Paul Ryan's Roadmap for America's Future would drastically overhaul the American welfare state in a free-market direction. The Congressional Budget Office says it would solve the entitlements crisis through a series of changes to Social Security and Medicare and Medicaid. The Roadmap also includes a fundamental tax reform -- one that Ryan says, and the CBO assumes, would bring in revenues equivalent to the long-term historical average of 19-percent of GDP. Two new studies dispute that figure, however. I talked to Ryan this evening to get his response.
"We feel good about our numbers," Ryan told me. "You can tweak a plan to get it toward a historic trend." He's referring to a Brookings Institution's Tax Policy Center study that says the Roadmap would fall short of its 19-percent goal over the next 10 years, bringing in revenues of somewhere between 16.6 percent and 16.8 percent of GDP. In a statement last night, Ryan said that "the purpose of the Roadmap is to get spending in line with revenue -- not the other way around." He reiterated that argument in his conversation with me today. "The point is the spending."
There's good reason to believe, based on economic theory and empirical experience, that at least some portion of that "lost" revenue would be recouped by higher GDP. But the overaching point is that the Ryan plan, as scored by the CBO, shows that there's a way to balance the long-term budget by keeping taxes at historical levels rather than raising them to levels that would cripple the economy. If critics acknowledge that Ryan's reforms to Social Security, Medicare, Medicaid, and the health care system can make our nation solvent as long as we maintain historical levels of tax revenue, and the only argument left is over how to maintain historical levels of taxation, then I'd say that's a major victory for Ryan.
The other charge critics make is that Ryan's tax changes would hurt the poor. That's the theme of a second report by the liberal Citizens for Tax Justice (CTJ), which concludes with this: "It's difficult to design a tax plan that will lose $2 trillion over a decade even while requiring 90 percent of taxpayers to pay more. But Congressman Ryan has met that daunting challenge." It's impossible not to notice the snide tone. But sarcasm isn't always persuasive.
The $2 trillion figure is a reference to the Bush tax cuts, which Ryan's plan would make permanent for everyone. (One should note that by this measure, the Obama tax plan will also "lose" some revenue, since the president only wants the tax cuts to expire for upper-brackets.) But Ryan also cuts spending over time. Obama does not.
As for "requiring 90 percent of taxpayers to pay more," that's a swipe at Ryan's zeroing out the stimulus and replacing the corporate income tax with a business consumption tax. You see, Ryan says the expansion of the Earned Income Tax Credit and Child Tax Credit in Obama's stimulus bill is spending, not tax cutting. He'd eliminate it. And CTJ counts a reduction in that spending as a tax hike.
The business consumption tax would be passed on to the consumer, making it regressive. But Ryan notes that Americans indirectly feel the consequences of the above-average U.S. corporate tax rate today, through lost wages and higher prices. And these effects are regressive, too. Unlike the current situation, Ryan goes on, the business consumption tax "is cleaner, simpler, and it's on paper." It would also make American exports more competitive than they are today. "I believe it's a better deal," he says. Most important: "It's more uniform. You can't play social engineering."
The dynamic effects of Ryan's reforms are impossible to predict. Over time, government would shrink, investment would expand, and America's credit rating would improve. America would become a haven for foreign capital. Her citizens would have more individual choice and, yes, more individual responsibility. "Policies such as these," Irving Kristol wrote decades ago in his essay "The Republican Future," "have the obvious advantage of reconciling the purposes of the welfare state with the maximum degree of individual independence and the least bureaucratic coercion." No wonder Paul Ryan is smack in the middle of liberal sights.