Paul Ryan releases new GOP budget plan: What's in it?

Rep. Paul Ryan, the Republican budget hawk who became a lightning rod last year over his plan to reform Medicare, introduced a Republican budget plan Tuesday that aims to "sharpen the contrast" with President Obama on debt. 

The proposal scales back the controversial Medicare reforms that drew such a strong response from Democrats a year ago. But it offers a Republican touchstone for spending, taxes, and debt likely to resonate in the national dialogue through November elections.

Moreover, it gives Republicans the ability to say they're promoting actual solutions to the nation's long-term financial problems and to remind voters that Senate Democrats haven't passed a budget in more than three years. 

“If we have a difference of opinion with the president and the direction he and the Senate leaders have taken the country, which we do, we feel morally bound to offer a choice,” said Mr. Ryan, who chairs the House Budget Committee, at a morning press conference on Tuesday. “And we had a legal obligation in our budget laws to produce a budget.”

One thing the two proposals have in common? Roughly the same enactment prospects (zero). But the Ryan budget's contrast with the White House offers a Republican touchstone for spending, taxes, and debt likely to resonate in the national dialogue through November elections. It gives Republicans the ability to say they’re promoting actual solutions to the nation’s long-term financial problems and remind Senate Democrats that they haven’t passed a budget in more than three years. 

Like Ryan's proposal last year, the fiscal year 2013 budget has virtually no chance of passing the Senate or being signed by Mr. Obama. 

Democrats, who say last summer’s debt-ceiling accord will serve in place of a budget for the coming year, believe the proposal will help them paint Republicans as out of touch with middle America, particularly on the issue of Medicare. 

Outside of the politics, however, what’s really in the Ryan budget? 

Health care

Ryan is putting forward a Medicare proposal based on one he hashed out with Sen. Ron Wyden (D) of Oregon in January. Under this proposal, seniors can opt for traditional Medicare or receive government subsidies to buy private insurance. The subsidies will be indexed to changes in health-care costs and adjusted for the wealth of the individual senior. 

By contrast, Ryan’s first budget would have ended traditional Medicare for new participants in 2022, offering instead subsidies to purchase private insurance. Those subsidies would be adjusted for a person’s income and health and adjusted for inflation, not faster-rising healthcare costs, every year. The plan proposed gradually raising the eligibility age for Medicare to 67. 

Democrats last year pounced on Ryan’s proposal to end traditional Medicare for those under 55: one campaign ad even showed a Ryan-esque figure pushing an elderly woman off a cliff. The issue appeared to resonate with voters in special elections. For example, Democrats credit Ryan’s proposal with helping Rep. Kathy Hochul’s (D) upset victory in a conservative New York congressional district last May. 

Both budgets includes the broad repeal of President Obama’s signature healthcare reform law and a proposal to give states more control over funds for Medicaid, the federal healthcare program for poor Americans. 

Tax rates

Ryan’s new plan will create two income tax brackets of 10 percent and 25 percent but does not specify which income levels will fit into each bracket. Currently, the US has six brackets from 10 percent to 35 percent.

While promising to eliminate tax breaks, Ryan did not specify which tax incentives would get the ax under his plan.

Last year, Ryan proposed a system that would let Americans either file under the current system or a proposal similar to his offer this year. 

The budget would drop the corporate tax rate to 25 percent from 35 percent and sharply curtail taxes on profits made by US companies overseas. Last year, Ryan argued for dropping the corporate income tax entirely and replacing it with a “business consumption tax” of 8.5 percent. It would apply to US imports but not to US exports. 

In a departure from his last offering, Ryan’s FY 2013 budget does not explicitly propose the elimination of taxes on capital gains, interest, and dividends alongside ending the estate tax. 

Both budgets aim to repeal the Alternative Minimum Tax. The AMT was designed to prevent wealthy Americans from dropping their taxes too far via deductions and credits. Aside from Congress’ annual rite of patching the measure, however, the AMT increasingly snares millions of upper middle income Americans. 

Overall spending

In a nod to the more aggressive budget-cutting agenda of many conservative members of the House caucus, Ryan’s budget lays out $1.028 trillion in discretionary spending in the coming fiscal year. Democrats see this as a betrayal of last summer’s debt ceiling deal, which established a $1.047 trillion spending cap for the coming year. In a letter to House leaders on Monday, senior Senate Democrats called the proposal a “breach of faith that will make it more difficult to negotiate future agreements."

Sequester

Ryan also attempts to head off mandatory defense spending cuts required by the summer debt deal. In addition to $900 billion in budget cuts agreed to in order to raise the debt ceiling, Congress adopted a trigger system to ensure an additional $1.2 trillion in spending cuts over the next decade. If Congress fails to identify these reductions by Dec. 31, the cuts are to happen on autopilot, split between defense and non-defense discretionary spending.

Because congressional negotiators couldn’t agree on the second package, the automatic spending trigger, or sequester, is set to hit in January of 2013. Ryan aims to offset the mandated $55 billion in defense reductions by requiring six House committees to come up with savings. The committees themselves will have to determine exactly how to offer these cuts, but Ryan’s budget suggests greater pension contributions from federal workers and reforming medical liability laws as potential options.