Low taxes, smaller government, but not a balanced budget?

Our tax expert crunches the numbers of the Paul Ryan financial plan. end result? While Romney's pick for vice president is often called a deficit hawk, in fact balancing the budget is not one of his high priorities.

Evan Semon/Reuters
Republican vice presidential candidate Rep. Paul Ryan (R-WI) gestures as he speaks at a campaign stop at Lakewood High School in Lakewood, Colorado, August 14, 2012.

Paul Ryan is often identified as a deficit hawk. And while he regularly talks about the importance of balanced budgets, that’s not what matters most to the GOP’s soon-to-be vice presidential nominee. Ryan’s holy grail is low taxes and small government, not fiscal balance.

Those priorities are clear in the fiscal plan Ryan wrote for the House Republicans last spring. Ryan, who chairs the House Budget Committee, was the architect of the House’s 2013 fiscal framework–a plan that wouldn’t balance the budget until after 2040.

In fact, looking at the next 10 years—the budget window that really matters to Congress—Ryan’s deficit would be roughly identical to the Congressional Budget Office’s baseline. At the end of the period, in 2022, they’d be exactly the same. In other words, Congress would achieve the same amount of deficit reduction by doing nothing as it would by following Ryan’s blueprint.

To be sure, that is significant deficit reduction–much more than President Obama has proposed  and more than some think the economy can tolerate, at least in the near-term. Yet, the real story is in the level of spending and taxes that Ryan favors, not the gap between them.

CBO’s March, 2012 baseline projects a deficit in 2022 of about 1.2 percent of Gross Domestic Product. Ryan’s “Path to Prosperity,” which became the framework for the House budget, brought the 2022 deficit down to exactly the same 1.2 percent. No difference in the top line.

Now, look at revenues and spending under the two scenarios. Under the CBO baseline, the federal government would collect 21.2 percent of GDP in taxes and other revenues and spend about 22.4 percent. The Ryan budget would collect far less—about 18.7 percent of GDP in revenues—and spend much less—about 19.8 percent of GDP.

Thus, the deficit is the same but Ryan’s levels of taxes and spending would be dramatically lower than the CBO baseline.

Keep two very important issues in mind as you think about this: First, Ryan would collect that amount of revenue only by eliminating trillions of dollars of tax preferences, which he has not specified. In earlier fiscal plans, notably his Roadmap for America’s Future, Ryan would have scrapped just about all tax preferences (though he would have made capital gains and dividends tax-free). But his latest plan did not describe which subsidies he’d eliminate.

While he proposed specific individual and corporate tax rates and the repeal of the Alternative Minimum Tax, he left the heavy lifting of paying for it all to others.

Absent those offsetting tax increases, the Tax Policy Center figures Ryan’s 2013 budget plan would generate revenues of only about 15.8 percent of GDP in 2022. Without those base-broadeners, Ryan’s deficit in 2022 would balloon to about 4 percent of GDP.

That would be higher that the projected deficit under Obama’s fiscal plan, which CBO projects would be about 3 percent of GDP in 2022.

The second important issue to keep in mind is Medicare. Because Ryan (wisely in my view) would not begin changing Medicare until 2023, none of the cost savings from his plan to turn the program from a defined benefit system to a defined contribution program show up in those first 10 years. Over time, those Medicare changes would dramatically reduce federal spending, either by lowering overall costs or shifting those expenses to seniors, or both.

The other day, the Washington Post’s Ezra Klein noted that Ryan was less of a deficit hawk than advertised, and he used as evidence Ryan’s votes in favor of the bank and auto bailouts and, earlier, his support of President George W. Bush’s Medicare Part D drug benefit—all of which added significantly to the deficit.

Those are legitimate points, but you don’t need to dig up old Ryan votes to see where his priorities are. Just look closely at his 2013 budget.

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