Wednesday, April 6, 2011

Does the Ryan Plan Reduce the Deficit and Does That Really Matter?

Douglas Holtz-Eakin praises the Ryan long-term budget proposal:

The Ryan budget would provide beneficial impacts on economic growth because it lowers marginal tax rates, controls spending, and reduces debt.


His argument that this proposal would be growth enhancing rests critically on the presumption that the reductions in Federal spending dominate the reductions in taxes.

Paul Krugman weighs in on this aspect of the debate:

Ryan is proposing huge (and largely unspecified) spending cuts; but he’s also proposing very large tax cuts, mainly, of course, for those with high incomes. And as you can see, a large part — roughly half — of the spending cuts are going, not to deficit reduction, but to finance those tax cuts. Actually, it’s even worse, since the revenue figure in the Ryan plan is simply assumed, and is clearly too high given what he’s actually proposing on taxes; so either the fall in revenue will be even larger than shown here, or there will be unspecified tax hikes on the middle class.


In other words, Holtz-Eakin’s argument rests on his belief that the Ryan plan actually does cut spending by more than it cuts taxes – even if a lot of the spending cuts are unspecified and the tax revenue projections are based on unspecified offsetting tax increases.

Oh but the National Review has a counterargument of sorts from Lawrence Kudlow:

Obsessing over the debt is not by itself a policy. Advancing the economy and setting the stage for more job creation is a policy. Mr. Ryan kept an important dose of Ronald Reagan in both the spirit and reality of his plan. Limited government, lower tax rates, and deregulation (of energy) will all promote the path to prosperity.


Yes – the same old Laugher Curve nonsense that one can cut taxes by more than one cuts government spending and still see faster long-term growth. After all, reducing national savings does not necessarily reduce investment in Kudlow’s supply-side world! After all – this worked wonders 30 years ago – right?

2 comments:

Barkley Rosser said...

The details of the Ryan Plan make it even more absurd. We have off-the-wall projections for employment and the housing market, supposedly drawn from a Heritage Foundation study, which has now been taken down from their website. Delicious.

And he does not even bother to attempt to claim that this plan reduces the deficit anytime soon, with it in fact making the deficit worse in the next decade than the baseline scenarios. Pathetic.

wellbasically said...

Ryan stupidly left the growth message out there on the table for you to grab it and run with it. What do you do? Propose LOWER GROWTH.

It's the economically correct who will lead Obama to seize the worst parts of Ryan's plan, the damaging austerity cuts, and then throw tax increases on top of that.