Ryan Unveils Budget Plan to Erase Deficit in 10 Years

March 12 (Bloomberg) - Bloomberg's chief Washington correspondent Peter Cook reviews the 2014 budget proposal from Wisconsin Republican Rep. Paul Ryan. He speaks on Bloomberg Television's "Market Makers."

U.S. House Budget Committee Chairman Paul Ryan today unveiled a revised tax-and-spending proposal that he said would eliminate the deficit within a decade by cutting $4.6 trillion out of a vast swath of federal expenditures.

The budget for fiscal year 2014 would cut Medicaid (USBOMDCA), food stamps, Pell college tuition grants and scores of other programs while sparing the Defense Department (USBODEFN) and reducing individual and corporate income tax rates. The result, according to his estimates, would be a rapidly shrinking deficit, falling by more than 80 percent in just two years and disappearing altogether by 2023.

Ryan, a Wisconsin Republican who was his party’s vice presidential candidate in 2012, downplayed the severity of the proposed cuts, saying his plan would amount to restraining annual spending increases to 3.4 percent from what would otherwise be 5 percent.

“We believe that we owe the American people a balanced budget,” Ryan told reporters today. “You cannot continue to spend money that you just don’t have.”

The plan, which is similar to previous iterations of Ryan’s budgets, will surely be dead on arrival in the Senate, where the majority Democrats have long complained that his proposals take too much from the poor while asking too little of the wealthy.

Budget Battle

It will set up yet another budget battle in Washington, where lawmakers are deadlocked over what to do about $85 billion in automatic cuts, known as sequestration, that took effect earlier this month. In addition, they need to agree on separate spending legislation to keep federal agencies operating beyond March 27.

Senate Democrats are preparing to begin work on their own budget framework, which will lay out a 10-year plan for reducing the deficit, in part through $1 trillion in additional tax increases. There is little prospect of an accord between the two chambers on a single plan, which means that Congress probably will go a fourth consecutive year without agreeing on a budget.

High Ground

Republicans are attempting to seize the rhetorical high ground in the debate over the deficit with their call to eliminate a shortfall currently projected to total nearly $1 trillion in 2023. While economists say it makes little difference whether the budget is technically balanced, contending that what matters is getting debt down to manageable levels, “balancing the books” is synonymous with “good government” for many voters.

A balanced budget is a “common-sense goal,” Ryan said, while “an unbalanced budget is a sign of overreach.” He wrote in his proposal that “when a government does too much, it doesn’t do anything well.”

Senate Majority Leader Harry Reid called Ryan’s proposal “an extreme budget that’s anything but balanced.”

“We’ve seen this before -- deja vu all over again,” the Nevada Democrat said today on the Senate floor. “The Ryan budget will shower more tax breaks on millionaires and continue to tilt the playing field to the advantage of big corporate interests.”

Representative Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee, called Ryan’s plan a “totally uncompromising budget that simply represents more of the same -- undermining job growth, ending the Medicare guarantee and slashing critical investments in our future.”

January Deal

Ryan, whose budget proposal last year wouldn’t have eliminated the deficit until 2040, found his path to balance cleared somewhat by a January budget deal in which lawmakers agreed to raise taxes on the wealthy. That’s projected to pump an additional $600 billion into the Treasury, which Ryan is including in his budget proposal. Asked why he included revenue from a tax increase he opposed, Ryan said: “We’re not going to refight the past -- law is law.”

He has also been helped by revised Congressional Budget Office projections showing that health-care spending is growing less quickly than anticipated. Ryan also ratcheted up the spending cuts, calling for bigger reductions in federal workers’ retirement benefits. His plan would also extend for two years limits on discretionary spending due to expire in 2021.

As in previous years, the centerpiece of Ryan’s plan is his proposal to overhaul Medicare (USBOMDCR) by giving people now under age 55 fixed sums with which to buy either private insurance or use in Medicare. Either way, their benefits would be capped under his plan, which would be a major change in how the currently open- ended program operates.

Deep Cuts

The plan revives his previous calls for major cuts in programs for the poor. It would take $700 billion out of Medicaid, the health-care program for low-income Americans. Food stamps would be cut, and scheduled increases in the maximum Pell college-tuition grants would be halted.

“We have put so much money into our welfare programs, into our poverty-fighting programs, yet we have 46 million people living in poverty,” Ryan told reporters today. “So rather than measure how much money are we spending in these programs, let’s think about measuring ‘Are we helping people? Are we getting people out of poverty?’”

Ryan’s proposal would impose cuts in so-called discretionary spending beyond this year’s sequestration. It would set aside $1.14 trillion for such spending for the 2014 fiscal year, which would amount to rolling back that portion of the budget to below 2008 levels -- and even less when inflation is taken into account.

Unanswered Questions

Still, his plan leaves many questions unanswered. It would call for almost $1 trillion in cuts to mandatory programs outside of health care without saying where much of those cuts would be made. The plan also doesn’t propose changes in Social Security (USBOSOCS), the government’s single biggest program; it has begun running a cash deficit, and the program’s trustees have projected that its disability program will go bust by 2016.

Likewise, Ryan’s plan proposes to overhaul the tax code by dropping the top rate to 25 percent and collapsing the number of brackets to just two from the current seven, with the other rate set at 10 percent. It would finance those reductions by squeezing individual tax breaks, without identifying which would have to go.

To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net

To contact the editor responsible for this story: Katherine Rizzo at krizzo5@bloomberg.net

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