Tuesday, April 26, 2011

A little bit o' budget comparison

One of my Facebook friends linked to this Washington Post column by Matt Miller wherein he claims that the budget proposed by Paul Ryan adds $6T to debt over the next decade, and doesn't balance out until the 2030s.  Miller instead pushes the Congressional Progressive Caucus plan, which claims to balance the budget by 2021.

For purposes of this blog post, I am going to accept claims made in both budgets at face value (at least so far as their own budgets go).  I also want to note that a head-to-head comparison of the two budgets is going to be at least somewhat difficult, as they provide varying levels of information on the different aspects of the proposals; nevertheless I will do my best.  PDFs of the documents in question may be found at these links:

CPC 2012 budget
Paul Ryan budget

I will provide page numbers for all of my quotes.  Let's get started.

First, I want to call Miller out on this statement:

So Ryan is expressing his concern by adding at least $14 trillion to the debt between now and when his plan finally balances the budget sometime in the 2030s (and only then if a number of the plan’s dubious assumptions come to pass). 

Right up front in the Ryan budget, we see this:

Surpasses the President’s low benchmark of sustainability – which his own budget fails to meet –
by reaching primary balance in 2015.  (p. 5)

Is this accurate? Maybe, maybe not. But if you're going to accept one at face value, in all fairness you must do that with the other.  This is what the CPC budget says about achieving balance:

By implementing a fair tax code, by building a resilient American economy, and by bringing our troops home, we achieve a budget surplus of over $30 billion by 2021 and we end up with a debt that is less than 65% of our GDP. (p. 2)

Looking at the chart on page 5 of that budget, it seems that they would achieve the break-even point in 2020.  This is some five years later than the Ryan budget, not a decade sooner, as Miller claims.

Now, let's take a look at the basics of each plan.

The CPC budget claims it will make $1.7T in total budget cuts (p 2).  It doesn't outright say that that is over a decade, but everything else seems to be in those terms, so I am going to assume it is safe to say that's what they mean.  In contrast, the Ryan budget claims $6.2T in cuts (p 5).

The Ryan budget claims a $4.4T reduction in the budget deficit (p 5); the CPC $5.6T (p. 2).  That's a $1.2T difference in the CPC's favor.

I'm having some trouble with Miller's claim that the Ryan budget would increase debt by $6T over the next decade.  Accepting as true the document's claim that the budget would be balanced within 4 years, I fail to see how Miller's claim can be true.  Moreover, it is essentially impossible to make a comparison between the Ryan budget and the CPC budget on the issue of immediate spending, as the CPC's document lacks actual numbers on that subject.  There's plenty of talk of how much they'd cut from the defense budget, and percentages of increase for the programs whose spending they plan to increase, but no "we plan to spend $___T in fiscal year 2012".  So that topic I will leave alone in favor of returning to comparing the few areas where both proposals discuss the same issues:


Unsurprisingly, this is the single largest difference in the two proposals.  The CPC advocates not only an immediate end to the Bush tax cuts, but the institution of a few new tax brackets, ranging from 45% for couples earning $1M income to 49% for those earning at least $1B (p 9).  And this, at its heart, is why I cannot support this budget.  The CPC claims that they are instituting a fair tax (not, markedly, the Fair Tax).  I question whether taking nearly half of anybody's income can rightly be called fair.  Look, wealth isn't a zero-sum game.  Given decent education, one can make one's own opportunities.  I've said before that Erik & I have a low income.  Guess whose fault that is?  Ours.  SpeakerTweaker mentioned not too long ago that he took a new job, which came with enough of a pay increase to plunk him into a new tax bracket.  Guess who gets the credit for that?  He does.  Now, on what planet would it be fair for me to head over to his house and demand some of his money?  None.  If it's not okay on the small scale, it's not okay on the large scale.

I think it is also worth nothing that the CPC plan will increase the bottom tax bracket by a third.  This is part & parcel of ending the Bush tax cuts.  They admit (p 9) to maintaining the 15% tax bracket, which currently is 10%.  Fifteen percent doesn't sound like much of a difference, but if you gross $500 a week, that's $300 coming out of your paycheck every single month--equivalent to losing 60% of a week's pay.  Which is a lot when you only make a little.

By contrast, the Ryan budget proposes lowering the top tax rate from 35% to 25%.  Note that that tax rate applies to people who make just over $379,000 a year (CPC, p 9).  That's not really a whole hell of a lot of money, especially in a dual-income household.

Now, which plan should we go with?  Some time ago, I tracked down the Treasury Department's opinion of the economic impact of the Bush tax cuts.  Of course, now that I need it I can't find it.  This document, by the Tax Foundation, pretty much matches what I recall of the Treasury Department document.  To wit:

The 10-percent bracket accounted for nearly one quarter of the individual income tax relief. This tax change, combined with the reduction in the marriage penalty and the expansion of the child tax credit, provided a short-term economic stimulus by letting taxpayers keep more of their income. Nevertheless, even though these provisions increased taxpayers' after-tax incomes, they did little to improve economic incentives. Indeed, to the extent these tax provisions were financed with additional government borrowing, they may well have detracted from economic growth in the longer term by adding to the deficit and increasing long-term interest rates.
In contrast, the reduction in the top income tax rates helped spur the economy in the longer term by improving the incentives to work, produce and save, and by reducing a variety of other economic distortions associated with high tax rates. High tax rates interfere with the
economic decisions of households and businesses in many ways. They induce individuals to work less, to undertake different jobs and entrepreneurial activities, to receive their compensation in different forms, and to reduce saving and investment. They also affect the composition of taxpayers' investment portfolios, the amount of charitable giving, and the financing arrangements of homes and business. Sound tax policy seeks to let household and business decisions be based on economic merit, not tax considerations, to the greatest extent

What this means, in short, is that the CPC plan would keep the detrimental parts of the Bush tax plan, while getting rid of the beneficial ones.  Of course, those beneficial aspects don't figure properly into the progressives' class warfare playbook.

Here's more info on that Treasury Department analysis, via Econbrowser:

There are, of course, a variety of estimates which differ depending upon assumptions regarding the time horizon, parameter values, and most importantly, whether the tax cuts are accomodated by reductions in future government spending or increases in future income taxes. The report admirably lays out the range of results for many configurations. Some are laid out in Table 3. The 0.7 percent deviation from baseline cited in the 2007 MSR is in the top right hand corner element, under "Financed by Decreasing Future Government Spending" (recent history has not been too supportive of this possibility, though). This estimate is for the case where capital gains and dividend tax rates are reduced, reduce top 4 ordinary rates, and make permanent 2001 and 2003 tax reductions. 

Of course, the astute reader will note that if taxes are raised in the future to finance the tax cut, then GNP will eventually be 0.9 percent lower than steady state baseline.

Of course, the added emphasis here is mine.  The Bush tax cuts will result in overall economic growth only if they are "financed" by cuts in government spending; ending them will result in negative growth.  I fail to see exactly how progressives expect increased tax rates to spur economic growth.  Taxes have a dampening effect on personal income.  How many of us know someone who chooses to work less or not at all in order to avoid having their Social Security income taxed?  You can easily extrapolate from there, and my first link from this section backs it up--faced with paying more taxes, no few Americans will choose to earn less money.  Is this logical?  No, not really.  But the human animal isn't known for its rationality.

The next issue which goes under the heading of taxes is the issue of business taxes.  The CPC budget doesn't give me numbers to work with, although it does mention changing the way in which foreign income is taxed (p 10), and the way it is phrased leads me to believe that amounts to a tax increase.  However, I am not knowledgeable enough on that topic to even begin to analyze what the change would mean in real terms.

The Ryan budget, by contrast, calls for lowering the US's corporate income tax rate--which is said to be the developed world's highest, at 35% (although it must be noted we're not the only ones with this tax rate)--to 25%.  This is still twice Ireland's corporate tax rate of 12.5%.  Canada's federal income tax on corporations was 18% as of Sep 2010, and scheduled to go down to 16.5% this year and 15% next year. (source)  Again, we can extrapolate from the small to the large here.  companies are more likely to do business where the cost of business is lower--this is why Toyota shut down its California manufacturing plant (which was the company's first one in the US) and moved that work to Texas.  That the US can remain competitive against our closest neighbors with twice the corporate tax rate is doubtful.  Of course, our economy has historically been very strong even with higher corporate tax rates, so maybe that one is a wash.

Now, there is a portion of the CPC tax policy I can get behind all the way.  It is this:
Index the AMT for inflation for a decade The Alternative Minimum Tax (AMT) was designed to keep wealthy taxpayers from using loopholes to avoid paying taxes. But because it is not automatically updated for inflation, more middle-class taxpayers are getting hit with the AMT. While we need a long-term solution to this problem, until one exists we have to be honest about our obligations to the middle class families in this country. Our budget fully pays for the AMT patch for the next decade. (p 9)

The Ryan budget proposes reforming the current corporate tax rates and closing up loopholes and exemptions.  If you've been struck by the news story about the taxes GE didn't pay for last year, you can understand that our current system is screwy.  This fix would, according to the Ryan proposal, offset the 'cost' of the lowered rate by broadening the tax base.  Intuitively, this make sense, as 25% is a higher tax rate than 0% any day of the week.  The CPC budget does not address the issue of closing these tax loopholes.

Spending on Domestic Programs

What strikes me foremost about the CPC budget is this:
Infrastructure The new Infrastructure Bank will provide loans and grants to support individual projects and broader activities of significance to our nation’s economic competitiveness. For example, the IBank could support improvements in road and rail access to a West Coast port that benefits farmers in the Midwest, or a national effort to guarantee private loans made to help airlines purchase equipment in support of the Next Generation Air Transportation System (NextGen). A
cornerstone of the IBank’s approach will be a rigorous project comparison method that transparently measures which projects offer the biggest value to taxpayers and our economy. This marks a substantial departure from the practice of funding projects based on more narrow
considerations. (p 7)

That's right--the CPC wants to create another government agency.  I'm not certain how, exactly, adding another layer of bureaucracy is supposed to help limit government spending.  To be fair, they don't seem to be claiming that it does.  This seems counterintuitive to me--why is this not work the Department of Transportation can handle?

By contrast, the Ryan budget discusses eliminating certain government programs:

Each year, in response to a new statutory
requirement, GAO issues a report on eliminating duplicative government programs and saving taxpayers money. This year, in their inaugural report, GAO identified dozens of examples of waste and over $100 billion in savings. (p 32)

Really, it's hard to pick out just one quote here. The whole section is well worth reading (pp 31-33), especially the discussion of DOT mission bloat.

The Military

The CPC  budget proposes eliminating all emergency war funding starting in 2012 (p 8).  This calls for ending our involvement in Iraq and Afghanistan.  Libya isn't mentioned.  They also call for reducing base discretionary defense spending, but don't offer figures there.  The Ryan budget, on the other hand, calls for reducing military spending by the $178B called for by Defense Secretary Gates, and reinvesting $100B of that into "key combat capabilities" (p 28), effectively reducing the DoD's budget by only $78B.  How many of Sec. Gates's recommendations are taken into account in the CPC budget I am not sure; though it seems that some are.


Ryan's budget calls for repealing Obamacare; the CPC budget for instituting a public option.  Given that Obamacare is hated pretty much universally, and we're still in the process of learning exactly what is in it, I should think getting rid of it would be a lot easier to agree on.

The Ryan budget also calls for making block grants to the states in order for them to have better control over Medicare and Medicaid spending.  I'm not sure how good an idea this is.  If it's more efficient, that's a good thing.  If it's going to give Bible belt states the option of refusing to cover birth control (remember, you can realistically not cut out birth control, abortion, and social programs), then not so much.  Ryan's budget also claims to allow Medicaid patients to choose their own doctors, which to my knowledge already happens (p 39).

Social Services

The Ryan budget proposes a lifetime cap on food stamp benefits comparable to the one on TANF (cash welfare payments) (p 41).  It also calls for making these benefits contingent upon work or work training.  In order for me to comment cogently on this, I'd have to know what proportion of food stamp recipients aren't working.  It seems likely to me that a majority are underemployed rather than unemployed-the commissary, after all, takes food stamps.

Likewise, the same reforms would be extended to federal rent subsidies under the Ryan budget (pp 41-2).  This makes a certain amount of sense to me, intuitively.  Public housing projects aren't happy places.  They tend to be hives of crime and drug abuse.  They also tend to be generational, and at least some of the residents truly believe they're entitled to their housing.  Which connotes that they are owed this government-provided ghetto hellhole.  I contend that they deserve better--and I further contend that neither party truly gives a flying fuck about improving the lives of the impoverished.  Republicans are too allergic to spending money on folks who could be perceived as undeserving, and Democrats would frankly rather keep people dependent upon the government so they can feel superior by providing for them.

This is what the CPC budget has to say about the issue:

Housing The middle of a historic recession and a “jobless recovery” is not the time to cut support for affordable housing. Investments in housing are one of the most potent job creation tools we have, because every dollar invested in housing creates two dollars and twelve cents in additional economic activity and induces as much as seven additional dollars in indirect economic activity.
Providing housing not only reduces the rate of homelessness, which costs state, local and federal
governments tens of thousands of dollars for every homeless family, but provides the vital backbone
for creating long-term economic viability for every family in America: a place to call home. (p 7)
I don't doubt this is true, but it is true for all the wrong reasons.  The short version of the explanation: the government is picking up the tab for the necessities of life, so of course there is more disposable income.  It's just subsidized by the government.  This wraps back around to tax policy, as outlined in this article on marginal tax rates:

Even in the United States, marginal tax rates are really higher than statutory rates suggest. In a study aptly titled “Does It Pay to Work?” Jagadeesh Gokhale et al. (2002) include state and local taxes, the marginal impact of losing government benefits (such as Medicaid and food stamps) if income rises, the progressive nature of Social Security benefits (which are least generous to those who work the most), and the phasing out of deductions and exemptions as income rises. They conclude that even “those with earnings that exceed 1.5 times the minimum wage face marginal net taxes on full-time work above 50 percent” (Abstract). At higher incomes, the estimated federal, state, and local marginal tax rate is about 56–57 percent. Marginal tax rates are higher still, however, in countries where statutory rates are higher.

The CPC budget seems to indicate increased spending on food stamps and rental assistance by 20% (p 12).


Of course, there's a lot more to both proposals. I am, for instance, blithely ignoring their discussions of job training programs and educational funding and such.  I consider that to be less important, to be honest.  Though both documents talk the good talk about increasing job growth, my opinion is that this too wraps around to taxes; beyond that the government cannot positively affect job growth.  Both agree on the necessity of reducing the dropout rate; neither offers concrete suggestions for it.  The same could be said for job training, in fact.

Unsurprisingly, I am never going to back a plan that calls for tax increases.  I find it immoral.  Likewise, cutting benefit programs without a clear path to improving the economic standing of the folks currently receiving these payments isn't going to be helpful in the long run.  Frankly I dislike both programs over all; perhaps I want to have my cake and eat it too, I dunno.  I want easily-understood specifics.  The CPC budget proposal is 12 pages and short on specifics.  The Ryan proposal is 70+ pages, damn near as short on specifics, and not easily parsed to boot.

The only sure takeaway here?  The President's budget proposal is a piece of fermented shit. Both budget proposals recognize it as unsustainable.  Methinks at the very least Pres. Obama is in desperate need of better advisers.

1 comment:

Mattexian said...

Frankly, they ALL full of $#1+. Ryan may be an honest man, but the rest of Congress sure as hell isn't. There was an interesting cartoon the other day from XKCD, illustrating many things we've been told thru the years that will happen "in the future", like Clinton's plan paying off the national debt in 2013, and again in 2026, 2028, and the US budget balanced in 2017 and 2053, among other things. Every one of those bastids could be re-elected, and next year they'll come up with a new budget plan that totally ignores their promises from this one.