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Paul Ryan: "Gang of Six" Proposal Would Actually Raise Tax Revenue $2 Trillion

The budget committee chairman sees some problems with "Gang of Six" budget framework.

12:26 AM, Jul 20, 2011 • By JOHN MCCORMACK
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Paul Ryan says

“The proposal put forward by a group of seven senators today is a useful addition to the budget debate.  I share the frustration that these senators appear to have with the U.S. Senate’s inability to pass a budget in over 800 days.  While the proposal lacks detail in many respects, it includes some reforms that could help put our country on a sounder fiscal footing.  Most importantly, it reflects a bipartisan recognition that lower tax rates are essential to help spur economic growth.  Unfortunately, it increases revenues while failing to seriously address exploding federal spending on health care, which is the primary driver of our debt.  There are also serious concerns that the proposal’s substance on spending falls far short of what is needed to achieve the savings it claims.  Nevertheless, this effort serves as a sign that we can work together on a bipartisan basis to make a serious down payment now to avert the debt-fueled economic crisis before us.”


Ryan's office outlines what they see as the good and bad in the proposal: 

Problems 

Heavy Reliance on Revenues.  The plan claims to increase revenues by $1.2 trillion relative to a “plausible baseline.”   It also claims to provide $1.5 trillion in tax relief relative to the CBO March baseline.  The CBO baseline assumes the expiration of tax relief, resulting in a $3.5 trillion revenue increase.  As a result, the plan appears to include a $2 trillion revenue increase relative to a current policy baseline.  If the $800 billion in tax increases from the new health care law are included, the plan appears to increase revenues by $2.8 trillion, without addressing unsustainable health care spending that is driving our debt problems. 

Elusive Spending Restraint.  It is unclear how much the plan achieves in spending savings.  Based on released documents, it appears to primarily rely on cuts in the defense budget through $886 billion in reductions from the President’s budget for “security programs.” 

Lack of Entitlement Reform.  The plan does not address the $1.4 trillion in spending expansions in the new health care law.  The health care law increases eligibility for the Medicaid program by one-third and creates a brand new health care entitlement.  It does not appear to include reforms to the Medicare program.  While it appears to pursue Social Security reform, it could end up creating barriers to enactment of these reforms.  

 Questions

Unspecified Savings Relative to What?  The plan is described as savings relative to a “baseline.”  The plan appears to use three different baselines for showing savings:  1) CBO’s current law March baseline; 2) an undefined modification to that baseline (what it calls a “plausible baseline”); and 3) the Fiscal Commission’s baseline.  It does not provide annual spending and revenue totals by category, relying instead on savings relative to three different baselines.  So, it is unclear what exactly the spending and tax proposals are.

Where Does the Revenue Come From?  It sets a tall order for tax reform with what appear to be conflicting assumptions: 1) raise $1.2 trillion in revenue; 2) repeal the alternative minimum tax at a cost of $1.7 trillion; 3) lower tax rates to encourage economic growth (top rate of no higher than 29%); 4) do not eliminate tax expenditures for health care, charitable giving, homeownership, retirement, and low-income workers and families (the largest of the tax expenditures); 5) raise $133 billion in revenue by 2021 for the highway trust fund without raising gasoline taxes. 

Where Do Health Care Savings Come From?  It claims $117 billion in additional federal health care savings over 10 years by assuming that health care spending per capita grows no faster than economic growth (GDP) plus one percent.  The new health care law already requires the Independent Payment Advisory Board (IPAB) to cut Medicare spending growth per beneficiary to achieve this growth rate starting in 2020.  CBO currently projects that Medicare spending will stay within that growth rate through 2021.  Therefore, it is unclear how the savings are derived. 

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