The voices of Tax Policy Center's researchers and staff
I suspect he doesn’t want to hear this, but Representative Paul Ryan’s dramatic proposal to remake the federal budget is the best argument I’ve seen for why tax increases must be part of any serious effort to reduce the federal deficit.
My colleagues Rosanne Altshuler, Katie Lim, and Bob Williams have shown how it is impossible to address our flood of red ink on the revenue side alone, despite the fervent wishes of many Democrats. A CBO analysis of Ryan’s “Roadmap for America’s Future” is powerful evidence of why Washington can’t do this by only cutting spending, as Ryan and many of his GOP colleagues insist.
According to CBO, to reach his goal of balancing the budget and ultimately eliminating the national debt, Ryan would reduce federal spending to levels not seen since 1951. And that assumes the tax side of his proposal could generate revenues of 19 percent of Gross Domestic Product—a goal that appears wildly improbable. To see why, check out this post from last week. If his plan, as is likely, generates fewer tax dollars, he’d need even deeper spending cuts.
According to CBO, Ryan’s proposal would reduce federal spending from about 24 percent of GDP in the Obama budget to 19 percent by 2020, 16.1 percent of GDP by 2060 and a remarkably low 13.8 percent of GDP by 2080. The last time government was even close to that small was in 1951, when Washington spent 14.2 percent of GDP.
Ryan would get there by taking a series of extraordinary, and politically impossible, steps. He’d reduce promised Social Security benefits and create new private accounts—an idea similar to the plan offered in 2005 by George W. Bush and repudiated by a GOP-controlled Congress. He’d effectively abolish both Medicare and most of Medicaid—turning Medicare and the health care portion of Medicaid into subsidized private insurance. And he’d freeze all non-defense spending for 10 years (Obama would freeze it for three), and then cap future discretionary spending increases indefinitely.
Because Ryan would phase in his Social Security and health care changes very slowly, it would be decades before they’d significantly reduce federal spending. But once they began to bite, the effects would be profound. And ultimately, we’d end up with an essentially unrecognizable government. You might think this is a good thing or not, but make no mistake, it would be a government entirely unfamiliar to anyone younger than about 70.
Think about what government looked like back in 1951, the year we first got coast-to-coast dial telephone service. The Pentagon still acounted for half of all spending. Social Security represented only about 3 percent of total federal outlays. Medicare and Medicaid did not even exist. In 1951, we spent nearly four times as much for veterans benefits as we did for Social Security. Sixty years ago, there were only 15 million Americans 65 or older. Half lived in poverty.
Today, there are 40 million Americans 65 and older and we spend almost one-third of the budget on seniors. By mid-century, more than 70 million will be 65-plus. There is no doubt we need to slow the growth of spending for aging Baby Boomers. But freezing programs such as Medicare and Social Security at current levels while the population eligible for benefits nearly doubles seems unrealistic at best. Ryan is absolutely right to suggest that any long-term budget deal must address these entitlements. But his plan is also powerful evidence that it must include new revenues as well.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.