President Obama vs. Paul Ryan: A Budget Battle Highlights Dueling Priorities

By Kristen Friend, staff writer – April 4, 2012 Members of the House of Representatives voted on a number of budget proposals last week in a lead-up to Thursday’s vote on the controversial plan offered by House Budget Committee Chairman Paul Ryan (R-Wis.). All failed, as expected, with the exception of the Ryan budget, which passed with a nearly party line vote of 221-191. All House Democrats voted against the bill with only 10 Republicans crossing the aisle to join them. [1]

Rep. Ryan released a similar budget last year that drew wide criticism from both liberal critics and constituents in large part for its proposed restructuring of Medicare. Pundits and constituents warned Republicans that any attempt to cut Medicare or Social Security was political suicide. So this year, Paul Ryan doubled down.

Rep. Ryan’s proposed budget for 2013 again restructures Medicare, changing it from a premium guarantee to a voucher program. It also proposes large cuts to Medicare, Medicaid and other health programs and even deeper cuts in discretionary spending than were agreed upon in the deficit ceiling dog and pony show of 2011. [2]

The plan has no chance of passage in the Senate and is not likely even to be brought up for a vote. The budget is pure politics, and, to the credit of Ryan and his Republican colleagues, a strikingly honest outline of their priorities, popular or not. It sets Republicans up for an election year fight they seem to welcome, even relish, over tax policy, deficits and economic justice.

Yesterday, President Obama joined the battle, taking aim at the Ryan plan during a speech to the American Society of News Editors. In his speech, he aggressively criticized Ryan’s budget proposal, using it as a base from which to attack Republican presidential candidate Mitt Romney and the entire Republican party. This was the first time this year the president mentioned Romney directly in a campaign speech, and the Romney campaign is increasingly focusing its efforts on the president rather than primary rivals.

The president’s speech attacked the underlying principles and assumptions of Republican philosophy and so-called trickle down economics. His tone was decidedly populist, much more closely resembling candidate Obama of 2008 than the often reserved and at times timid [3] President Obama of the past three years. He used Ronald Reagan, the third rail of the Republican party, to illustrate his point, citing Reagan’s budget compromises and tax increases, and claiming that the former president “could not get through a Republican primary today.” [4]

President Obama echoed what many Democrats have been saying about the Ryan budget version 2.0: that it’s priorities are way off.  In his speech, he called the budget, “antithetical to our entire history as a land of opportunity and upward mobility for everyone who’s willing to work for it — a place where prosperity doesn’t trickle down from the top, but grows outward from the heart of the middle class. And by gutting the very things we need to grow an economy that’s built to last — education and training; research and development — it’s a prescription for decline….” [5]

The president also warned of the dangers of income inequality, saying, “studies have shown that countries with less inequality tend to have stronger and steadier economic growth over the long run.” [6]

Republicans quickly responded by accusing President Obama of using over the top campaign rhetoric instead of having a serious conversation about the nation’s budget. Conor Sweeney, Paul Ryan’s communications director, released a statement, saying, “Like his reckless budgets, today’s speech by President Obama is as revealing as it is disappointing: While others lead by offering real solutions, he has chosen to distort the truth and divide Americans in order to distract from his failed record.” [7]

Underneath all the talking points and political posturing, there is a real battle being waged over the hearts and minds of Americans. Recent analysis of tax data shows that President Obama is right, at least about growing income inequality. The on again, off again recovery has benefited the top 10 percent of income earners almost exclusively while incomes for the other 90 percent of the country have remained stagnant for decades. Tax policies that benefit the very wealthy are having an effect. [8]

The president has shown a willingness to accept conservative proposals, from cap and trade (a conservative idea to combat acid rain in the 1980s) [9] to the health insurance mandate (articulated by the conservative Heritage Foundation in 1989) [10], but the competing budget proposals show a real difference between the president’s vision and that of the Republican Party. No matter how much fancy math, voodoo economics and hopeful growth projections a budget contains, at its most basic it is a statement about a society’s values. And the competing budgets say a lot about each party’s priorities.

Paul Ryan and Taxes: Specific cuts, non-specific revenues

Ryan’s budget proposal would make extensive changes to the federal tax code. It cuts the top marginal rate from 35 to 25 percent and combines all other rates into a single 10 percent bracket, although the plan does not specify what income levels would fall into which of the two brackets. It eliminates the alternative minimum tax (AMT), cuts the top corporate tax rate to 25 percent, eliminates most taxes on overseas income and repeals all tax increases scheduled to be implemented under the Affordable Care Act (ACA). It also leaves intact the Bush era tax cuts. [11]

According to the Tax Policy Center (TPC), the tax cuts within the Ryan plan would cause a loss of revenue totaling $4.6 trillion over the next ten years. [12] Yet Rep. Ryan makes the claim that his budget does not contain tax cuts. This is based on his assertion that the plan is revenue neutral: any tax cuts are offset by increases in revenue by closing tax loopholes and scaling back deductions and other credits. The proposal does not make any specific recommendations about which loopholes to close, leaving the tough choices to the members of the House Ways & Means Committee. Estimates from the congressional Joint Committee on Taxation show that a top corporate tax rate less than 28 percent would cause a loss in revenue even if every corporate tax loophole were closed. [12] If these estimates are true, the Ways & Means Committee would certainly face a daunting task.

An analysis of these tax proposals by the Center for Budget at Policy Priorities shows that wealthy Americans stand to gain the most from the Ryan plan. Those making more than $1 million a year would receive a benefit equal to roughly 12.5 percent of their income, averaging about $250,000 while those making less than $10,000 a year would see a benefit of roughly 0.2 percent of their income, or about $95. [13] This does not include the effect of closing any unspecified loopholes.

Paul Ryan and Spending: Increases in defense, decreases in domestic investment

Despite all the talk of out of controlling government spending, the Ryan budget proposal actually increases defense spending by $228 billion over the next ten years, contrary to the recommendations of Pentagon officials. [14] Rep. Ryan instead targets domestic programs, repealing the Medicaid expansion components of the Affordable Care Act and cutting Medicare, pell grants, job training programs, SNAP (food stamps) and other social programs. The budget also contains deep cuts to discretionary spending, which includes investments in roads, bridges and other infrastructure items. Like his first budget proposal, this plan makes a second attempt at turning Medicare into a voucher program in which seniors would receive a payment voucher to buy private insurance or a Medicare-like insurance plan. [15]

The spending cuts in the Ryan budget break one of the fundamental rules of the Simpson-Bowles recommendations: that any plan to deal with the budget deficit must do so without cutting programs that help the truly needy. Rep. Ryan claims that his budget will help encourage social mobility, but it is hard to explain how reducing access to health care, nutrition and education while giving tax breaks to the wealthy will help even the playing field. [16] Robert Greenstein, president of the Center for Budget Priorities called the budget, “Robin Hood in reverse — on steroids,” and claimed, “It would likely produce the largest redistribution of income from the bottom to the top in modern U.S. History.” [17]

Taken as a whole, the Paul Ryan is a very right-wing proposal – one that would have been considered too extreme to discuss a mere decade or two ago. It emphasizes tax cuts at the expense of government’s ability to function, and the bulk of the cuts come from programs intended to help the low-income families.

Total (claimed) savings: $5.3 trillion over 10 years. Vote: passed 288-191.

President Obama and Taxes: modest revenue increases and focus on top earners

President Obama made the opening budget salvo in February with the release of a plan that stands no chance of ever becoming law. Republicans held a vote on the president’s budget at the beginning of last week, with the expressed purpose of embarrassing the president, and it was roundly defeated without receiving a single vote. [18]

Obama’s proposal also recommended lowering the top corporate tax rate, but to a slightly higher 28 percent. This would, again, be offset by closing yet undefined corporate tax loopholes. (The plan contains about $1.5 trillion in “unspecified” tax savings.) [19] That is about as close as the two budgets came to agreeing on taxation. President Obama would let the Bush era tax cuts expire for those making more than $250,000 a year, although history shows this position is open to compromise. The expiration of the Bush tax cuts is already written into current law, and Congress could actually do a great deal to start closing the budget gap by simply making no changes at all and letting the cuts expire as planned.

In addition to letting the Bush tax cuts expire, the president continues to push for the implementation of the Buffett Rule, named for the increasingly vocal billionaire investor, Warren Buffett. The idea behind the Buffet Rule is that anyone earning more than $1 million per year, from any source, should pay at least a 30 percent tax rate. [20] Currently, favorable rates on investments, often the primary source of income for the extremely wealthy, are what allow people like Warren Buffett, Mitt Romney and President Obama pay a much lower percentage of their incomes in taxes than anyone in the middle or working classes.

President Obama and Spending: Mixed cuts and increases to domestic programs

Obama’s budget claimed to cut defense spending by $487 billion over ten years, and it would, in a way. [21] But the president admits, proudly, that by the end of that ten-year period, defense spending will actually increase. The cuts are calculated from savings incurred by winding down the wars in Iraq and Afghanistan, as well as scaling down increases to the annual Pentagon budget. Spending will increase, just not by as much. This, in budget speak, is a reduction.

The president also proposes to cut Medicare, but by a much smaller amount, with the savings coming from cuts to providers rather than beneficiaries. Discretionary spending would fall from its current rate of $450 billion to $385 billion by 2015. [22] Across the board, federal agencies would have seen small cuts, or at least smaller than anticipated increases, in funding, with the hardest hit agencies being the Department of Agriculture, the EPA and NASA. The proposal would have increased spending on education and Department of Energy, mostly by way of funding for clean energy projects. [23]

The president’s budget has been criticized as being excessively liberal, but that is par for the course. Everything the president does will be criticized as liberal, even things that were Republican ideas in the first place. But the priorities revealed by President Obama’s proposal show a much greater emphasis on actual shared sacrifice, with the very rich being asked to contribute more toward the welfare of the entire country. It exemplifies his theory that the government can play a positive role in people’s lives and that government spending is an investment, not an unmitigated evil that can never do good.

Total (claimed) savings: $4 trillion in deficit reduction over 10 years. Vote: failed 414-0.

Two other budgets failed in the House last week. One, introduced by Republican Steve LaTourette and Democrat Jim Cooper, was based roughly on the recommendations of Simpson-Bowles. It proposed to achieve a $4 trillion savings over 10 years with a mix of revenue increases and cuts to social programs like Medicare and Social Security. [24] Another, introduced by the Congressional Progressive Caucus would have attacked the deficit almost entirely through increases in revenue, adding five new tax brackets for millionaires and billionaires, removing subsidies to oil companies and taxing some financial transactions. [25]

The reality, if you ask economists, is that a real workable budget requires a mix of solutions: both spending cuts and revenue increases. And these need to be real revenue increases, not black box magic increases that come from unrealistic projections of post-tax cut growth or hazy ideas about undoing popular tax savings and loopholes. What programs politicians choose to cut and from whom they choose to raise revenue is a simple statement of priorities. Everyone will have to give a little and be a little angry about something in the end. President Obama, much to the dismay of many Democrats, has put cuts to social programs and defense on the table. Republicans must to the same with tax increases. But no one, even Democrats who already get labeled with the pejorative tax and spend, seems to be willing to do this.

If the Senate does not pass a budget this year, as it has not for several years, the House will still look to the budget it adopts to determine appropriations for the coming year. And the House is obviously not looking to incorporate any of President Obama’s ideas about progressive taxation, revenue increases or government investment into the mix. Instead, the House is gearing up another summer fight over deficits and spending that is unlikely to produce any viable long-term solutions.

SOURCES

  1. http://www.politico.com/news/stories/0312/74651.html
  2. http://www.cbpp.org/cms/index.cfm?fa=view&id=3708
  3. http://www.cnn.com/2012/04/02/opinion/zelizer-health-care-liberals/
  4. http://abcnews.go.com/blogs/politics/2012/04/president-obama-delivers-blistering-partisan-attack-on-modern-republican-party/
  5. http://www.latimes.com/news/politics/la-pn-obama-speech-transcript-20120403,0,7053881.story
  6. id.
  7. http://www.politico.com/news/stories/0412/74775_Page2.html
  8. http://www.csmonitor.com/Business/Robert-Reich/2012/0402/Economic-rebound-Not-for-most-of-us.
  9. http://www.smithsonianmag.com/science-nature/Presence-of-Mind-Blue-Sky-Thinking.html
  10. http://www.centralpennbusiness.com/article/20120329/POLITICS/120329794/Is-the-individual-mandate-a-conservative-idea?&template=politics
  11. http://www.huffingtonpost.com/2012/03/29/paul-ryan-budget-passes-house_n_1389165.html?ref=politics
  12. http://www.novoco.com/hottopics/resource_files/jct-memo_tax-expenditure-repeal_102711.pdf
  13. http://www.washingtonpost.com/blogs/ezra-klein/post/paul-ryan-betrays-his-own-views-on-income-inequality/2012/04/03/gIQAJCv2sS_blog.html
  14. http://www.washingtonpost.com/blogs/ezra-klein/post/the-ryan-budgets-priorities-in-two-graphs/2012/04/02/gIQARH2vqS_blog.html
  15. http://maddowblog.msnbc.msn.com/_news/2012/03/30/10938733-paul-ryans-unbridled-chutzpah-on-defense-spending
  16. http://paulryan.house.gov/UploadedFiles/Pathtoprosperity2013.pdf
  17. http://www.cbpp.org/cms/index.cfm?fa=view&id=3712
  18. http://townhall.com/tipsheet/katiepavlich/2012/03/29/unanimous_obama_budget_defeated_4140
  19. http://www.huffingtonpost.com/2012/02/10/president-obama-budget-cuts-tax-hikes_n_1269702.html
  20. http://www.washingtonpost.com/politics/federal_government/obama-presses-congress-to-pass-buffett-rule-tax-increase-on-millionaires/2012/03/31/gIQAP06YmS_story.html
  21. http://articles.latimes.com/2012/jan/08/opinion/la-oe-mcmanus-defense-budget-20120108
  22. http://money.cnn.com/2012/02/13/news/economy/obama_budget_cuts/index.htm
  23. http://www.washingtonpost.com/blogs/federal-eye/post/federal-budget-2013-how-obamas-budget-plan-affects-each-agency/2012/02/13/gIQAsDH4AR_blog.html
  24. http://www.cleveland.com/metro/index.ssf/2012/03/latourettes_longshot_bipartisa.html
  25. http://www.ombwatch.org/node/12032