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A Tale of Two Budgets

Paul Ryan draws the contrast Republicans will need this fall.

Apr 2, 2012, Vol. 17, No. 28 • By YUVAL LEVIN
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Much of the agenda is the same, of course. Ryan would repeal Obamacare, spend $5 trillion less than the president plans to over the next decade, reduce the deficit by $3 trillion more than the president would over that period, reduce debt as a share of the economy within two years, modernize and strengthen the social safety net, and reform Medicare. But the particulars, and some of the ways in which this year’s budget differs from last year’s, make for a striking contrast with Obama’s dereliction​—​one that will serve Republicans well this election year.

 

First, President Obama seeks to gut the defense budget to procure temporary life support for a bloated welfare state. Military spending has not been a significant driver of the growth in government spending in recent decades. While federal spending increased from 18 percent of GDP in 1960 to 24 percent last year, defense spending declined in that period from 9 percent to less than 5 percent of GDP, according to the Office of Management and Budget. But in President Obama’s 2013 budget, defense spending is cut by $487 billion by 2021 while overall federal spending actually increases by $2 trillion over the coming decade. The Ryan proposal would provide level funding for defense​—​not increasing the budget, but also not slashing it by half a trillion dollars while expecting the military to defend America’s interests in a dangerous time and leaving the real causes of our budget crisis untouched.

Second, President Obama’s budget seeks to use the tax code to advance a populist election message, while the Ryan budget seeks to reform the tax code to spur economic growth. In essence, the president wants to temporarily stabilize annual deficits at around $600 billion (the largest deficit in American history until 2009, even adjusting for inflation, was $460 billion) before seeing them climb again. And he would do so by increasing the top marginal tax rate from 35 percent to roughly 40 percent and increasing taxes on investment. The Ryan budget contends that such tax increases would be damaging to economic growth at a time when dynamism is badly needed, and pursues instead an aggressive pro-growth tax reform​—​consolidating today’s six personal income-tax brackets into just two (with rates of 10 percent and 25 percent), reducing the corporate rate to 25 percent, and broadening the tax base by curbing deductions, credits, and other so-called tax expenditures. The details of such reforms would depend on the House Ways and Means Committee, but the general outline, developed in tandem with that committee, aims for federal revenues at the postwar average of 18.5 percent of GDP (up from last year’s roughly 15 percent) with significantly lower tax rates.

Third, President Obama’s budget proposes simply to pump more money into our existing safety-net programs, which have been growing uncontrollably in recent years, while the Ryan budget seeks to modernize them to improve their effectiveness and reduce their costs. The food-stamp program alone now costs more than four times what it did a decade ago, and that growth is by no means attributable only to the recession. Caseloads increased by almost 30 percent between 2003 and 2007, as unemployment was falling. The design of this and similar programs uses federal dollars to encourage states to increase their caseloads, and creates no incentives for efficient management. Ryan would use the model of welfare reform to put the states in charge of making these programs work for their populations​—​funding them through federal block grants indexed to inflation and the size of each state’s eligible population, and requiring that states make aid contingent on working or obtaining job training. The idea is not only to save money, though the cumulative savings from such reforms would be significant, but also to use our safety-net institutions to help make poor Americans more independent, rather than less so.

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