Republican vice presidential nominee Paul Ryan’s Path to Prosperity 2013 budget proposal has been both derided as the epitome of ideological inflexibility and purity and lauded as the intellectual and philosophical core of the new Teapublican Party, namely smaller government and lower taxes. Like most Washington budget proposals, Ryan’s plan is mostly about fixing messes and protecting special interests in the defense, agriculture, pharmaceutical, financial, and energy industries.
Should the American people vote to hike the Path to Prosperity, they can expect a return to government surplus revenue not in 2020, or 2030, but in 2040: fully 28 years from now should everything go as predicted. This begs the question of why this isn’t instead called a trek up the peaks of the Rockies.
Ryan, after a lengthy introduction detailing the constitutionality of his proposal, begins his Path to Prosperity for 2013 with the arcane process of sequestration. Sequestration is an automatic form of spending cutback adopted as a stopgap against Congress being weak-willed in finding the cuts and tax increases they legislated for last year during the debt ceiling debacle. Ryan’s proposal seeks to prevent the mandated sequestration of roughly $1 trillion over the next 10 years. The sequestration was to be split equally between defense and non-defense sectors. It also included the automatic ending of the “Bush Tax Cuts” beginning on Jan. 2, 2013. The American economy faces this fiscal cliff because Republicans and Democrats failed to find common ground during the Joint Select Committee on Deficit Reduction (JSCDR) late last year. Prioritizing defense spending to keep America safe is Paul Ryan’s symbolic way of keeping the DOD safe from having to cut $55 billion from its $546 billion budget at the expense of cuts to foods stamps, Pell grants, and “entitlement” programs.
According to the Stockholm International Peace Research Institute, the United States, despite only spending $698 billion in 2010 on defense, spent more than the next nine countries in line: China, the U.K., France, Russia, Japan, Saudi Arabia, Germany, Italy, and India combined spent $522.5 billion. Even with present reductions and the $55 billion automatic cuts, the U.S. will still be spending more than any potential enemies.
Some of that pork-laden defense spending ends up in local businesses, for what good is pork if not for feeding to constituents? Under a Ryan budget, roughly $55 billion more every year will be available for “defense” projects compared to the Obama budget proposal. The average Corvallis citizen should be able to rest easy knowing that while their taxes contribute to outspending much of the world on defense, Corvallis’ businesses will still be receiving government contracts—some 501 have been awarded to local Corvallis businesses since 2000. These local defense contracts thus far total more than $186,454,986. Corvallis’ AVIBIO PHARMA, INC, a primary beneficiary of such contracts, generally for medical and dental equipment, received $127 million in defense contracts since 2000, $92 million of it since 2010.
Pork-laden defense spending is as American as apple pie, and so, too, are Social Security, Medicare, and Medicaid the trifecta of government-funded social safety nets. As Ryan sees it, they are in imminent risk of insolvency due in large part to bureaucratic inefficiencies in government. To Ryan the budget shortfalls of Social Security, Medicaid, and Medicare can’t be solved by taxing income above $150,000, the current cap.
Rather, he believes these problems aren’t revenue-related and therefore they can best be solved by market competition through a new set of exchanges where insurers compete via a bidding process to serve seniors, and by converting existing federal programs into block grants for states. From his proposal, “The Medicare Exchange would provide seniors with a competitive marketplace where they could choose a plan the same way members of Congress do. All plans, including the traditional fee-for-service option, would participate in an annual competitive bidding process to determine the dollar amount of the federal contribution seniors would use to purchase the coverage that best serves their medical needs. Health care plans would compete for the right to serve Medicare beneficiaries.” Despite no other nation in the Organization for Economic Co-operation and Development (OECD) using this method, Ryan believes that market competition and state-level innovation will dramatically lower costs and thus save the government trillions over the next two decades, all while improving the health of citizens.
Citizens living in a liberal state like Oregon may well benefit from funds allocated via a block grant. However, the Path to Prosperity also requires that overall expenditures by the federal government on other services like transportation, education, and communication be reduced. Given this, it stands to reason that at least in the interim, Oregon and other states will have to fill budget gaps by increasing taxes, raising fees, and cutting services and benefits.
While Ryan’s Medicare “reforms” will not affect Corvallis seniors today or 10 years from now, it will affect those 20- and 30-somethings who are today paying into a government retirement program that might not be around when they retire. Instead, college students today will be left with a voucher program and a promise of lower costs through market “competition.”
Ryan’s reform path does lead to an unnerving place where Social Security, Medicaid, and Medicare benefits are no longer adjusted annually for inflation in the name of cost savings. From the proposal, “This plan will bring reform to the budget ‘baseline’ by removing automatic inflation increases in discretionary accounts and requiring a comparison to the previous year’s spending levels.” In practice, this means a politician will listen to an “economist” who will advise them on whether the previous year’s inflation was sufficient to warrant a benefit increase.
Should a policy like this be passed as an addendum or amendment to the existing Affordable Care act, a very real possibility, Corvallis seniors and Medicaid beneficiaries will quickly begin to notice price changes in basic commodities, like milk and eggs, as inflationary pressures are first felt there. The penny pinching of the thrifty may become the penny pinching of the desperate along the Path to Prosperity.
Ryan’s prosperity tax gospel consists of marginal rate adjustments for the bottom 95 percent and, as Howard Gleckman from the Tax Policy Center, a think tank, put it, “the tax cuts in Paul Ryan’s 2013 budget plan will result in huge benefits for high-income people and modest-to-no benefits for low-income working households’ individuals.” The tax code being a complex 72,000-page document needs to be simplified in Ryan’s view. He would do that by reducing the existing tax brackets from six to two, 10 percent and 25 percent for individuals, by reducing the corporate tax to 25 percent, by exempting from taxation profits made by U.S. companies overseas, and by removing special credits, deductions, and loopholes that amount to $1 trillion a year in lost revenue. According to Ryan, by removing exemptions, tax credits, and other loopholes, the marginal tax rate can be lowered and the revenue brought in increased.
The residents of Corvallis can most assuredly expect to be affected by such a change to their tax incentives. Gone will be the dreaded Alternative Minimum Tax, the often-cited child Tax Credit, and the much-loved mortgage deduction and interest payment credits. Furthermore, the repatriation of profits by U.S. businesses without government taxation of these profits allows for the ultimate in union busting and worker repression, for how could any regional or national group coerce a company that can move its entire operation without having to worry about taxes upon repatriation? By allowing for the tax-free repatriation of profits made overseas companies will have no incentive not to outsource every element of their workforce while enjoying cushy 5th Avenue lifestyles. This is a Path to Prosperity, but not broad-based prosperity.
The path nears its end with the obligatory call for change in the culture of Washington—in this case by requiring that all legislative acts undergo 40-year analyses to determine their effects on the broader market. How agencies that are already understaffed and underfunded like the Government Accountability Office and the Congressional Budget Office are supposed to do these studies goes left unsaid. But by thinking long-term about how policy affects the market, the idea is that profligate deficit spending will be curtailed.
The cry for cultural change goes even more meta by replacing “paygo,” the process whereby any new spending must be offset by revenue increases, with “cutgo” whereby any new spending must be offset by a cut somewhere else. This will, in Ryan’s mind, spur government reduction, remove disincentives for working, and facilitate a pro-growth economy and a path back to prosperity.
What this means for the residents of Corvallis is that we can expect the gridlock and glacial pace of government to continue. A government that is constrained to the degree that Ryan suggests is a government that is inflexible and will not be able to adapt to changing circumstances in the global arena.
Like many paths, one ends where one began, and the same is true of the Path to Prosperity. It began with sequestration, so naturally sequestration is where it ends. Failing to garner support for their minority view of radical government reduction, Tea Party leaders like Ryan have suggested the use of Budget Reconciliation by Senate Republicans to bypass traditional Senate rules of order for the purposes of avoiding the statutory sequestration of roughly $1 trillion.
From the proposal, “This budget gives reconciliation instructions to six committees – Agriculture, Energy and Commerce, Financial Services, Judiciary, Oversight and Government Reform, and Ways and Means – that in aggregate would produce at least $18 billion of deficit reduction in the first year and $261 billion over the first 10 years. House Budget savings could be achieved in the areas of making pensions for federal workers more like those for workers in the private sector, repealing recent expansions of the federal role in financial services, saving money in health care, means-testing entitlements, and reforming the medical liability system.”
While this call for the use of budget reconciliation by a House member of the Senate is token at best, it does represent a clear view into Ryan’s outlook on life. His Path to Prosperity is one where all worker pensions look like the deprecated pensions from state workers in Wisconsin after Governor Walker broke the social contract with public sector employees. It leads to a world where food stamp benefits and health care for the old and poor take a backseat to energy sector tax breaks, where the financial sector won’t be regulated, where incorporation without taxation is possible, and where bloated defense contracts trump easing human suffering.
Ryan clearly believes his Path to Prosperity is one that will benefit the whole nation. By doing away with government disincentives for work and by letting the free market work its magic on the residents of regions like the ever-green Willamette Valley, our nation will return to prosperity fueled by a pro-growth agenda. Although, if humans would just get along, they would have fewer wars. His path may be the prosperous one or it may be the Gordon Gecko Path to Austerity; it likely will depend on one’s perspective and social class.
By William Tatum