Would GOP Budget Actually Reduce the Deficit? (Updated)

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JONATHAN COHN APRIL 29, 2011

Would GOP Budget Actually Reduce the Deficit? (Updated)

Discussion of the House Republican budget has focused mostly on the privatization of Medicare, the block-granting of Medicaid, and the repeal of the Affordable Care Act. And that’s appropriate, given the magnitude of the changes and widespread impact they would have. But those proposals are obscuring some other proposed shifts that, in any other context, would be plenty troubling for their own sake. This week I'll highlight five of them. So far, I've written about radical changes to the Supplemental Nutritional Assistance Program (SNAP), changes in the eligibility age for Medicare, a crucial weakening of financial reform, and a neglect of infrastructure. Today I conclude by assessing just how much the Republican budget would actually reduce the deficit.

One reason you hear so many people describing the House Republican budget as “brave” and “serious” is that it would dramatically reduce the deficit. Yes, it would take health insurance away from millions of people, unravel the safety net, and allow America’s infrastructure to deteriorate further. But at least it would substantially improve the government’s fiscal outlook.

And yet that's not as true as you might think, particularly in the first decade. When House Budget Chairman Paul Ryan unveiled his proposal, he announced that it would reduce government spending by $5.8 trillion and reduce deficit spending by $1.6 trillion in its first ten years. But Ryan included in his spending reductions the savings from ending the wars in Afghanistan and Iraq.

That's fine; I think we all hope that prediction turns out to be true. But those savings have nothing to do with what Ryan is proposing specifically. (Or, if you want to get technical about it, those savings should be added to Obama’s budget and the current baseline, as well.) Once you adjust for that fact, it turns out the Republican budget would reduce spending, relative to current policy and expectations, by only $4.5 trillion.

“Only” is a slightly misleading term here, since $4.5 trillion dollars would still represent a large spending cut. But wait! The House Republican budget also calls for tax cuts—$4.2 trillion of them. In other words, the tax cuts in the House Republican budget would very nearly offset the spending cuts, leaving just $380 billion in additional savings over ten years. 

The Center on Budget and Policy Priorities, among the first (if not the first) to point this out, produced the graph below to illustrate the effect:

By the way, this more modest deficit reduction would mask a very large redistribution of wealth--and not the kind Republicans always accuse Democrats of trying. The tax cuts, which include reductions in the top rate, would overwhelmingly benefit the rich. The spending cuts, which include a huge reduction in Medicaid spending, would primarily affect the poor.

So calling the House Republican plan a deficit reduction scheme is a very misleading description of its likely effect for the first decade. You're better off calling it a regressive redistribution plan that happens, as a side effect, to reduce deficits by a small amount. Or you can just call it "flimflam," like Paul Krugman did.

The caveat to all of this--and it’s a big one--is that the numbers look different after ten years. On paper, as best as I can tell, the House Republican budget really would produce substantially more long-term deficit reduction than the current baseline. But that’s because the Republican budget envisions massive reductions not only in Medicaid but Medicare, as well. It also relies upon unspecified tax reforms that will raise some revenue. 

As many critics have noted, the harsh impact of the Medicare and Medicaid changes, in particular, call into question the future political viability of those proposals--much more than, say, the political viability of delivery reform now now in place because of the Affordable Care Act. And there's a reason those tax reforms are unspecified: To get the revenue figure they want, they'd probably have to rely on bogus growth projections. As Krugman says, it's the equivalent of another "magic asterisk."

Update: The Center on Budget has since updated its estimates, based on revisions that House Republicans made to the budget after it proposal. The effect is a substantial increase in the amount of deficit reduction the budget would produce in the first ten years, relative to the original amount, although it's still a modest amount. I've updated my item to reflect that. I've also added material explaining why, in the long run, the budget's projection on tax reform are highly dubious. Oh, and I changed "billion" to "trillion" in the third paragraph. Thank you to reader "janus" and Twitter follower @swiftj for pointing out the error.

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posted in: jonathan cohn, politics, when house budget, afghanistan, iraq, medicare, paul ryan

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