Thursday, 14 March 2013

The Paul Ryan Budget Delusion

Tomorrow should be interesting.

Some of the speakers here at CPAC include Donald Trump and Paul Ryan. Mr. Trump usually is more of an entertaining figure, less likely to be taken seriously. However, Mr. Ryan is a figure that is taken seriously, and has just released a new budget.

Maybe Paul Ryan is thinking too hard. 
Mr. Ryan stated in his Wall Street Journal article that “the most important question isn't how we balance the budget. It's why”. This statement is quite telling, as the very definition of a budget is the allocation of funds for the future; how funds are allocated are quite important and the main reason behind creating a budget in the first place.

Mr. Ryan continues to make gross distortions in his article. He states that “America has the world’s largest natural gas, oil and coal reserves”. This is factually incorrect, as the US imports oil for a reason; it does not have enough to meet consumption needs. It is true the US natural gas production has increased to lead the world, and the United States well known for its massive reserves of coal. However, the US has 1.41% of the estimated world oil total consuming around 20 million barrels per day, while only producing around 10 million barrels per day.

Additionally, Mr. Ryan asserts that “Medicare is going broke”. Again, this is simply not true. Medicare in the United States has four parts: hospital insurance, medical insurance, private plans, and prescription drug plans.  Right now, the hospital insurance fund will have depleted by 2024, so one section of Medicare is facing financial distress. Additionally, Mr. Ryan doesn’t seem to understand how funds will work. Yes, the fund will face a shortfall in that section in 2024. No, that does not mean bankruptcy.

Additionally, the CBO has long predicted the demise of the hospital insurance (or Part A) fund. In 1970, the Congressional Research Service predicted Part A to go broke in 1972.

Mr. Ryan also makes some rather heavy assumptions to conclude that his budget will balance by 2023.

His budget states that Congress should close certain loopholes, consolidate tax brackets by creating only two brackets – 10% and 25% (formerly the top rate was 36%). The Tax Policy Center (a nonpartisan organization) suggested that these policies would cause an increase of $4.5 trillion in the deficit through 2022, as government revenues will be depleted.  Surprisingly, Mr. Ryan’s budget increases the tax load on the middle class as mortgage and charitable deductions would have to be cut, which would hurt the middle class.

It’s interesting to note that Ryan plans to repeal Obamacare, but uses the $716 billion in Medicare savings from the bill in his projections.

Mr. Ryan’s key ideal is cutting the deficit, an issue he has raised multiple times. However the budget deficit peaked in 2009 at $1.4 billion and has fallen to $845 billion. Take in mind that American debt doubled in 30 years after World War Two, but debt as a percentage of GDP fell by 75%. The point being, according to Paul Krugman, that the debt should be looked at with historical comparable as a percentage, not the large numbers thrown around by individuals such as Mr. Ryan.

Paul Ryan is speaking tomorrow at CPAC. It is this writer’s wishful thinking that Mr. Ryan engages with factual statements and not rhetoric and fantasy.

While we’re at it, may as well state that New Gingrich’s moon base implementation by 2020 is possible.    


Some Other Alex said...

Thing is, cutting tax brackets and deductions at the same time seems like a pretty reasonable approach to me. Make taxes simpler, leave it roughly revenue-neutral, and get rid of some of the insane distortions imposed by things like the mortgage and health insurance deductions.

Also, Medicare doesn't hit the wall for more than a decade, but the long-term cost curves are absolutely insane. That level of cost inflation cannot continue.

Frankly, even if his budgets are unrealistic, I'll still give him credit for being the one man in Washington willing to even try to balance the books. Yes, we were higher after WW2, but we didn't just get out of fighting the biggest war in human history, we just had a bad month on Wall Street and decided to have a WW2-sized debt anyways. That's insane, and it needs to stop, even if it is in principle survivable.

cfp certification said...

This is right blog coming from the Mr. Paul Ryan the how you manage your budget for the future as well as for the coming days. For that certified financial planner certification(cfp) certification is not necessary but if you plan something and not done is just because of your inconsistency in your budget. Reading this blog is must for maintaining budget.

Alex said...

Thank you!

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