The Very Serious Paul Ryan Budget

Yesterday press favorite Paul Ryan revealed his plan to reduce the deficit by cutting taxes for the rich and ending Medicare and Medicaid. The plan is to turn Medicaid into a block grant for states (because states are just itching to get out from the federal burden of actually insuring people) and to turn Medicaid into vouchers for people under 55. Of course this will totally work because even though people over 55 love their Medicare and anticipate getting it, people who are 54 are completely indifferent. Jonathan Bernstein offers a warning to reporters – check the numbers:

Indeed, looking through Paul Ryan’s budget document (which has a lot more rhetoric than it has hard numbers), I see at least two obvious causes for skepticism. The first is that Ryan is counting on considerable budget savings — $1.4 trillion over the decade — by repealing the Affordable Care Act. Of course, the CBO has said that ACA will be a net budget winner over the next decade, and a major winner after that. Is Ryan using honest CBO numbers, but just juggling the presentation? Or is he simply ignoring neutral evaluations of the effects of health care reform? Ryan couldn’t explain the numbers during his press conference today.

The second clue is that Ryan refers (on page 59 of the proposal) to “dynamic” scoring of taxes. This, of course, is the same supply-side nonsense that Republicans have been peddling since 1981. It’s easy to show major deficit reductions if you slash taxes but pretend that it will yield revenue increases, but in reality, of course, it increases the deficit.

Tim Fernholz, meanwhile, points out another flaw: It’s one thing to set up budget targets or “caps” for the future, but quite another to actually hit them. It’s fair to credit Ryan and the Republicans with supporting real cuts even if they are talking about specific measures that have no chance of winning the support of the Democratic Senate and President Obama. But it’s a lot harder to know what to make of budget caps unaccompanied by specific program cuts.

The Economist points out that Ryan’s budget uses some really strange assumptions from the Heritage Foundation (the same people who said Bush’s budget would give a surplus):

PAUL RYAN has officially revealed the House Republicans’ budget proposal, and we will have a detailed analysis of it up in short order. Reactions to the plan will vary (sharply, it’s safe to say). But whatever your take on the policy proposals, it’s worth approaching the rosy claims made on its behalf with extreme caution. Claims like:

A study just released by the Heritage Center for Data Analysis projects that The Path to Prosperity will help create nearly one million new private-sector jobs next year, bring the unemployment rate down to 4% by 2015, and result in 2.5 million additional private-sector jobs in the last year of the decade. It spurs economic growth, with $1.5 trillion in additional real GDP over the decade. According to Heritage’s analysis, it would result in $1.1 trillion in higher wages and an average of $1,000 in additional family income each year.

That sounds unbelievably good, and for good reason—the figures in the Heritage analysis are simply outlandish. According to the study cited above, Mr Ryan’s plan will bring the unemployment rate down to 6.4% next year, 4.0% in 2015, and 2.8% in 2021. When the Obama administration projected a 5.9% unemployment rate in 2015 falling to 5.3% by the end of the decade, the Congressional Budget Office chided it for excessive optimism. The Federal Reserve has been indicating that the long-run unemployment rate in America is likely to be between 5.0% and 6.0%, and their estimate has risen over the past year. During the heady economic days of the late 1990s, the unemployment rate never got down to 4%. CORRECTION: Actually, the unemployment rate did dip just below 4% in 2000. I don’t think anyone considers this a sustainable level of unemployment, however, and indeed, the first time the rate dipped below 4% the Fed responded with a 50 basis-point increase in the federal funds rate.

2.8% unemployment! Hey, that’s the Republicans jobs plan. Step 1 – end Medicare, Step 2 ????, Step 3 JOBS!

Just a few minutes of combing through the numbers finds a lot of strange things. Ezra Klein finds that Ryan assumes that repeal of the Affordable Care Act will save $1.4T, rather than cost $200B estimated by the CBO. Ryan’s budget actually cuts taxes, so it won’t decrease the deficit until the magival Medicare cuts go into effect. Krugman points out the obvious – the Medicare cuts will not stick, it will only create a lot political uncertainty:

If the Medicare Advantage precedent holds, what will happen in 2022 or a bit later is that Congress will react to the fury of younger seniors — who see that those born just a few years earlier have vastly better benefits than they do — by increasing the vouchers. And the end result, in that case, would be that the Ryan plan substantially increases Medicare costs; remember that the payment increases that were part of the 2003 Medicare bill, introduced to rescue failing Medicare Advantage programs, have resulted in large overpayments, adding hundreds of billions to the program’s costs.

Alternatively, if the benefit cuts stick, you’ll have a lot of furious people realizing that they are paying high taxes to support lavish medical care for older Baby Boomers, while being themselves condemned to pleading with insurance companies to provide coverage in return for an inadequate voucher. Plus, private insurance companies, making lots of money off the voucher business, will cast their eyes on those potential profit centers, aka seniors, still getting government insurance. So traditional Medicare will be in the firing line — and all those assurances about how nobody currently over 55 will be hurt will turn out to be empty.

I wonder why we don’t have the Tea Party screaming ZOMG SOCIALISM! about Ryan’s voucher plan. After all, he’s providing vouchers to buy private insurance (just like the Affordable Care Act!), except a crappy version that doesn’t increase with health care cost increases.