Representative Paul Ryan (R-WI) has been hawking his 2011 budget proposal for over a year now, and David Brooks is just creaming his pants over it. If David Brooks is so excited about it, you know it’s probably good for the rich and bad for everyone else, and damn if you’re not right about that. Take just one facet of the proposal, tax rates:
It’s the usual GOP racket: taxes go down for the rich and up for the poor. And the net effect is a loss of over $180 billion in federal tax revenue. Ryan’s proposal is being heralded as an attempt to fix the federal deficit. How does losing $180 billion in tax revenue further this goal? Well, it doesn’t. Just as it’s been doing since the Reagan Administration, the GOP is using budget reform as an excuse to wage war on the working class.
Back in 2008 the media was quick to cast Obama’s election as the death knell of Reaganomics. Well, now the Republicans are back in control of Congress and they’re determined to keep the legacy of trickle-down economics alive. Something’s definitely going to be trickling down on the poor, and it’s not wealth.
The official website for Rep. Ryan’s plan is full of misrepresentations and spin. Well, it’s actually pretty nakedly honest about how much of a hand-out it is to the wealthy:
- Eliminates the alternative minimum tax [AMT].
- Promotes saving by eliminating taxes on interest, capital gains, and dividends; also eliminates the death tax.
- Replaces the corporate income tax – currently the second highest in the industrialized world – with a border-adjustable business consumption tax of 8.5 percent. This new rate is roughly half that of the rest of the industrialized world.
What it’s more elusive about is the extent to which it’s transferring that tax burden onto the middle and lower classes. The “business consumption tax” is in fact a value-added tax (VAT), similar in operation to a sales tax. Like a sales tax, its cost gets passed on to the purchaser of retail products. In other words, Ryan wants to eliminate corporate income tax and transfer that tax to individuals. Slimy? Yes.
A VAT is not actually an unsound economic policy, although I personally have qualms with any federal-level sales tax because it’s effectively a flat tax. (You can see this in the chart above, where the VAT is the biggest cause of the increased tax burden on the lower classes; the wealthy would end up paying more into the VAT, but only as a tiny, tiny fraction of the cuts to their income taxes.) The problem here is that the proposal cuts business income taxes and explicitly replaces them with the VAT, which is a blatant transfer of wealth to the rich.
The web site triumphantly declares that it makes Medicare permanently solvent. According to the Congressional Budget Office’s report, this is true. What the site doesn’t mention (and the CBO report does) is that it does this by effectively privatizing Medicare. Ryan claims it’s not a privatization, but judge for yourself: the plan is to eliminate direct Medicare payouts to healthcare providers and replace them with vouchers that Medicare recipients can apply towards the purchase of private insurance. The CBO report itself is quite clear about the consequences of such a move:
Under the Roadmap, the value of the voucher would be less than expected Medicare spending per enrollee in 2021, when the voucher program would begin. In addition, Medicare’s current payment rates for providers are lower than those paid by commercial insurers, and the program’s administrative costs are lower than those for individually purchased insurance. Beneficiaries would therefore face higher premiums in the private market for a package of benefits similar to that currently provided by Medicare. Moreover, the value of the voucher would grow significantly more slowly than CBO expects that Medicare spending per enrollee would grow under current law. Beneficiaries would therefore be likely to purchase less comprehensive health plans or plans more heavily managed than traditional Medicare, resulting in some combination of less use of health care services and less use of technologically advanced treatments than under current law. Beneficiaries would also bear the financial risk for the cost of buying insurance policies or the cost of obtaining health care services beyond what would be covered by their insurance.
In other words, Medicare is more efficient and cost-effective than private insurance. By simply subsidizing your purchase of private insurance, Ryan would ensure that you end up either paying more or accepting less comprehensive coverage.
“According to CBO,” Ryan’s web site says, “A Roadmap for America’s Future provides reforms that make possible a growing and prosperous U.S. economy.” It’s true, the CBO report does say this. The CBO report is also based on unrealistic assumptions explicitly designed to skew the results in Ryan’s favor. Now, the CBO is non-partisan, but according to the report itself, in making their estimates they were instructed by Ryan’s staff to assume that federal tax income under his proposal would hold steady at 19% of GDP. This assumption is critical to the report’s conclusion that the proposal will eliminate the federal deficit and pay off the national debt.
If you’re wondering how the federal government could maintain tax revenue while simultaneously eliminating the AMT, the capital gains tax, the estate tax, the corporate dividends tax, and the corporate income tax, well, it couldn’t:
The non-partisan Tax Policy Center found that Ryan’s plan came up hundreds of billions of dollars short of his revenue goals. If enacted tomorrow, his plan would lose the US government an additional $550 billion of tax revenue.
According to the article, the proposal’s elimination of most tax deductions, along with the implementation of the VAT, would increase the federal tax revenue by $1.6 trillion – in the absence of other factors. Sadly for the federal government, Ryan’s proposal also features over two trillion dollars in tax cuts, almost entirely to the wealthy.
In addition, economic growth might prove difficult in light of the hundreds of thousands of lost jobs that the proposal’s spending cuts could potentially directly cause. Two more fun facts: One, Ryan’s proposal rescinds all non-obligatory spending created by Obama’s stimulus. Two, the proposal doesn’t take a single dollar out of defense spending.
Essentially, Rep. Ryan’s proposal is to cut spending in order to be able to (almost) afford his massive tax cuts to the wealthy. In other words, the same old GOP con game.