economists including the CBO reject, and even if true would only chip away slightly at the overall critique of his plan’s regressive nature.) Ryan’s tax plan alone would amount to the greatest shift of resources from the non-rich to the rich in the history of the United States, by far.

And that is just the beginning. Ryan would impose a series of dramatic social policy changes that would all push in the same direction. He would blow up the employer-based health care system, pushing workers into an under-regulated individual market. Instead of sharing medical risk with their fellow employees, they’d bear it entirely by themselves, which would be good for the healthy but bad for the sick. He would convert Social Security into primarily a network of individual investment accounts–meaning that some workers would do well and others poorly. And he would convert Medicare into a voucher system, capping the value of each voucher at well below the rate of medical inflation, which would make the elderly bear a far greater share of medical risk.

All these changes push in the same direction. The basic thrust of liberal public policy over the last century is to keep in places the market system but use government to slightly mitigate against risk–the risk of getting sick, the risk of outliving your savings, the risk that you just won’t make much money in the first place. The downside of these policies is that, in order to mitigate the downside risk, you also have to mitigate the upside benefit. If you’re unusually rich, you have to pay a somewhat higher tax rate than most people. If you’re unusually healthy, you have to subsidize medical care for people who aren’t. If you were able to invest well enough to cover your entire retirement, some of your good fortune will be siphoned off to those who weren’t. The rewards for getting rich, or merely being born rich, will remain enormous, just slightly less so than in a completely free market.

Republicans want to eliminate these mitigations of risk. Ryan would retain some bare-bones subsidies for the poorest, but the overwhelming thrust in every way is to liberate the lucky and successful to enjoy their good fortune without burdening them with any responsibility for the welfare of their fellow citizens.

Douthat responds to Chait:

It may not be as redistributionist as some would like (though any kind of means-testing has traditionally been anathema to many liberals), but it’s a long way from “Atlas Shrugged” territory.

Chait would no doubt counter that the voucher system Ryan proposes is still too ungenerous to low-income Americans, because the subsidies the roadmap envisions wouldn’t keep up with medical cost inflation. And he might be right: I suspect it won’t be possible, in the end, to keep the government’s share of G.D.P. as low as Ryan wants to keep it. But that’s a different kind of criticism, one that goes to how much we want to spend on entitlements overall, not whether we want to make them more or less redistributionist. On the latter question, there’s no question where Ryan stands: A big part of his plan for reining in the growth of government is to hack away spending (and implicit spending) on the wealthy, creating a welfare state that does more redistribution than it does right now.

“The rise of Ryan,” Chait concludes, “is a sign that the possibilities for bipartisan cooperation on domestic issues are, at the moment, essentially nil.” Change “rise” to “persistent caricaturing and misrepresentation,” and he and I agree.

EARLIER: The Paul Ryan Week That Was

UPDATE: More Chait

Paul Krugman

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1 Comment

Filed under Economics, Entitlements, Political Figures

One response to “The Paul Ryan Week That Was, Week Two

  1. Pingback: What We’ve Built Today « Around The Sphere

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