Grown-up Paul Ryan explains the Republican plan to cut current spending, cap future spending, and pass a balanced budget amendment to the Constitution.
So what does Barack Obama want?
“I don’t think he wants to cut spending, and I think he wants to raise taxes.”
A good analysis from Dan Mitchell of the libertarian Cato Institute. (With links removed – you have to click through for the links he included)
Excerpt:
The Good
- Unlike President Obama, the Gang of Six is not consumed by class-warfare resentment. The plan envisions that the top personal income tax rate will fall to no higher than 29 percent.
- The corporate income tax rate will fall to no higher than 29 percent as well, something that is long overdue since the average corporate tax rate in Europe is now down to 23 percent.
- The alternative minimum tax (which should be called the mandatory maximum tax) will be repealed.
- The plan would repeal the CLASS Act, a provision of Obamacare for long-term-care insurance that will significantly expand the burden of federal spending once implemented.
- The plan targets some inefficient and distorting tax preference such as the health care exclusion.
The Bad
- The much-heralded spending caps do not apply to entitlement programs. This is like going to the doctor because you have cancer and getting treated for a sprained wrist.
- A net tax increase of more than $1 trillion (I expect that number to be much higher when further details are divulged).
- The plan targets some provisions of the tax code – such as IRAs and 401(k)s) – that are not preferences, but instead exist to mitigate against the double taxation of saving and investment.
- There is no Medicare reform, just tinkering and adjustments to the current system.
- There in no Medicaid reform, just tinkering and adjustments to the current system.
The Ugly
- The entire package is based on dishonest Washington budget math. Spending increases under the plan, but the politicians claim to be cutting spending because the budget didn’t grow even faster.
- Speaking of spending, why is there no information, anywhere in the summary document, showing how big government will be five years from now? Ten years from now? The perhaps-all-too-convenient absence of this critical information should set off alarm bells.
- There’s a back-door scheme to change the consumer price index in such a way as to reduce expenditures (i.e., smaller cost-of-living-adjustments) and increase tax revenue (i.e., smaller adjustments in tax brackets and personal exemptions). The current CPI may be flawed, but it would be far better to give the Bureau of Labor Statistics further authority, if necessary, to make changes. A politically imposed change seems like nothing more than a ruse to impose a hidden tax hike.
- A requirement that the internal revenue code maintain the existing bias against investors, entrepreneurs, small business owners, and other upper-income taxpayers. This “progressivity” mandate implies very bad things for the double taxation of dividends and capital gains.
I’m more of a Heritage Foundation guy, myself, but this post is really very good.
Now let’s see Paul Ryan’s evaluation of it, courtesy of Jennifer Rubin in the Washington Post.
Excerpt:
Meanwhile, the president has heaped praise on the Gang of Six plan, which envisions more than $1.2 trillion in tax hikes and more than $880 billion in defense cuts. (So much for Obama making “sure that we’re cutting it in a way that recognizes we’re still in the middle of a war, we’re winding down another war, and we’ve got a whole bunch of veterans that we’ve got to care for as they come home.”) As Rep. Paul Ryan (R-Wis.) points out, the president’s new favorite plan includes just about every bad idea advanced so far in the debt debate:
Heavy Reliance on Revenues. The plan claims to increase revenues by $1.2 trillion relative to a “plausible baseline.” It also claims to provide $1.5 trillion in tax relief relative to the CBO March baseline. The CBO baseline assumes the expiration of tax relief, resulting in a $3.5 trillion revenue increase. As a result, the plan appears to include a $2 trillion revenue increase relative to a current policy baseline. If the $800 billion in tax increases from the new health care law are included, the plan appears to increase revenues by $2.8 trillion, without addressing unsustainable health care spending that is driving our debt problems.
Elusive Spending Restraint. It is unclear how much the plan achieves in spending savings. Based on released documents, it appears to primarily rely on cuts in the defense budget through $886 billion in reductions from the President’s budget for “security programs.”
Lack of Entitlement Reform. The plan does not address the $1.4 trillion in spending expansions in the new health care law. The health care law increases eligibility for the Medicaid program by one-third and creates a brand new health care entitlement. It does not appear to include reforms to the Medicare program. While it appears to pursue Social Security reform, it could end up creating barriers to enactment of these reforms.
Well, at least we know what Obama stands for: huge tax hikes, ephemeral domestic spending cuts, savaging the defense budget, and zero entitlement reform. I imagine that will come up in ads for the Republican presidential nominee next year.
Sounds like it’s not a good deal for conservatives.
Very bad news for Italy, but a learning opportunity for us.
Excerpt:
Fears are spreading that Italy may soon have to follow Greece, Ireland, and Portugal and seek a financial bailout from the European Union and the International Monetary Fund. Doubts over the sustainability of Italy’s explosive cocktail of high debt and low growth have led to violent routs that saw Italian stocks plunge and bond yields soar in recent days.
Italy is the seventh-largest economy in the world and the third-largest economy in the euro zone (the group of countries which use the euro as their common currency). It is also the third-most indebted country in the world after the United States and Japan. In its European context, Italy’s mountain of debt is more than that of all the other so-called PIGS (Portugal, Ireland, Greece, and Spain) group of financially troubled countries combined.
Given the massive size of the Italian economy, many analysts believe that Italy (like Spain) is too big to be rescued and that a full-blown debt crisis in the country could lead to the collapse of Europe’s single currency.
Confidence in Italy began to erode after Moody’s Investors Service and Standard & Poor’s announced in recent weeks that they are reviewing the country’s sovereign credit rating. The review for a possible downgrade of Italy’s rating comes amid stalled economic growth that will complicate any efforts to reduce the country’s debt load, and political infighting in Rome over budget cuts required to prevent government borrowing costs from spiraling to unaffordable levels.
There is no quick fix for the two most immediate problems ailing Italy: the country’s towering national debt and extremely poor prospects for economic growth.
At 120 percent of GDP, Italy’s debt is the EU’s second-largest by that measure after Greece, which has a debt-to-GDP ratio of 150 percent. Italy’s €1.8 trillion ($2.5 trillion) debt, which is equal to the country’s national income, poses an unsustainable economic burden that will push Italy into the abyss if the government’s debt servicing costs keep rising.
What can we learn from Italy that we should avoid?
First, they are planning to balance the budget by 2014:
The plan calls for freezing public sector pay, reducing funding to local government and health services, increasing the retirement age, and cracking down on tax evasion. Italians will also have to pay €25 for some non-emergency hospital visits and €10 above existing fees to see specialists. The aim is to cut the budget deficit from 3.9 percent this year to 2.2 percent in 2013 and to balance the budget by 2014.
We are running massive 1.6 trillion dollar deficits under Obama, and he refuses to balance the budget. Even if he took every penny earned by those households earning $200,000 or more per year, that would not generate enough money to cover his massive 1.6 trillion dollar spending sprees. The problem is not revenue, it’s spending.
And what else can we learn from Italy?
Here’s more from the PJM article:
Everyone seems to agree that Italy’s growth problems are structural and systemic. As noted recently by the Economist magazine: “Between 2000 and 2010 Italy’s average growth, measured by GDP at constant prices, was just 0.25% a year. Of all the countries in the world, only Haiti and Zimbabwe did worse.”
Says the Economist: “Many things contribute to these gloomy figures. Italy has become a place that is ill at ease in the world, scared of globalization and immigration. It has chosen a set of policies that discriminate heavily in favor of the old and against the young. Combined with an aversion to meritocracy, this is driving large numbers of talented young Italians abroad. In addition, Italy has failed to renew its institutions and suffers from debilitating conflicts of interest in the judiciary, politics, the media, and business. These are problems that concern the nation as a whole, not one province or another.”
Does that sound familiar? That’s right! The Democrats are scared of globalization. They oppose free trade deals that reduce the prices of consumer goods. The Democrats favor distributing wealth from young to old. They oppose reforming entitlements like Social Security and Medicare for young people. The Democrats are opposed to meritocracy. They are the party of unions, tenure and wealth redistribution. It’s this economics illiteracy that is slowing down economic growth here at home. We need to vote the people who make economic decisions by feelings out. And we need to put the people who make economic decisions based on job creation in.
WINTERY KNIGHT 