House Budget Committee Chairman Paul Ryan (R-Wis.) unveiled his
fiscal year 2014 budget resolution this week.
This great conservative policy achievement quickly came under
fire from several quarters on the Right, probably unfairly. The
House budget is not a retreat from conservative goals — to the
contrary, it’s a roadmap toward achieving them.
The most important characteristic of the House Budget is that it
is balanced. The plan ends the Bush-Obama era of trillion dollar
deficits and balances the budget by 2023, the last year of the
budget window. It does this by reducing the rate of spending
growth, not by raising taxes. Spending is scheduled under the
budget to grow by an average of 3.4 percent annually, instead of
the 4.9 percent annual growth expected under current law by the
Congressional Budget Office (CBO).
This modest restraint in the growth of government spending is
hardly draconian. Annual budget outlays still grow by over $1.4
trillion between 2013 and 2023. Yet even this level of self-control
results in a considerable reduction in the government’s burden on
the economy. Throughout the budget window, federal expenditures as
a percentage of national output (the only accurate way to measure
such things over long periods of time) decline from 22.2 percent of
the economy in 2013 to 19.1 percent in 2024. CBO’s historical
tables tell us that this low level of government spending was only
matched in six of the previous forty years. Spending stays at
roughly this level forever, since the budget fixes the unfunded
entitlement crisis at the heart of America’s fiscal problems
long-term. By any definition, reducing government spending this
much is a huge win for conservatives.
The budget caps on discretionary spending from the Budget
Control Act of 2011 and the sequester savings for domestic programs
are reinforced by this budget. As a result, discretionary spending
under this budget will fall from 7.6 percent of economic output in
2013 to 4.8 percent in 2023. Assuming the overseas operations in
Iraq and Afghanistan end soon, this will fall even further to 4.7
percent. This would be the lowest level of discretionary spending
since before the New Deal.
The budget builds on the success of welfare reform in the 1990s
by adopting a similar model for Medicaid, food stamps, and the
other remaining federal entitlement programs. These would be block
granted to the states, which would then be free to innovate and
design better systems free of federal strings. When given this
opportunity with cash welfare payments, the country saw caseloads
cut in half.
Turning to taxes, the House GOP budget is revenue-neutral. That
may or may not be consistent with what you’ve read in the
conservative press. The budget envisions no changes in what
revenues taxes will bring in under current law. That means that tax
revenues are anticipated to bring in about 19 percent of economic
output fairly durably over the budget window. This does not mean,
however, that the tax system remains unchanged.
The budget empowers the House Ways and Means Committee to
fundamentally reform and simplify the tax system to be more
pro-growth. There are currently seven individual tax brackets, with
a top rate of 39.6 percent. These will be collapsed into two
brackets of 10 and 25 percent. The corporate income tax rate will
drop from 35 percent today (which, when combined with state
corporate income tax, is the highest in the developed world) to 25
percent (closer to the average rate our competitors pay). The
Alternative Minimum Tax (AMT) would be repealed.
Finally, the entire tax system will become more competitive
internationally by reforming the unfair double-tax liability of
profits earned overseas.
Some conservatives have complained that the tax revenues assumed
are too high. They would prefer that the tax level in place at the
end of 2012 be the one that the new budget adopted. There are three
principal objections to this. First, tax law was permanently
changed when President Obama forced the country over the fiscal
cliff. To pretend that never happened is to deny the reality of the
world as it is. Second, the dissenters’ baseline is arbitrary. So
long as we’re cherry-picking baselines, why stop in 2012? Why not
go back to 2010, when there was no death tax, for example? Third,
the budget keeps revenue the same but reforms the system to be more
pro-growth. It changes the tax code root and branch, the opposite
of accepting bad tax law.
The House budget repeals Obamacare. This measure alone shaves
$1.8 trillion in federal spending over the next decade. That means
no exchanges, no individual or employer mandates, no insurance
market regulations, no unelected Medicare rationing boards in
Washington, no conscience-impinging mandates, and no subsidies to
purchase government-approved health insurance. It also means that
all the tax revenue being raised by Obamacare will instead go
toward lower marginal tax rates for everyone. The Medicare cuts in
Obamacare are transformed into Medicare reforms for those decades
away from age 65.
Looked at altogether, Paul Ryan’s House budget plan is a
governing document. It’s written down — something Senate Democrats
have been unable to do for several years running. If implemented,
it permanently ends the entitlement crisis, reforms the tax system
for this century, ends Obamacare, and pays off the national
debt.
Conservatives should be proud to support it.
Photo: UPI
