The Paul Ryan budget plan

by on April 6, 2011 at 7:06 am in Uncategorized | Permalink

I’ve now read it and here are a few comments:

1. The macro projections are very weak, not worth the time of criticism (more here).

2. Ryan nails our dysfunctional, “who is really responsible for paying for Medicaid?” structure.  That said, I’ve long preferred the federalization of Medicaid.  Block grants to the states may be better than the status quo, however (the size of those grants is a logically distinct question).  Within state budgets, police and education are often the alternative to Medicaid costs.  Are we so sure that Medicaid produces the maximum benefit for the money?  Low-quality moralizing about the poor is not an answer to this question.

3. That said, Medicaid should be one of the last parts of the health care budget to cut.  More of our health care aid should be like Medicaid, which is relatively cheap and also targeted at those who really need the assistance.  The correct Medicaid decisions depend on other budget choices, but ideally Medicaid is low on the list of recommended cuts, even if it may require some cuts.

4. With either the block grants or the Medicare vouchers, I would urge maximum transparency.  Health care costs are increasing by about five percent a year.  That means a fixed value voucher loses about half its real value, in terms of command over health care resources, within fourteen years.  (It’s a bit more complicated than that, since not all health care costs are proportional price increases to currently available services.)   If that is the decision we are going to make, let us understand it as such.  I would add that Ryan’s opponents don’t avoid this kind of dilemma nearly as much as they think they do.

5. It would be nice to have a scientific estimate of how much fixed value vouchers would lower the rate of growth of health care costs.  I’m not convinced the effect here is large, but I’d like to see it studied more closely.

6. Ryan’s budget repeals ACA and thus in the semi-short run it could considerably increase Medicare costs.  There is no reason why Ryan’s plan shouldn’t keep the most fiscally responsible aspects of ACA.  Ryan exempts the current elderly from any Medicare cuts at all, see David Leonhardt’s remarks.

7. Over a ten-year time horizon, the Ryan plan increases the debt rather than decreasing it.  Take that as a sign of how hard fiscal reform is going to be.

8. As I’ve already blogged, the vouchers idea won’t help cut health care costs.  Let’s create some multiple public options within Medicare, some of which would allow people to trade health care benefits for cash.  Democrats are supposed to be “pro-choice,” right?  Or is that only for abortion?

9. I’m all for cutting the corporate income tax, but 35 to 25 percent isn’t impressive.  Let’s eliminate it altogether.

10. There’s not nearly enough on reforming the dysfunctional supply-side of our health care institutions.  Nor does science or basic research receive much discussion.

11. The plan does some strange things, such as repeal Dodd-Frank resolution authority, which most people, even Dodd-Frank critics, think is a good idea.  Ezra summarizes the entire list of budget changes.

12. The more the Democrats criticize this plan, the more it helps Ryan and the more it hurts the Democrats.  It reframes sticker shock, and the entire debate, simply to argue about $6 trillion in budget cuts.

13. #12 is the bottom line here, since the plan is not intended to be enacted into law.  Points #1-11 pale in comparison to #12-13.

Here is Reihan, and Megan, and Ezra on the CBO.

Slocum April 6, 2011 at 7:22 am

I’m still skeptical of the public-choice argument against vouchers — even if taking some cash in lieu of coverage is not an option for individuals. Yes, the insurers, collectively, would have an incentive to lobby for bigger vouchers, and if they were given an anti-trust exemption and allowed to collude, this would be fatal. But if they are truly competitive, then each company has a powerful motivation to provide the most bang-for-the-buck and pull customers away from other other companies and that drive to provide the most services for the cost of the voucher undercuts the case for ever growing voucher amounts. Contrast this with the situation of the competition-free single-payer where all the interests (providers, government insurance bureaucracy, patients) are aligned in demanding ever increasing expenditures.

Don April 6, 2011 at 1:54 pm

Truly naive!
Doesn’t work at all with emotional decisions that are brokered by 3rd parties. (Docs, and specialists.)

Jeffrey Ellis April 6, 2011 at 2:25 pm

Slocum, you write as though there is no real world experience with existing “truly competitive ” insurance companies. We know that “health” insurance companies do not help contain cost — they merely pass them along to the patient/customers with fee hikes and greater co-payments and deductibles — including an additional 20-30% surcharge for their profits and overheard. On the other hand, single-payer plans — as evidenced throughout most of the educated/developed democratic world — provide much more efficient, less expensive and equally or better quality health care for its participants.

Why would insurance companies attempt to pull away customers from their so-called “competition”, when it’s so much easier and profitable to make money hand over fist under their current system? There’s no anti-trust exemption now. What would change, other than more money coming in to their coffers to skim from?

PghMike April 6, 2011 at 2:31 pm

Actually, wouldn’t insurance companies do what they do today, and refuse to cover anyone who might be ill, or become ill?

abraham April 6, 2011 at 7:28 am

Ryan’s plan is as good as can be expected. If Rand Paul and Paul Ryan could win in 2012, America’s ultimate collapse might be deferred for a bit.

But our future is hyperinflation and a majority/minority state, neither of which are recipes for prosperity. People don’t get that the Great Recession and the Great Inflation yet to come are all downstream phenomena of demographics.

http://www.washingtonpost.com/wp-dyn/content/article/2011/03/08/AR2011030806198.html

More than half the children in California are Latinos, according to new census statistics that show the nation’s most populous state rapidly approaching the day when Hispanics overtake whites as the largest minority.

Boonton April 6, 2011 at 7:57 am

There was a time when Americans worried about swarthy Southern Europeans (and poor Irish who are technically north Europe) overtaking more gentlemanly Northern European stock. It happened, the sun kept coming up in the morning and setting in the eventing.

Anonymous April 6, 2011 at 9:08 am

I’m neutral on the substance, but bad argument. Reversed stupidity is not intelligence.

chris April 6, 2011 at 11:27 am

But more of the same stupidity, directed at a different target, is still stupidity.

Anonymous April 6, 2011 at 12:23 pm

So since we were scared about global cooling and that was wrong, we shouldn’t worry about global warming?

Same rhetorical idiocy, opposite side. Might be easier for partisan-blinded folks to see.

Nancy Irving April 12, 2011 at 6:29 am

Don’t forget the Awful Danger that was presented by eastern Europeans, Jews and–horrors!–the Yellow Peril!

RC April 6, 2011 at 1:45 pm

Ryan’s plan is a train wreck. Cutting taxes to the wealthiest people (who already enjoy the lowest tax rates since the 1930s), cutting aid to the poor (and don’t kid yourself, that is exactly what this proposal will do), and not decreasing the size of the deficit over the first ten years-sounds like madness that will destroy what’s left of this country. I have not seen a serious plan to address the deficit and the current economic problems from any politician, and Ryan’s is the least serious of all. How people can think this guy is some sort of budget guru with with even a modicum of intellectual spark is a mystery to me.

gaelen April 6, 2011 at 2:08 pm

Exactly. 2.8% unemployment should have gotten this plan laughed out of the room.

TA April 6, 2011 at 3:05 pm

That 2.8% figure came from the Heritage Foundation assessment, not Paul Ryan himself.

Pat L April 8, 2011 at 1:59 pm

And why did Ryan go to the Heritage Foundation for projections? Because he wanted laughably favorable analysis.

Andrew April 6, 2011 at 7:33 am

10. This is partly addressed by your recent choice ideas. The current healthcare system has to take all-comers and I’m not talking about people without insurance, I’m talking about they have no idea what they are going to deal with so they have to have the flexible capacity for everything. This would be a very expensive way to manufacture if a plant manager was told “you have to be ready to make anything on any given day.” The UK way to brute force this this problem is to have artificial under-capacity. Are experts who just put their foot down on what will be reimbursed or individuals who commit to one set of options and agree to pay more when they bet wrong the best way to go about rationalizing the resources?

Delly April 6, 2011 at 7:49 am

You know that a violet background would increase your visitors right?

Boonton April 6, 2011 at 7:53 am

I wouldn’t necessarily be against ‘more choice’ in Medicare but it would be in a more limited form. You don’t get to choose what’s covered. Medicare is about providing a baseline coverage for the elderly. I would see, though, some choice in ‘how’ its covered. Do you take a 20% copayment for basic non-hospital services or opt for a 5% copayment but have to choose from only ‘in-network’ doctors? To me this is akin to a person opting to get their social security check via direct deposit rather than paper or opting to taking it in a bi-weekly form rather than monthly etc. But how about letting someone ‘choose’ to take their social security check in the form of Enron stock because their son-in-law says its a great deal? There I’d draw the line and say you get a social security benefit and if you want to buy a certain stock then do it yourself.

I think the issue is when the choices become less about real choice for the patient and more about finding ways to screen out the ill or likely to become ill from the insurance pool so a company can collect premiums for insuring people that mostly don’t get sick and therefore appear to be ‘lowering costs’. This can be done outright with pre-existing conditions and so on but it can also be done in more subtle ways such as adding ‘goodies’ (massage, gym memberships) that would appeal to those who are realtively healthy but not those with serious problems or by putting low quality specialists in the ‘network’ list while keeping higher quality ones out of network.

I think it’s more sensible to take the piecemeal, ‘scientific’ cuts of the ACA and expand them if you want and let the ‘choice’ be people opting to buy supplemental insurance from the market if they want more coverage. The problem is that the ‘choice’ Tyler and Ryan insist on already exists as part of the system.

a April 6, 2011 at 7:55 am

“Are we so sure that Medicaid produces the maximum benefit for the money?”

Are we so sure that lower taxation rates on the wealthy produces the greatest social benefit?
Are we sure that American defense spending produces the best bang for the buck?
Are we sure that the American electoral process produces the best candidates?
Are we sure that pigs don’t fly?

“Low-quality moralizing about the poor is not an answer to this question.” Of course it isn’t, because the question is framed in such a tendentious way. Still, somehow I don’t think Tyler thinks high-quality moralizing about the poor provides an answer, either. He just doesn’t want moralizing about the poor, tout court, because it’s just too bothersome to his preferred theory of economic organization.

Josh M April 6, 2011 at 8:18 am

“Are we so sure that lower taxation rates on the wealthy produces the greatest social benefit?”

No, we argue about this all the time.

“Are we sure that American defense spending produces the best bang for the buck?”

We are sure that it doesn’t.

“Are we sure that the American electoral process produces the best candidates?”

We are even more sure of this.

“Are we sure that pigs don’t fly?”

Slightly less sure than about the previous two.

“… the question is framed in such a tendentious way.”

Asking whether or not something is the best use of our money is not tendentious, unless you redefine the word to mean “jars me because I don’t have ready access to talking points in response.”

a April 6, 2011 at 9:33 am

It is certainly tendentious when one supports Y to replace X and asks, Is X really the best option?, without asking as well, Is Y really the best option?

jimi April 6, 2011 at 10:32 am

I disagree. American defense spending most certainly produces the biggest “bang” for the buck.

Careless April 6, 2011 at 6:59 pm

I’m guessing Soviet nukes were cheaper per megaton

Lou April 6, 2011 at 8:53 am

The alternative he’s looking for to “low quality moralizing” is probably not “high quality moralizing”. It is most likely “thoughtful analysis”.

a April 6, 2011 at 9:31 am

If Tyler really wanted thoughtful analysis, he would have complained about lo-quality analysis, not
lo-quality moralizing. It’s the moralizing part that bothers and stumps him, not the thoughtful part.

chris April 6, 2011 at 11:29 am

Are we so sure that lower taxation rates on the wealthy produces the greatest social benefit?
Are we sure that American defense spending produces the best bang for the buck?
Are we sure that the American electoral process produces the best candidates?
Are we sure that pigs don’t fly?

Pigs fly if you have a large enough catapult, which is more than you can say for any of the other three statements.

joe April 6, 2011 at 12:05 pm

“Are we so sure that Medicaid produces the maximum benefit for the money?”
If Medicaid has trillions in future unfunded liabilities, and people do not think it is providing enough free (paid by others) care and want more free (paid by others) care, then it is producing the maximum benefit in the same way an addict gets the maximum benefit from their 1k/per day fix.

Are we so sure that lower taxation rates on the wealthy produces the greatest social benefit?

Who gets to define what ” the greatest social benefit” means. Some would say the greatest social benefit would be for the government to tax the capable and give to the incapable. Others would say the greatest social benefit is for people to learn how to take care of themselves and when help is required their past life choices are used as collateral to prove that if help is provided it will be used wisely.

Are we sure that American defense spending produces the best bang for the buck?

Defense is one of the original intended functions of government. Defending ourselves by going into libya is a question best dodged by our current President.

Are we sure that the American electoral process produces the best candidates?
It produces the worst candidates if you exclude all the other systems of producing candidates.

Are we sure that pigs don’t fly?
Build a trebuchet big enough and it can make anything fly. Luckily a pig won’t require a very big one.

Andrew Edwards April 6, 2011 at 8:19 am

#12/13 is right in that the budget would nearly be balanced if Congress just passed no new laws (including re-upping on Bush tax cuts and other extensions of “temporary” laws) for a few years. The Ryan plan is fundamentally about working out what cuts need to be made in order to pass large tax cuts, not really about “balancing the budget” per se. That’s fine and a worthy debate, perhaps, but Dems should not buy the budgetary frame.

#9 is dead right – corporate income taxes are bad policy and one of the least thoughtful things that the left does, based on a false analogy between corporations and indididual budgets, plus some “fat cat”-type moralizing. That said, you would need to tweak capital gains taxes, or income taxes on millionaires, to make it budget neutral and politically feasible. Which should be done. (But which Ryan won’t do as he wants a plan that always cuts taxes on the top bracket)

Floccina April 6, 2011 at 9:39 am

But shouldn’t corporations pay some sort of insurance premium in return for limited liability? I think it is good to favor partnerships in some way which the corporate tax does.

Boonton April 6, 2011 at 10:28 am

Indeed, what is the actual gain from eliminating the corporate income tax? While it may not be the best policy it doesn’t seem like something that’s so large that eliminating it would do much for growth.

There might be spill over effects as well. The requirement that corporations keep books that are subject to IRS audit probably improves the financial system overall. Not all corporations are publically traded so SEC rules wouldn’t be a substitute and the idea that no large company would ever be so stupid as to keep crappy books doesn’t exactly fly with history…..ergo Enron, AIG and others.

Phill April 6, 2011 at 11:26 am

I’m curious about this. What’s the argument for eliminating corporate income taxes? What percentage of revenue do they account for in the budget?

Is there another form of taxation that I’m simply not aware of, other than sales taxes, capital gains and bureaucratic costs like licenses? I’m all for simplifying any bureaucratic regime, administrative overheads are kind of ridiculous. That said, corporations also benefit from various government services – the courts, transportation infrastructure, et al. How do they pay for their share? Should we dump it on payroll taxes, or transfer the burden to shareholders?

It seems like it would create some perverse incentives.

Dan Weber April 6, 2011 at 11:48 am

Corporate income tax is about 12% of Federal revenue. To a first-order approximation, if you eliminate the corporate income tax and make dividends and capital gains taxed the same as wages, you get the same revenue, but you make tax compliance and law a fair bit simpler.

Gene Callahan April 6, 2011 at 12:04 pm

“What’s the argument for eliminating corporate income taxes?”

Corporations are incapable of paying taxes as they do not consume. They are merely the collection point for a tax that falls on their shareholders, employees, suppliers and/or customers. Why not drop the legal fiction that they pay taxes and collect it straight from who really pays the tax? (In general, the economic incidence of a tax is only loosely connected to its legal incidence.)

Gene Callahan April 6, 2011 at 12:24 pm

By the way, that’s not something I just dreamed up, but standard economic analysis. Here’s the CBO on this fact:
“A corporation may write its check to the Internal Revenue Service for payment of the corporate income tax, but that money must come from somewhere: from reduced returns to investors in the company, lower wages to its workers, or higher prices that consumers pay for the products the company produces.”

And the Office of Tax Analysis has done a study concluding that most of the burden falls on wages. So it turns out a corporate tax is really just another income tax!

jack Davis April 6, 2011 at 7:51 pm

If we’re going to keep the practice of taxing corporations, we would be better off reducing the current rates. Presently the major corporations pay no taxes anyway because of all of the loopholes in the tax code. A flat rate of 10-15% would probably collect more taxes than the current system does.

On the other hand, even liberal economist Robert Reich suggests eliminating the corporate tax completely, so I’m inclined to think we should just get rid of it.

Boonton April 6, 2011 at 9:34 pm

“A corporation may write its check to the Internal Revenue Service for payment of the corporate income tax, but that money must come from somewhere: from reduced returns to investors in the company, lower wages to its workers, or higher prices that consumers pay for the products the company produces.”

OK here’s my problem.

1. It’s not going to go to employees. If a company wants to pay its employees more, it will do so now. After all, those payments just go to lower its net income which lowers its tax expense. So if it felt that it needed to pay more salaries to attract higher quality workers, it would do so whether or not there was an income tax.

2. I think the same thing is in play for consumers. If it wants to charge less it can do so now, every dollar that doesn’t come in is a dollar that isn’t taxed. If the company is a price taker in a competitive industry then it has no control over prices. If it’s a monopoly-like price maker then it sets the price to maximize revenue. Just not sure about it.

3. Given the above concern, why would anyone form corporations to begin with? Why give away 35% of your income on the top? Clearly the fact that corporations can exist in law must create some type of value. How much value? well at least 35% of the income that they are taxed. If it was less, they wouldn’t bother to incorporate so it must be equal too or more than what they pay in corporate income tax. If the gov’t is creating value by having corporations allowed in law….well then the tax seems to be akin to a user fee.

Andrew Edwards April 6, 2011 at 10:22 pm

Erik has it below. It is a false analogy – corporate profits flow through to other taxpayers, and are taxed appropriately (or not) then. Corporations are not people and the analogy should be rejected when talking taxation as much as when talking free speech,

You would probably need to raise some other taxes to offset an elimination of corporate taxes, but this is just because some small business owners and senior large corporate execs would relabel personal expenses as corporate ones even more so than they do now.

Tracy W April 8, 2011 at 7:14 am

Boonton: On your points, what you need to include is that an increase in the company tax generally affects all companies, holding deductions constant. So, say company tax goes up 10%. Each company has three ways of paying that tax, they can reduce what they pay out in dividends to shareholders, they can increase their prices to consumers, or they can reduce what they pay to employees, or they can do some combination of all three.

Now, if only one company faces a higher tax bill, in a competitive market, it can’t raise prices or cut what it pays employees. But if every company in the market faces a higher tax bill, then they can all raise prices, just like if the price of oil rises, then all transport companies can raise prices, because the transport companies that don’t raise prices go broke trying to pay the oil bill. And, if every company in the employment market faces a higher tax bill that makes employing people less attractive, then they can all cut the wages they offer. The ones that don’t will go bust, as their profits aren’t enough to pay the tax and meet their investors’ desired rate of return. And if the return on every possible investment is cut, then it gets too difficult for theory to predict, as investors might cut their investments because the rate of return is too low, or increase it because they really want that old-age income.

Out of these options, which actually gets cut depends on what alternatives the consumers/workers/investors have, which is an empirical question. The studies that have done indicate that who bears corporate taxes is that in the long-run a lot is borne by wages. See http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2010/04/corporate-tax-incidence-some-evidence.html
This is plausible, as workers are generally less quick to leave the country than capital, and most goods have some substitutes so the ability to raise prices is limited.

Erik April 6, 2011 at 12:21 pm

The corporate income tax incentives all sorts of bad outcomes from an economic standpoint. And you could just amend the rules so that a regulatory body would have some oversight into the affairs of private companies choosing to incorporate. And I don’t see how it improves the financial system overall anyhow. The IRS has no mandate other than tax collection. It doesn’t verify the solvency or lack thereof of a corporation. At best you avoid crooked accounting in private companies, but I don’t see why we have a vested interest in that anyhow. There are already vehicles for private investors to seek redress if they feel they have been defrauded, and these investors are saavy enough that they can do their own due diligence.

The corporate tax itself incentivizes the use of debt of a funding mechanism, the expenditures of massive amounts of capital on tax avoidance, lobbying for constant revision of the tax code, and the moving of assets offshore. It is really a poor way to go about collecting tax revenue.

Don K April 6, 2011 at 5:15 pm

In addition, arious provisions in the corporate tax code incentivize crappy business decisions because they make sense from a tax standpoint.

If I were writing the federal tax code starting from scratch, I’d forget about having a corporate income tax, and instead would mandate attributing the pre-tax income of corporations to their shareholders. And it would be the reported (GAAP) income, not some funky number after adjustments for accelerated depreciation and thousands of other provisions inserted into the tax code by corporate lobbyists. You want to report high earnings to goose the share price, Mr. CEO? Be prepared to pay taxes on it next April.

I suppose there would have to be a standby tax for U.S. subsidiaries of foreign corporations (actually, there are other complications having to do with cross-border ownership situations, but that’s the first one that comes to mind), but I’m just outlining a broad principal here, not trying to work out details.

Andrew Edwards April 6, 2011 at 10:16 pm

Erik has it, more or less

I’m not sure Don K’s point makes sense as it keeps the problem that corporations are basically incentivized to make business decisions that generate GAAP losses but positive EBITDA. There are tons of things in this category.

Notably, the balance between labour and capital is shifted, as is the balance between buying and leasing.

Also, as Erik correctly notes, it creates tax lobbying, and creates distortionary tax credits as spending-that-looks-like-tax-cuts, a favorite of Republicans looking to shovel goodies to specific industries (corn, oil, defense) while claiming to support a small neutral government. Everyone should oppose all of this, regardless of political orientation.

Bernard Yomtov April 6, 2011 at 3:19 pm

When Republicans start calling for higher rates on dividends and capital gains to make up for lost corporate incoem tax revenue, let me know.

Andrew Edwards April 6, 2011 at 10:09 pm

I for one would LOVE to see a Democrat seriously propose exactly this, if for no other reason than to see existing alliances scrambled.

Cliff April 6, 2011 at 8:33 am

Why is everyone so convinced that it would be politically impossible to ever deny anyone care? After all, people do not get care they need sometimes now because it is not covered by their insurance or Medicare, right? I don’t hear a huge political outcry over this now.

Rich Berger April 6, 2011 at 8:37 am

1. Tyler – this is weak, even for you. You are an economist, aren’t you? Why are you outsourcing your arguments to chuckleheads like Messrs. Church and Klein? A Hertitage study is discredited and that means that Ryan’s macro projections are weak?

gaelen April 6, 2011 at 2:28 pm

His macro projections are weak because they are almost entirely based on unfounded assumptions. He cuts non-defense discretionary to 3.5% of GDP with out ever going through, in any detail, how this would be done. It is worth noting that Ryan’s Macro projections are based on that discredited study.

ACS April 6, 2011 at 2:41 pm

The macroeconomic numbers are not just weak. They are insane. There has never, so long as unemployment numbers have been collected, been a one-year 2.8% unemployment rate. The closest we’ve ever come was in 1953, when the unemployment rate was 2.9% and labor market participation was substantially smaller than it is now.

Boonton April 6, 2011 at 3:36 pm

Wacky macro numbers are ok but then you gotta do an apples to apples comparision. If unemployment did fall to 2.8% Obama’s budget probably does better over the next ten years. A lot of the ‘problems’ over the larger term probably also disappear making the question what does the Ryan budget solve?

Bill April 6, 2011 at 8:45 am

You can tell how popular and supported the “Ryan” plan is by the fact that it is framed as the Ryan Plan, not the Republican Plan.

Democrats would be smart and start calling it the Republican plan.

That way, the comment you made: “The more the Democrats criticize this plan, the more it helps Ryan and the more it hurts the Democrats,” would be symmetricallty rewritten as “The more the Democrats criticize this plan, the more it helps Republicans and the more it hurts the Democrats”

You can tell how popular something is by how the proponent frames it: as its own, or as someone elses.

Andrew April 6, 2011 at 8:59 am

That may just make Ryan and his plan more popular. Remember, you heard it here first: A Paul will be President. It might be a Ron, it might be a Ryan.

Bill April 6, 2011 at 10:55 am

About as big a chance as Peter, Paul and Mary.

hibikir April 11, 2011 at 11:47 am

At this rate, I’d be willing to vote for Ringo.

Orange14 April 6, 2011 at 9:08 am

If the Medicare plan is so great why not implement it immediately? (Answer: they would lose 99% of the over 55 voters next year.)
If the Corporate tax is eliminated, what revenue stream is added to make up for its loss?
Is it moral to provide our poorest citizens with a benefit that does not come close to providing their basic needs (e.g., combination of basic health care and food)?
What are the specifics of corporate welfare that will be eliminated (farm supports, tax credits of all kinds, etc)?

Fundamentally the problem is pretty simple: Budget (surplus/deficit) = Revenues – Expenditures; politically it is very difficult. I see no answers in the Ryan document to the above and other issues. As long as the Republicans are against any kind of increase on the revenue side it will be impossible for the budget to be balanced.

OMAR April 6, 2011 at 1:56 pm

The increase on the revenue side comes from the cut in taxes. As more money is let into the economy the economy grows and thus wages grow, businesses grow prosperity grows. So while the tax rate does not get larger but smaller, the state’s revenue increases.

An example is if you own a store and you put ipods on sale you make more money but you were charging people less….how does that work?

gaelen April 6, 2011 at 2:31 pm

It is worth noting that this revenue growth through tax cuts has been tried multiple times over the last thirty odd years, and it is a large part of the reason that we have been running deficits over that same time period. But good luck this time.

Thomas Sewell April 6, 2011 at 2:52 pm

A look at the history of revenue and expenditures over time compared to the deficit in the U.S. makes it clear that revenue declining doesn’t have much to do with deficits increasing. It’s all about the spending levels growing faster then revenue grows and/or spending growing while revenue is flat.

Every time we’ve had big deficits, spending went way up. Revenue also went up most of a the time. Occasionally it’s fairly flat. It’s never gone down for any sustained period. The big bugaboo deficits that Dems like to cite happened when revenue was going up, up, up after tax cuts, but spending went up even more.

The U.S. has a government spending problem, not a government revenue problem.

Boonton April 6, 2011 at 4:17 pm

http://seekingalpha.com/article/164144-deficit-growth-where-s-the-money-going

Check out the 2nd chart. Except for the ‘hokey stick’ at the near present for outlays, spending appears relatively constant with a nearly steady upward slope. It’s revenues that’s swinging up and down, esp. starting in the Bush years.

When you look at what makes up the spending spike, you see things that are temporary (TARP, Stimulus, and to a lesser extent things like food stamps which cycle down when the economy recovers).

http://usjamerica.files.wordpress.com/2010/04/12-16-09bud-rev2-17-10-f1.jpg?w=301&h=366

has a better graphic. In the short term at least the deficit is a revenue problem. Not a revenue problelm of tax rates being too low but a revenue problem in that during a recession people don’t pay taxes because incomes fall.

Dasp April 6, 2011 at 9:13 am

I think arguments of the form “the more you attack X’s politics, the more you help X” (i.e. #12) are almost always wrong. It is very possible, as we have seen, to stir up a major ruckus over changes involving Medicare.

Jim Nazium April 6, 2011 at 9:15 am

I’d like some more clarification of #12. How does Democrats’ criticism of the plan hurt Dems and help Ryan?

sourcreamus April 6, 2011 at 2:10 pm

It is like how an opening bid can influence the final price at an auction. Ryan’s plan balances the budget with spending cuts and entitlement reform, thus framing the debate into how much should be cut and how much should be reformed. The Democrat party can do 3 things to respond. If they do nothing they will be attacked as non-serious about fiscal sanity by every honest pundit in America. This is a problem as polls show the deficit and debt problems as an important concern for many independents. They can produce a budget plan that balances the budget with tax increases and validate the stereotypes of tax and spend liberals and alienate independents. They can produce a budget plans that mixes tax hikes and spending cuts, but it will get be compared to the Ryan budget and be seen as selling out by the liberals and not enough by the conservatives.
Meanwhile Ryan becomes more of a national figure everytime a Democrat attacks him and his ideas get spread via the exposure.

Dasp April 6, 2011 at 3:25 pm

This is reasonable up until the last sentence. Being made a national figure because the media fawn over your seriousness and drive to save Medicare (it has to be justified in those terms!) is one thing – this is the framing Ryan and the GOP want. Being made a national figure by attacks that label you as a man who wants to “end Medicare as we know it” is bad publicity – not the exposure Ryan wants. Medicare is very popular overall, even if it isn’t on this blog.

Just assuming that any publicity at all, even negative, will help Ryan and cause people to agree with you is wishful thinking on your part.

Dasp April 6, 2011 at 3:35 pm

Consider e.g. how badly the Democrats were hurt by attacking changes to Social Security in 2005.

Joe April 6, 2011 at 9:16 am

Yglesias was misleading his audience. He was comparing Ryan’s plan to current law–no AMT patch, elimination of bush tax rate reductions, probably something about that medicare SGR, etc. Compared to the alternative fiscal scenario at CBO, Ryan’s plan shaved $5 Trillion and kept the debt held by public at 70% as opposed to 95% at the end of the 10 year window.

Counterfactual April 6, 2011 at 6:48 pm

Why is it misleading to point out that Ryan’s plan will lower taxes in the long-run to lower than current law now has in place and that this lowering will increase the deficit? It’s just pointing a fact (admittedly a rather inconvient fact for people pushing the Ryan plan, but I can’t help that). It’s asking a bit much of those of us who favor a go after everything approach (domestic spending cuts, defense spending, and tax increases) to point out that Ryan’s plan is now exhibit A showing a domestic spending cuts approach alone does not work. It makes the deficit worse until Medicare cuts kick in, and since that is put off to the future because it is too politically unpopular to happen now, I think that any ‘serious’ analysis will admit they will not happen then either to the extent the Ryan plan needs them to happen.

Mark April 6, 2011 at 9:17 am

“Democrats are supposed to be “pro-choice,” right? Or is that only for abortion?”

Getting snarky.

Dan Weber April 6, 2011 at 11:53 am

And it was just a few days ago that I sighed over people playing linguistic games in politics.

Thought+Food April 6, 2011 at 9:28 am

Would you please comment on the proposal for cutting farm subsidies (not included here but reported in the link below ?
(http://www.reuters.com/article/2011/04/05/budget-usda-idUSN0511779420110405?feedType=RSS&feedName=everything&virtualBrandChannel=11563

Also, what is your own opinion on the farm subsidy question?
Thanks!

TomB April 6, 2011 at 1:07 pm

I feel confident that the answer would be it doesn’t go far enough, and the ideal amount to spend on farm subsidies is 0.

dave April 6, 2011 at 9:38 am

This plan is going nowhere and it is a waste of time to talk about.

SteveX (formerly Steve) April 6, 2011 at 9:52 am

Can’t agree more. Tyler already knows the answer and summed it up in #13. All we have to decide is whether or not it’s a budget policy or a political strategy.

TA April 6, 2011 at 3:10 pm

You’re right. Much like the “repeal of Obamacare” it’s a bullet point for the Republicans to rally their base around. WIth an outside chance that they may goad the Democrats into producing their own plan (which will include tax hikes) so they can run against that in 2012.

So, while Obama might have ‘punted’ the ball on this issue. Some Republicans are merely playing monkey in the middle with it.

Noah Yetter April 6, 2011 at 9:40 am

Compared to PPACA, #7 just means the Ryan plan is honest.

Mosley April 6, 2011 at 9:45 am

I’m talking about they have no idea what they are going to deal with so they have to have the flexible capacity for everything. This would be a very expensive way to manufacture if a plant manager was told “you have to be ready to make anything on any given day.

Floccina April 6, 2011 at 9:45 am

Concerning somehow limiting care

The other day I heard an blurb on my local NPR station that I found frightening and disorienting. It was from the college of veterinary medicine at the University of Florida (I live in Gainesville FL). It was about hip replacements for dogs! They told how many they do. I was stunned. Having grown up when I did, I though who would do a hip replacement on a dog!

If we have come to doing hip replacements on dogs how will we ever commit to a fixed value voucher system that would limit care for humans?

On another issue a hip replacement for a dog in much, much cheaper than for a dog and there is no inherent reason that they should be as far apart in cost as they are. Maybe it is due to excessive licensing/regulation on the human care side! It could also be related to Robin Hanson’s Idea that we spend to show we care and so the amount must be high even if it need no be.

Perhaps monopsony is the only answer to controlling costs, It solves the excessive licensing/regulation problem in a roundabout way and looks like are giving your all though you are not.

SteveX (formerly Steve) April 6, 2011 at 9:59 am

The frightening part is that it took 5 specialists, 9 MRIs, analysis on 20 or 30 blood samples, 15 conference calls, and an animal psychologist to determine if the dog was even a candidate for hip replacement. The good news is that if the operation fails, the death panel won’t have much trouble making a decision.

Boonton April 6, 2011 at 10:42 am

Quick Googling, the average non-insurance cost of a hip replacement is about $33K.

http://www.statehealthfacts.org/comparetable.jsp?cat=6&ind=289, though, seems to say that Medicare pays between $10K-$12K for hip replacements (not sure if that includes just the operation, the parts, the doctor or whatnot).

http://www.vetinfo.com/dog-surgery-costs.html says that dog hip replacement ranges from $1200-$2400 plus $50 a month in medication.

This doesn’t seem so wacky when you consider:

1. The stakes of operating on a human are higher than a dog….sorry dog lovers but its true.

2. The Medicare cost is 5-10 times the cost of a dog. But dogs rarely live to 20 years. A dog who needs a new hip will probably only need it to work a few years. A human will likely need that hip to keep working for many more years.

3. Physically humans are big and heavy, dogs are lighter. A functioning hip for a dog doesn’t need to be able to stand up to the stress that one would for a person.

4. Operating on humans is more expensive. We need hospital rooms with nice beds, TVs and our pain meds finely tuned to keep our mental balance right. We won’t recover from our operations on a metal table, eating mashed up wet food out of a can wearing big plastic cones.

Bill April 6, 2011 at 10:59 am

Boonton, Good ;pricing analysis, although, remember a dog is man’s best friend, but one man is seldom another man’s best friend.

Boonton April 6, 2011 at 1:21 pm

True, I seldom pay for other people’s hips, though. At least directly. I’ll do it by via a Medicare tax of a few small % points of my income. I get to know everyone who needs a hip gets one but I don’t actually have to make friends with em all.

Bill April 6, 2011 at 2:17 pm

You have a range of probabilities of catastrophes that you will face on or after 65. Think of your parents or grandparents.

There may be none, there may be many. You and I do not know. I may not pay for your hips, but maybe your heartvalve, or your prostate.

And, you for mine.

SteveX (formerly Steve) April 6, 2011 at 11:37 am

“We won’t recover from our operations on a metal table, eating mashed up wet food out of a can wearing big plastic cones.”

If this budget goes through we sure as hell will.

Careless April 7, 2011 at 11:50 am

Not a lot of vets paying hundreds of thousands of dollars a year in malpractice insurance

chris April 6, 2011 at 11:39 am

On another issue a hip replacement for a dog in much, much cheaper than for a dog and there is no inherent reason that they should be as far apart in cost as they are. Maybe it is due to excessive licensing/regulation on the human care side!

Regulation (or the safety precautions required by that regulation) that is excessive to save the life of a dog may not be so excessive when it saves the life of a human. If 2% or even 5% of dogs died on the OR table, or the replacement doesn’t work well enough and they have to be put down anyway, that is sad but acceptable. If 5% of human patients die on the table or end up with replacement hips they can’t walk on, that’s an outrage and a bunch of lawsuits.

And it’s no good trying to blame the lawyers — the actual consequences of mistake, infection, malfunctioning device, etc. on a human really are much greater than the consequences of doing the same thing to a dog.

For similar reasons it’s much more acceptable to have the dog convalesce at home — the downside of missing an after-operation complication isn’t as critical. And dogs never live alone anyway, there’s always someone else available to monitor their condition and bring them back in if necessary. A human has to be kept for observation because the risk if you don’t is unacceptable (to humans).

Huong April 6, 2011 at 10:36 am
Mike April 6, 2011 at 11:01 am

I guess you could have started and stopped at 13, but I think you knew that going in.

It’s helpful to bring up and discuss alternatives. It’s useful to understand this is political wrangling on both sides, which is your point in 12. Still, Ryan has to have a working document prepared for 2013.

Bill, one thing Republicans have failed to do in the past decade is cultivate young talent. This is called the Ryan Bill for a very good reason – He’ll be President Ryan someday. It’s more than Obama or Hillary did before running.

SteveX (formerly Steve) April 6, 2011 at 11:32 am

Will President Ryan precede or succeed President Winfrey?

Dean Sayers April 6, 2011 at 12:07 pm

“I’m all for cutting the corporate income tax, but 35 to 25 percent isn’t impressive. Let’s eliminate it altogether.”

I thought you were talking about ways to resolve the deficit, not expand it.

James C April 7, 2011 at 2:57 am

the US is hemorrhaging jobs because of our corporate income tax. whats 35% of 0? im not sure if the US can get rid of it all at once, but theres no reason why it cant be immediately lowered to 20%, and then phased out completely over time. not only that, but like someone said already, corporations dont pay taxes, people do. and of the 3 groups of people involved in a business, it is the workers who bear the costs of the corp. income tax, not the investors or the customers. the people who make a big deal about the income inequality in the US never factor in the corporate income tax.

Anon April 6, 2011 at 12:11 pm

Your #1 point is nothing but links to two established idiots?

Jim April 7, 2011 at 10:38 am

Well said.

And this is the single best thing we could do to help the American economy, or perhaps a close second behind banning public sector unions:

>>I’m all for cutting the corporate income tax, but 35 to 25 percent isn’t impressive. Let’s eliminate it altogether.

Tyler April 6, 2011 at 1:19 pm

“Over a ten-year time horizon, the Ryan plan increases the debt rather than decreasing it. Take that as a sign of how hard fiscal reform is going to be.”

It actually will not be that hard if we stop cutting taxes.

Bill April 6, 2011 at 2:21 pm

In fact, if you look at the Yglassias comment–that Ryans plan has TAX CUTS over the ten year period, which will increase the deficit–and that the Medicare changes occur in 2022, you can wonder what Tyler meant when he said: “Over a ten-year time horizon, the Ryan plan increases the debt rather than decreasing it. Take that as a sign of how hard fiscal reform is going to be.”

Obviously, if you cut taxes during this ten year period.

No one is talking about the Ryan tax cuts, or untouched military spending.

Why?

Jesse Ewiak April 6, 2011 at 2:58 pm

Because you’re only serious if you’re hurting the poor and middle-class. If you increase taxes on the rich by one cent or cut the budget of the Department of Defense Contracting, you’re just engaging in class warfare.

Brian G. April 8, 2011 at 2:04 am

There is no tax rate that will get us to 24% of GDP. Your statement is simply not supported by history. Generating more revenues will just result in politicians spending more.

Tim April 6, 2011 at 1:36 pm

I’m pro-choice. And I’ll be pro-vouchers if you bust the biggest health care providers in the country and make sure there are at least 4 insurance choices in every market.

Until then I prefer nationalized health care run by the government over nationalized health care run by Blue Cross Blue Shield. Don’t try to pretend your slightly different system is “pro-choice”. That’s just pathetic rhetoric. The Republican party must embrace trust-busting to free up the market. Until then, no I don’t think Blue Cross Blue Shield will EVER be cheaper or more efficient than a Federally run health plan. They have ZERO reason to be.

Michael K April 6, 2011 at 2:23 pm

Prior to 1963, when the cost of medicine was quite cheap (people could pay for having babies out of pocket) , no one would insure the elderly and there a large number of elderly who simply could not afford care. What is the incentive for insurance companies to serve the elderly who will inevitably get sick and whose medical costs are very high – most of the costs of medical treatment come in the last decade of a person’s life? Insuring a twenty-something person in a large pool of similar persons is profit. Insuring someone who will get sick (and probably not die) in a pool of persons who will also get sick is lost money. There is no profitable reason to insure the elderly unless you charge them accordingly, and few would be able to afford it. What is the public policy advantage in a situation like that?

Also, even now there are only a few providers who take Medicare alone on an outpatient basis. My father, a retired physician, was taken on “as a favor” due to his connections in the town they moved to. If he had not had physician friends, he would have to have traveled seventy miles to a university medical center just to get a checkup.

The idea that health insurance companies will take a voucher and continue to serve over 65 patients without cherry picking or lemon dropping is hard to imagine in the scenario of free market medicine as envisioned by Rep. Ryan.

Bill April 6, 2011 at 5:36 pm

Michael K,
You are right on, and thanks for reminding those who do not recall the past, perhaps because they were not born then or their parents did not tell them.

The only way you avoid the problems you mentioned would be if a person signed on at age 20 with an insurance company, paying them a premium over a lifetime, to cover the medical expenses when they retire.

No one would do that because they couldn’t trust the insurance company.

I trust something, at least in a democracy, that I can control to engage in this insurance contract via medicare. I do worry about my fellow citizens, though, when they do not use the noggins in discussing medicare, but it is still not as big a risk as picking AIG as my insurer.

Jesse Ewiak April 6, 2011 at 1:54 pm

Fixing the budget short-term is easy. Reduce the Defense budget to pre-Bush levels and increase taxes to Clintonian levels. Problem solved. There’s still some issues with Medicare in 2040-whatever, but the idea we’re DOOMED DOOMED is simple BS that’s being played up by those that wanna’ takes us back to 1931.

gaelen April 6, 2011 at 2:44 pm

Amen! Slightly higher tax rates, slightly less spending in the medium term (preferably from defense). Then control cost through health care delivery system.

Also what do people here think about slowly moving the majority of taxes to externalities and waste. It seems to me that getting rid of or significantly lower income, payroll, capital gains, corporate etc and taxing unproductive activity would be a no brainer. I also realize that it would be very difficult to set up, but that is what we pay economists for.

Careless April 7, 2011 at 12:00 pm

You think that undoing the Bush/Obama tax cuts would double income tax receipts? You’re off by a factor of 3 or 4

Michael April 6, 2011 at 3:00 pm

“Are we so sure that Medicaid produces the maximum benefit for the money?”

I’m working with a grad student on the effectiveness of public vs. private insurance in the US. At face value, private insurance is better, but that is only because the public plans cover high risk people (elderly, poor, etc.) Once you control for all of that (income, race, age, etc.), her results show that the public plans actually lead to better outcomes. This does not go over well at conferences. “Well, obviously you are doing something wrong somewhere because everyone knows these results can’t be true,” is typically the most common response she gets.

From the first comment:
“But if they are truly competitive, then each company has a powerful motivation to provide the most bang-for-the-buck and pull customers away from other other companies.”

This isn’t my area, but I have colleagues that deal with this. From what I’ve gathered from the seminars I’ve attended Insurance markets are pretty unique for a variety of reasons. Obviously, patents know more information about their health than the companies, and for some non-intuitive reasons companies may even have an incentive to withhold information about their policies to the consumer (ie, they don’t want you to know how much bang you get for your buck, its more profitable when consumers are in the dark). Remember, this is a market where the company actually loses money whenever it provides the service its being paid to provide (paying medical bills). There is also the fact that the insurance market is not just between the firm and the policy holder, but also hinges on agreements between the firm and the care provider (doctor, hospital, etc). This complicates things as well as you may want your insurance company to have market power when dealing with doctors and hospitals but not want them to have market power when dealing with you. It may also be the case that its more profitable for firms to exploit “dumb” customers who don’t understand policies than it is for them to compete for the “smart” ones that do. Not only that, it may be more profitable to do everything they can to make it hard for “smart” customers to learn anything (in effect, limiting smart customer’s information so that they are forced to act like “dumb” customers). In general standard “intuitive” free-market conclusions may not hold. The competitive equilibrium can look pretty wacky and may actually be one that results in higher prices for consumers. Its a very complicated subject.

I’d link to some papers, but a) they are too technical for non-economists, b) I can’t find free versions of the PDFs, and c) as its not my area, I’m somewhat guessing about which papers would be the best to link to.

Bill April 6, 2011 at 11:46 pm

Your comments are a great contribution.

Why not give some links. Knowledge is better than opinion.

David April 6, 2011 at 3:27 pm

I’m skeptical of cutting the corporate income tax to zero when corporate donations are protected speech – you’re giving them a 20something percent volume increase compared to individuals.

Mfsheldon April 6, 2011 at 5:35 pm

Tyler -

The macroeconomic assumptions are not totally crazy, it is just that they miscalculated the impact on the unemployment rate, which is an astonishing oversight.

They assume a net job impact of 2.1 million jobs by 2021. Against a projected labor force of around 170 million that is only a 1.2% reduction in unemployment.

Which means it reduces the baseline from 5.2% to 4.0%.

I have no idea where they possibly got to a 2.8% unemployment rate calculation simply by creating an extra 2 million jobs.

The jobs impact number is fairly reasonable. It is not crazy to think that such dramatic reform could change the trajectory of job creation by 1.2% over 10 years. Reducing government spending by 3-4% of GDP would certainly create efficiencies that could produce 2.1 million jobs over 10 years.

Anyway, thought you should be aware of this.

Russell Nelson April 7, 2011 at 12:26 am

Would high-quality moralizing about the poor be an answer to this question?

Barry April 7, 2011 at 9:33 am

Tyler: “7. Over a ten-year time horizon, the Ryan plan increases the debt rather than decreasing it. Take that as a sign of how hard fiscal reform is going to be.”

No, it says that ‘fiscal reform’ whose primary purpose is to cut taxes on the rich is not fiscal reform.

“That said, I’ve long preferred the federalization of Medicaid. Block grants to the states may be better than the status quo, however (the size of those grants is a logically distinct question). ”

Yeah, lets give discretion to GOP governors – they’ve shown such fiscal responsibility.

“I’m all for cutting the corporate income tax, but 35 to 25 percent isn’t impressive. Let’s eliminate it altogether.”

Because?

“The more the Democrats criticize this plan, the more it helps Ryan and the more it hurts the Democrats. It reframes sticker shock, and the entire debate, simply to argue about $6 trillion in budget cuts.”

Do you have any basis for this claim?

Barry April 7, 2011 at 9:41 am

TA April 6, 2011 at 3:05 pm

” That 2.8% figure came from the Heritage Foundation assessment, not Paul Ryan himself.”

Which is still telling – a large think tank with lots of experienced economists and analysts had to put BS assumptions into their analysis to make the numbers come out the way that they wanted to.

This makes Rosy Scenario look like somebody in the grip of clinical depression.

Sean April 7, 2011 at 1:40 pm

People do realize that private Insurer’s attempted to provide Medicare Alternatives in the late 50s-early -60s right, and that their inability to do so profitably led the forerunner of HIAA to back the creation of Medicare? That the cost-benefit ratio of Medicare Advantage plans is lower than that of Medicare itself?

Bernard Yomtov April 11, 2011 at 9:39 am

I’m not sure why Democratic criticism is a bad idea. No, it’s not a serious plan. It basically consists of:

1. Eliminate Medicare
2. Use th savings to cut rich people’s taxes
3. ????
4. Balanced budget!!!

Normally it would be wise to ignore such nonsense. But the innumerate, analyticaly challenged punditry keeps talking about how bold and courageous and what-not it is. That needs to be refuted.

Dan Robinson April 11, 2011 at 2:34 pm

Point 10 is a good one. The problem is that there is an artificial market being created by the health insurance industry and the supply has expanded (and will continue to expand) to fill it.

Point 9 is not a good one. We need an alternative minimum tax for corporate profits of around 15% or so. No more tax free repatriations of overseas earnings and a limit to the number of employees for subchapter S corporations (no more 10,000 employee “small businesses”).

Robyn Ann April 14, 2011 at 2:38 pm

I would suggest reading “Who Killed Health Care” by Regina Herzlinger (Harvard Business School). In it, Medicare and Medicaid pricing is a driver to increased healthcare costs (cost shift burdens). In regards to Ryan’s budget, I don’t see anyone else stepping forward on budget reform. Obamacare has already affected the cost of private healthcare (which was the intention in order to create a national healthcare program). Did it ever occur to anyone that if we get rid of all these other entitlements, we might be able to sustain a national healthcare program? Just a thought. Over the decades, family problems (cerebral palsey, autism, wheelchair bound persons, elderly, etc.) have become the problem of our government. Our American culture cultivates this where the break down of familial structures have contributed to this problem. Families should take care of their own. Somehow, it has become everyone’s issue when in fact it’s not. Yes, I have empathy for these families, but life is a crap shoot and the outcomes should not be shifted to governmental entities. Private foundations duplicate many government entitlement programs (food banks, medical care, homeless shelters, for examples). We have been asking our wealthier people to pay more taxes for programs that aren’t even found to have positive outcomes, make charitable contributions, hire people, grow the economy, etc. What a burden! This should not be a class warfare. Strict immigration laws should be enacted and enforced. This way we will know how many Income Tax payers there really are in order to have a sustainable budget for these income tax paying citizens. I say we have nothing to lose in trying this budget. I would add one caveat – end the wars, send our troops home and take care of our own first, before we take care of others….

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