WASHINGTON -- The Concord Coalition today welcomed the budget proposal from House Budget Committee Chairman Paul Ryan but expressed concern that it does not represent a realistic blueprint for making progress on a fiscal sustainability plan.
“It is the statutory duty of the House and Senate Budget Committees to produce a budget,” said Robert L. Bixby, Concord’s executive director. “Chairman Ryan thus deserves credit for following ‘regular order’ by proposing a budget in an election year when some may argue that it would be more convenient to remain silent.”
Bixby added: “Ryan has laid out an ambitious but positive goal to achieve budget balance within 10 years. However, like the President’s budget, Ryan’s proposal is best viewed as a statement of party principle with little chance of moving the fiscal debate forward, much less of being enacted.”
Given the size and nature of the structural problems in the budget, the goal of eliminating deficits within a decade sets up some very difficult policy choices. A renewed focus on open-minded budget negotiations -- using policy levers that affect both revenues and spending -- would offer a better chance to enact reforms with a positive fiscal outcome.
The Ryan budget achieves its deficit reduction by cutting over $5 trillion from spending programs. It proposes no revenue increases. The savings would come from repealing the insurance expansion in the Affordable Care Act (40 percent of savings); Medicaid and other health savings (14 percent); reductions in “other mandatory” programs such as food assistance (19 percent); discretionary spending reductions below the current caps (9 percent); Medicare reductions and shifting to premium support (3 percent), and interest savings (15 percent).
The discretionary spending assumption allows defense to exceed the current caps but achieves overall discretionary savings by cutting non-defense spending below the caps. Non-defense discretionary spending would fall to 2.2 percent of GDP by 2024 -- nearly half the amount spent in 2011, when spending caps were first agreed to, and 20 percent less than in 2014. Over the past 40 years, such spending has averaged 3.8 percent of GDP.
One caution in depending on such low spending is that the recent bipartisan budget agreement actually added back some non-defense spending because the 2014 levels were too low to pass appropriations bills through Congress.
“Sticking with the defense caps will be hard enough, even with the increase proposed by Chairman Ryan,” Bixby said. “But taking non-defense spending down to the level assumed in this budget is not at all realistic and would greatly reduce the government’s ability to make legitimate domestic investments in transportation, education, homeland security and basic research.”
Concord also questioned some of the budget’s mandatory spending assumptions.
For example, in a glaring inconsistency, Ryan specifically criticizes the President for abandoning a proposal to switch the government’s inflation measure to the more accurate “Chained CPI” -- yet the chairman’s plan itself fails to adopt that proposal.
One encouraging point, however, is Ryan’s opposition to using Social Security’s Old Age and Survivors Insurance funds for the Disability Insurance program, which expects to run out of money in 2016. Instead, Ryan calls for a comprehensive fix for Social Security, which should be a top priority for the next Congress.
Achieving the health care savings in the budget is likely to be hamstrung by political rhetoric.
“The Medicare savings included in Ryan’s budget -- such as those from the current-law reductions in Medicare Advantage plans and the shift to a Medicare premium support system -- are valid and achievable,” said Joshua Gordon, Concord’s policy director. “However, fully realizing them will require a break from the current rhetorical stance of many in both parties against the Medicare Advantage financing trajectory and the narrow provider networks and private insurance regulations in the ACA insurance exchanges, without which budgetary savings from premium support would be unlikely.”
“Furthermore, the Ryan budget draws large savings from reductions in Medicaid, but it is difficult to see how such cuts won’t exacerbate the Medicaid problems of access and low provider reimbursement referenced in the budget’s review of the program,” said Gordon.
The proposed budget supports base-broadening tax reform bit does not embrace any particular proposal, including the comprehensive plan that House Ways and Means Committee Chairman David Camp recently released. Ryan points to the Camp plan’s scored economic growth but does not embrace its policy choices.
As the Camp plan revealed, however, difficult choices are required to broaden the tax base, lower rates, and remain revenue neutral. Camp was not able to do all this and stick with just the two tax rates of 25 and 10 percent that are recommended in the Ryan budget.
A small but growing portion of the assumed savings in Ryan’s budget comes from an estimate of its macroeconomic feedback, often referred to as “dynamic scoring.” In a departure from the usual practice, Ryan includes a specific macroeconomic score for each year that is then factored into the estimated deficit.
According to this score, the macroeconomic impact in the first three years of the budget would be to add $76 billion to the deficit. From 2018 through 2024, however, the impact would be to reduce the deficit by $251 billion, for a net deficit reduction over 10 years of $175 billion.
The Concord Coalition does not favor this approach in scoring budget resolutions because it introduces even more uncertainty into the projections. It is one thing to give an illustrative estimate of the effects that a particular path of deficit reduction may have on the economy, as the Congressional Budget Office (CBO) has done at Ryan’s request. But it is quite another to count that as a year-by-year score.
This is particularly true when specific policy details are absent, as they are in a congressional budget resolution. One set of policy details could have a much different feedback effect than another.
As the budget office cautioned in releasing its economic assessment of the deficit-reduction path in Ryan’s budget: “The projections do not represent a cost estimate for legislation or an analysis of the effects of any specific policies….CBO has not considered whether the specified paths are consistent with the policy proposals or budget numbers that Chairman Ryan released on April 1, 2014 as part of his proposed budget resolution.”
The Concord Coalition is a nonpartisan, grassroots organization dedicated to fiscal responsibility. Since 1992, Concord has worked to educate the public about the causes and consequences of the federal deficit and debt, and to develop realistic solutions for sustainable budgets. For more fiscal news and analysis, visit concordcoalition.org and follow us on Twitter: @ConcordC