House Democratic Whip Steny Hoyer says “you can’t negotiate on the basis that one side gives 100 percent and the other side gives zero.” Good point. So let’s see: The budget is $836 billion higher than it was in President Bush’s last full fiscal year. The chart below the jump shows how much the House Republicans want to cut from that massive increase. Seems like if both sides — say, the Obama administration and the taxpayers — each give 50 percent, we’d cut the budget by $418 billion, half the recent increase.
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Tax and Budget Policy
The Budget Impasse: Who’s to Blame?
Today POLITICO Arena asks:
Will there be a budget deal? And has Obama shown himself to be a capable leader throughout this budget impasse?
My response:
Will there be a budget agreement? Who knows. Has Obama shown himself to be a capable leader in this budget battle? Please. One thing is clear, though: It’s beyond rich for Democrats to blame Republicans for this budget impasse.
Let’s remember that we’re talking about the budget for the fiscal year that began last October, which should have been passed well before then — when Democrats held the White House and both chambers of Congress by wide margins. In all that time, however, they couldn’t pass even one appropriations bill. Why? Because they were trying to game the November elections.
Well they lost those elections — big time. Yet even in the lame-duck session, when they still held all the cards, they couldn’t pass a budget. Now they blame the Republicans? For listening to the voters? What do they think those elections were about? Chopped liver?
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New Budget Plan from Conservative House Members Would Do Best Job of Shrinking the Burden of Federal Spending
Just days after the introduction of a very good plan by the Chairman of the House Budget Committee, leaders from the Republican Study Committee in the House of Representatives have introduced an even better plan.
In a previous post, I compared spending levels from the Obama budget and the Ryan budget and showed that the burden of federal spending would rise much faster if the White House plan was adopted.
If the goal is to restrain government, the RSC blueprint is the best of all worlds. As the chart illustrates, government only grows by an average of 1.7 percent annually with that plan, compared to an average of 2.8 percent growth under Ryan’s good budget and 4.7 percent average growth with Obama’s head-in-the-sand proposal.
![Media Name: RSC-Budget.jpg](/sites/cato.org/files/styles/pubs_2x/public/wp-content/uploads/RSC-Budget.jpg?itok=xYBp_cic)
According to the numbers released by the Republican Study Committee, the burden of federal spending would fall to about 18 percent of GDP after 10 years if the RSC plan is implemented.
While that’s a great improvement compared to today, the federal government would still consume as much of the economy as it did when Bill Clinton left office.
Last but not least, for those who are focused on fiscal balance rather than the size of government, this is the only plan that produces a balanced budget. Indeed, red ink disappears in just eight years.
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Why Should Social Insurance Reform Not Affect Those Over Age 54?
House Budget Committee Chairman Paul Ryan’s budget plan is ostensibly for FY 2012, but it contains reforms with far-reaching implications for the nation’s fiscal condition.
Most of the action in his plan is on the spending side and mainly on health care entitlements: Medicare and Medicaid. Many pundits on the left are claiming it is a political document rather than a serious budget proposal, especially because it lacks details on many of its proposed policy changes.
One thing that stands out, as pointed out by David Leonhardt in the NYT, is that Ryan’s plan exempts people older than age 55 from bearing any share of the adjustment costs. They should, instead, be called upon to share some of the burden, Leonhardt argues — a point that I agree with. If seniors are receiving tens of thousands of dollars more than what they paid in for Medicare, then they should not be allowed to hide behind the tired old argument of being too old to bear any adjustment cost. Indeed, seniors hold most of the nation’s assets and a progressive-minded reform would ask them to fork over a small share to relieve the financial burden that must otherwise be imposed on young workers and future generations.
The numbers presented by Leonhardt are computed by analysts at the Urban Institute. However, those numbers aren’t quite as one-sided as Leonhardt and Urban scholars suggest, because they only compare Medicare payroll taxes by age group to Medicare benefits. A large part of Medicare benefits (Medicare’s outpatient care, physicians’ fees, and federal premium support for prescription drugs) are financed out of general tax revenues, not just Medicare taxes. General tax revenues, of course, include revenues from income taxes, indirect taxes, and other non-social-insurance taxes and fees. Seniors pay some of those taxes as well — especially by way of capital income and capital gains taxes — but the Urban calculations fail to account for this. That means that the net benefit to seniors from Medicare is smaller than Leonhardt claims in his column. I don’t know whether it would bring the per-person Medicare taxes and benefits as close to each other as they are for Social Security, however. (See Leonhardt’s column for more on this point.)
Leonhardt also notes that Chairman Ryan’s proposal leaves out revenue increases as a potential solution to the growing debt problem. Leonhardt argues that wealthy individuals (mostly large and small entrepreneurs) received high returns on assets during the last few years (pre-recession) and could afford to pay more in taxes.
But it would be poor policy to raise these entrepreneurs’ income taxes — that would distort incentives to work, invest, innovate, and hire in their businesses. Instead, policymakers should consider reducing high-earners’ Medicare and Social Security benefits (premium supports under the Ryan plan) in a progressive manner, including allowing them to opt out of Medicare and Social Security completely if they wish to.
During recent business trips to a few Midwestern towns, I met several investors and professionals in real estate, financial planning, and manufacturing concerns, most of whom expressed their willingness to forego social insurance benefits during retirement. So there seems to be some public support for such a reform of social insurance programs.
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Why Are Self-Proclaimed Deficit Hawks Unenthusiastic about the Ryan Budget?
Washington is filled with groups that piously express their devotion to balanced budgets and fiscal responsibility, so it is rather revealing that some of these groups have less-than-friendly responses to Congressman Ryan’s budget plan.
The Committee for a Responsible Federal Budget, for instance, portrays itself as a bunch of deficit hawks. So you would think they would be doing cartwheels to celebrate a lawmaker who makes a real proposal that would control red ink. Yet Maya MacGuineas, president of the CRFB, basically rejects Ryan’s plan because it fails to increase the tax burden.
…while the proposal deserves praise for being bold, the national discussion has moved beyond just finding a plan with sufficient savings to finding one that can generate enough support to move forward. All parts of the budget, including defense and revenues, will have to be part of a budget deal… Now that both the White House and House Republicans have made their opening bids, this continues to reinforce our belief that a comprehensive plan to fix the budget like the one the Fiscal Commission recommended has the best hope of moving forward.
I’m mystified by Maya’s reference to an “opening bid” by the White House. What on earth is she talking about? Obama punted in his budget and didn’t even endorse the findings of his own Fiscal Commission. But I digress.
Another example of a group called Third Way, which purports to favor “moderate policy and political ideas” and “private-sector economic growth.” Sounds like they should be cheerleaders for Congressman Ryan’s plan, but they are even more overtly hostile to his proposal to reduce the burden of government.
House Budget Chairman Paul Ryan’s budget is a deep disappointment. There is a serious framework on the table for a bipartisan deal on our long term budget crisis. It’s the Bowles-Simpson blueprint, now being turned into legislation by the Gang of Six. It puts everything on the table – a specific plan to save Social Security, significant defense cuts, large reductions in tax expenditures and reforms to make Medicare and Medicaid more efficient, not eliminate them.
That sounds hard left, not third way. But it’s not unusual. Many of the self-proclaimed deficit hawks on Capitol Hill also have been either silent or critical of Ryan’s plan.
Which leaves me to conclude that what they really want are tax increases, and they simply use rhetoric about debt and deficits to push their real agenda.
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‘Extreme’ Budget Cuts
As the days dwindle down to a precious few before a Shutdown, some Republicans are still insisting on $61 billion in budget cuts, while others are offering to compromise at $33 billion or $40 billion.
Sen. Charles Schumer, the third-ranking Democrat in the Senate, tells his colleagues to call the proposed Republican budget cuts “extreme.” And he’s certainly taking his own advice. But just how extreme are the cuts, even at $61 billion?
Tad DeHaven and Cato’s newspaper ad offer one perspective. Tad also noted the incredibly small Pentagon “cuts” that the Republicans unveiled and the way discretionary spending will keep growing. And here’s what’s happening with “mandatory programs” — none of which are actually mandatory if Congress wants to change them.
Jacob Sullum of Reason summarizes:
The cuts represent less than 2 percent of the total budget, less than 4 percent of the deficit, and less than 5 percent of discretionary spending, which rose in real terms by 75 percent from 2000 to 2010 and by about 9 percent in each of the last two fiscal years.
Maybe the figure at the right will help. It shows the House-passed $61 billion budget cut in relation to the past decade’s rapid rise in federal spending. In fiscal year 2001, which ended in September 2001 but was mostly set in place before President Bush took office, the federal government spent $1,863 billion. After seven years of Bush and a Republican Congress, spending was more than a trillion dollars higher — $2,983 billion in FY2008. Then the financial crisis, TARP, the stimulus, and the omnibus spending bill came along, and FY2011 spending is estimated at $3,819 billion — $836 billion more than just three years earlier, and $1,956 billion more than when Bush took office a decade ago.
So a $61 billion cut is a lot of money anywhere except Washington. In Washington, it’s less 2 percent of the budget. It’s less than 10 percent of the three-year spending increase. It’s one-sixth of this year’s spending increase, the increase from 2010 to 2011. The figure shows what that “extreme” cut looks like compared to the soaring federal budget.
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Ryan’s Plan for Farm Subsidies
I thought I would add some detail to the posts my colleagues have already written on Congressman Paul Ryan’s (R‑Wisc.) 2012 budget resolution.
Interestingly — and, I would argue, appropriately — the agriculture stuff appears in the “Ending Corporate Welfare” section of the plan, most of it on page 36. After outlining the ways that farming America is doing well, Ryan’s plan would cut almost $30 billion (or 20 percent of projected outlays) over the next 10 years from farm subsidies (direct payments, currently costing about $5 billion per year) and crop insurance subsidies. Cuts will also reportedly fall on nutrition and conservation programs, but I will let my colleagues weigh in on those.
The focus on crop insurance is encouraging, because crop insurance is an increasingly important part of U.S. farm policy, especially in recent years when commodity prices have been high: high prices reduce the amount of money taxpayers spend on commodity payments, but increases crop insurance premiums, which we all subsidize. They now cost about $6 billion, or more than commodity payments. And, as the blueprint points out, surely farmers “should assume the same kind of responsibility for assuming risk that other businesses do.” Well played, Congressman.
One point on where the cuts fall on the commodity payments side: As a free-marketeer, I acknowledge that direct payments are less market-distorting than price-linked payments, and they are less (although not fully) questionable under World Trade Organization rules. If we are going to shovel money to farmers, in other words, sending unconditional welfare checks is the least distorting way to do it. But there is no money to raid from the price-linked programs because of high prices, so if savings are to be found, we need to raid the direct payment cookie jar. And, really, with $7 corn and red ink from here to eternity, surely this is an ideal time to wean farmers off of the government teat.
Reactions from the farmers’ friends, by the way? Predictable. The Chairman of the House Agriculture Committee dismissed the blueprint’s plans for agriculture as “simply suggestions” and that the Agriculture Committee will write the 2012 Farm Bill, thankyouverymuch. (Ryan himself said that the cuts should start in 2012, implying that the Farm Bill schedule should go ahead as planned).
The National Farmers Union spoke the usual blather about Americans spending less of their income on food than in other nations (perhaps because we are, you know, richer?) for the “safest, most abundant, most affordable food supply in the world,” which has been the favorite line of the farm lobby for years now. The Corn Growers and the National Cotton Council joined them in trotting out variations of the new favorite talking point, about how agriculture has already taken a hit from cuts to crop insurance and that cuts to agriculture’s budget should be no larger than cuts to other areas.
The blueprint is not my ideal plan, to be sure. That plan would have a line in it about removing the federal government once and for all from all aspects of the agricultural market, including by disbanding the U.S. Department of Agriculture. It would at least include something about disbanding the production- and price-determined subsidies, so we’re not all on the hook again if prices fall. But it is a good start.