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November 12, 2012 11:52 AM The Path to Poverty

By Julius Simonelli

Now that the question of who will inhabit the White House for the next fours years has been answered, the focus of the political debate will return to the looming deficit crisis. With devastating budget cuts set to occur automatically at the beginning of the new year if Congress can’t reduce the deficit, the lame duck Congress will have to come up with a solution. The House, over which the Republicans have control, is responsible for proposing a budget for the federal government. This might be trouble for America.

Since gaining power in the midterm election of 2010, House Republicans have continued to espouse versions of Congressman Paul Ryan’s budget, The Path to Prosperity, commonly called the Ryan Plan. It’s a pretty scary budget plan.

Even William Gale, a senior staff economist for the Council of Economic Advisers under President George H.W. Bush, said that Ryan’s budget “is, essentially, an effort to have low- and middle-class households bear the entire burden of closing the fiscal gap and bear the costs of financing an additional tax cut for high income households.”

The Tax Policy Center (TPC), a joint venture of the Urban Institute and Brookings Institution, analyzed Ryan’s proposal. TPC focused on four tax cuts he has specified: repealing the Alternative Minimum Tax; reducing the number of federal tax brackets to two, one at 10 percent and the other at 25 percent; repealing the taxes that pay for the Patient Protection and Affordable Care Act (Obamacare); and corporate tax provisions. TPC estimates that this will cost $4.6 trillion over ten years.

The TPC has also analyzed who will be the beneficiaries of this tax cut. This table makes it clear who the winners are: The top 1 percent gets 34.9 percent of the tax cuts and the top .1 percent will receive a 22.7 percent after-tax income increase worth $1,181,112.

Ryan lays out the differences between his budget and what the Congressional Budget Office (CBO) established as the current policy baseline. He breaks the differences down into various categories: Security, Global War on Terror, Non-Security, Medicaid, Medicare, President’s Health Care Law, Social Security, Other Mandatory, and Net Interest. He has cuts in most categories, but the cuts are not equally divided. The Center on Budget and Policy Priorities (CBPP) estimates that “cuts in low-income programs appear likely to account for at least $2.9 trillion - or nearly two-thirds” of the savings in the Ryan Plan.

Congressman Ryan’s plan calls for cuts of $771 billion to “Medicaid & Other Health” over the next ten years. He removes another $1.4 trillion in Medicaid expansion that Obamacare allocated, which was intended to allow for people with incomes up to 133 percent of the poverty line to receive Medicaid benefits.

Ryan would also make a $719 billion cut in “Other Mandatory” and $1.6 trillion cut in “Non-Security” over the next ten years. By “Other Mandatory,” he is referring to programs that the government is required to pay for based on current law. These include income security programs, such as Unemployment Compensation, Earned Income and Child Tax Credits, Supplemental Nutrition Assistance Program (commonly called food stamps); federal civilian and military retirement; and veterans programs. “Non-Security” refers to the discretionary spending other than defense. For FY2011, the federal budget for this category was $647 billion. Pell Grants, which provide higher education money for low-income Americans, are funded from both mandatory and discretionary spending, are targeted for substantial cuts.

Congressman Ryan has not indicated how much of what programs will be cut but the CBPP assumed that “savings from low-income mandatory programs (other than Medicaid) would be proportionate to their share of spending in this category.” CBPP estimated that half of “Other Mandatory” and a quarter of “Non-Security” would go to programs for low- and moderate-income people. This translates to cuts of $350 billion from “Other Mandatory” and $400 billion from “Non-Security” that benefit lower income households. This, combined with the $771 billion Ryan plans to remove from Medicaid and the $1.4 trillion from repealing the Medicaid expansion, totals $2.9 trillion in cuts from programs that directly benefit low- and moderate-income people.

Everyone agrees that policymakers will have to makes difficult decisions in order to cut the deficit and begin to reduce the national debt. But it’s not really clear that the Ryan Plan even does this. Ryan’s Plan assumes an increase in revenue relative to GDP to keep his plan deficit-neutral, but doesn’t offer any means to ensure this. In fact, it’s nearly impossible to generate the tax cuts that Ryan calls for and balance the budget. The Bipartisan Policy Center (BPC) states that “while he does not include a detailed proposal, Congressman Ryan indicates that he wants to achieve revenue-neutral tax reform from a current policy baseline.” The problem, according to the BPC, is that “in order to remain revenue-neutral, Congress would have to eliminate nearly every tax expenditure.”

If Congressman Ryan were serious about cutting the deficit, he would work to both decrease spending and raise revenue. Instead, he wants to lower the taxes to the lowest rates paid by the highest earners since the 1920’s.

So what’s this mean now that the election is behind us? Congressman Ryan remains chairman of the House Budget Committee, and will be influential in crafting the federal budget. Although the Path for Prosperity is not an actual budget, it reveals the philosophy the Congressman and his allies will try to integrate into the real budget. This is a philosophy about which that all Americans should be concerned.

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Julius Simonelli is an engineer living in Virginia.
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