March 21, 2012

This is why Paul Ryan’s budget proposals will go nowhere

Filed under: Economics, Government, USA — Tags: , , — Nicholas @ 09:40

It’s because he’s not only requiring the middle classes to take a hit for the team, but he’s also trying to get rid of all the custom-crafted deductions, loopholes, shelters, and special favours in the tax code. Middle class voters have been sending their elected representatives to Washington to add to the special tax “tweaks” that disproportionally benefit the middle class. That’s how politicians ensure their re-election chances.

Unveiling his new budget proposal, Paul Ryan once again reminds us that he is one of the few men in Washington with guts and brains operating in harmony. His budget asks the big question in American politics: What is the middle class willing to give up in order to save the country?

I am afraid that the answer will be: Not very much.

[. . .]

The reaction to Ryan’s tax plan will be the truly telling thing. He proposes to create two relatively low tax brackets but to do so in a way that achieves revenue neutrality by eliminating most deductions and exclusions. Almost certainly this will mean reducing or eliminating the mortgage-interest deduction, deductions for state and local taxes, and deductions for charitable giving. (Ramesh’s beloved child tax credit probably will survive, unfortunately.) The Committee to Reinflate the Bubble will fight tooth and talon to defend the mortgage-interest deduction, and they’ll have a great many middle-class homeowners behind them.

H/T to Kathy Shaidle for the link.

Update: Nick Gillespie thinks that the Ryan budget proposal is merely an echo of Obama’s plan, not a serious attempt to get the government’s finances in order:

In brief, the Ryan plan is not as bad as [President Obama’s] budget, which wants to spend $3.8 trillion in FY2013 and envisions spending $5.8 trillion in FY2022. Over the next 10 years, Obama assumes that federal spending would amount to 22.5 percent of GDP while revenues would average just 19.2 percent of GDP. That ain’t no way to run a country.

In this sense, Ryan’s plan is slightly better but still doesn’t pass the laugh test. He would spend $3.5 trillion in 2013 and $4.9 trillion in 2022 (all figures in the post are in current dollars unless otherwise noted). Spending as an average of GDP would average 20 percent of GDP and revenue would amount to just 18.3 percent.

[. . .]

Yet Ryan’s plan is weak tea. Here we are, years into a governmental deficit situation that shows no sign of ending. How is it that Ryan and the Republican leadership cannot even dream of balancing a budget over 10 years’ time? All of the discussion of reforming entitlements and the tax code and everything else is really great and necessary — I mean that sincerely — but when you cannot envision a way of reducing government spending after a decade-plus of an unrestrained spending binge, then you are not serious about cutting government. If Milton Friedman was right that spending is the proper measure of the government’s size and scope in everybody’s life, then the establishment GOP is signaling what we knew all along: They are simply an echo of the Democratic Party.

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