The $7 trillion tax hole
The Ryan budget’s claim to balance rests on
purportedly reducing spending down to 19.1 percent of GDP by 2023, which is the
same as the level of revenue that current projections expect for that year.
But, in fact, Rep. Ryan’s tax proposals come nowhere close to generating 19.1
percent of GDP. In fact, the Ryan budget calls for enormous tax cuts but fails
to explain how to pay for the cost of those cuts.
Specifically, the Ryan budget plan includes the
following detailed tax cuts:
-Reducing the top marginal income tax rate by nearly
15 percentage points
-Reducing the corporate tax rate by 10 percentage
points
-Repealing the alternative minimum tax
-Repealing the Affordable Care Act revenue
provisions
Last year the Tax Policy Center estimated that these
provisions would generate revenue equaling just 15.8 percent of GDP in 2022.
Extrapolating to 2023 suggests that Rep. Ryan is missing about $840 billion of
revenue in 2023 alone, and approximately $7 trillion over the entire 10-year
period from 2014 through 2023. After accounting for the added interest costs
from all of these unpaid-for tax cuts, Ryan’s budget would still be about $1.2
trillion in the red in 2023.
Of course, Rep. Ryan could avoid all this red ink if
he paid for these tax cuts with offsetting tax expenditure savings, which he
claims to want to do. Unfortunately, he fails to identify even one tax
expenditure he would close to generate the missing revenue. Perhaps that’s
because the enormity of his tax hole makes it practically impossible for him to
actually make the math work. A total and complete repeal of all itemized tax
deductions—the mortgage interest deduction, the charitable deduction, and the
state and local tax deduction, for example—would generate less than $2 trillion
in added revenue. Not only would that still leave him $5 trillion short of his
claimed revenue levels, but he would also be financing a massive tax cut for
the rich with a huge middle-class tax increase.
If all of this sounds vaguely familiar, that’s
because this is the same play that Rep. Ryan and his running mate, former
Massachusetts Gov. Mitt Romney, ran in the 2012 election: promising enormous
tax cuts with no way to pay for them except by raising taxes on the middle
class. The only difference this time is that this version of Rep. Ryan’s budget
has a bigger revenue hole than the Romney budget did, meaning his tax increases
on the middle would have to be even bigger.
Unless Rep. Ryan and his colleagues are calling for
enormous middle-class tax hikes to pay for their huge tax cuts for the rich and
for corporations—a politically and morally toxic position—then they are facing
a massive hole in their budget.
Fantasy levels of nondefense discretionary spending
Even if their tax plan wasn’t entirely dependent on
$7 trillion worth of unspecified tax expenditure savings, the House Republican
budget would still not balance within 10 years—unless they somehow manage to
convince future Congresses to adhere to an unprecedentedly low level of
spending in a category known as “nondefense discretionary.” This category of
spending has already been the focus of more than $1.1 trillion in cuts, but the
Ryan budget calls for an additional $900 billion in reductions. To be clear,
these would come on top of, not instead of, sequestration.
If these cuts were actually imposed, the result
would be that nondefense discretionary spending would total just 2.1 percent of
GDP by 2023. Since 1962, the first year for which we have comprehensive data,
nondefense discretionary spending has never totaled less than 3.2 percent of
GDP. In other words, Rep. Ryan’s budget numbers depend on cuts that would bring
this category of spending down to a level one-third lower than its previous
lowest point in modern history. That is
unrealistic, to say the least.
This category of spending includes most of the
federal government’s investments in economic growth; all of veterans’ health
care; food, drug, and consumer product safety; federal law enforcement; and
many other vital public services. Of course, you might never know that by
reading the documentation accompanying the Ryan budget. That’s because it is
far easier to “cut” the nebulous category called “nondefense discretionary”
than it is to cut actual programs, benefits, and protections that the public
knows and likes. But in fact, for these kinds of cuts to actually come to pass,
Congress—now and in the future—will have to get specific. And if they decide
that they can’t, in reality, reduce these things to levels unheard of in
generations, then Rep. Ryan’s claim to a balanced budget falls apart.
No, the Ryan budget doesn’t balance
Either one of the aforementioned budget gimmicks is
enough to sink Rep. Ryan’s claim to balance. Together, they even undermine any
claim to deficit reduction at all. If Rep. Ryan is unable or unwilling to fill
his $7 trillion tax hole, and if he is unable to make his $900 billion in
additional nondefense discretionary cuts stick, then far from reducing the
deficit, the Ryan budget would actually result in deficits averaging 5 percent
of GDP through 2023, and debt exceeding 90 percent of GDP within 10 years.
That’s a world away from balance.
About the author: Michael Linden is the Director for
Tax and Budget Policy at the Center for American Progress.
This article was published by the Center for
American Progress.
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