Monday, August 13, 2012

The Ryan Fiscal Plan and That CBO Document

Karen Tumulty and Dean Baker are squabbling over how to describe Paul Ryan’s long-term spending proposals. Karen writes:
First, the Ryan plan would overhaul the entitlement programs that have grown to consume about 40 percent of the budget, reshaping Medicare coverage for the elderly, and cutting deeply into Medicaid, food stamps and other programs for the poor. Second, he would rewrite the tax code, slashing the rates paid by corporations and the wealthy. Finally, Ryan would cut spending on other federal programs and agencies, with the exception of the Pentagon … "The Congressional Budget Office [CBO] estimates it [the Ryan Budget] would not bring the federal books into balance until around 2040. And most of its savings come from the long-term restructuring of entitlement programs."
Dean counters:
Actually, in percentage terms by far the biggest savings in the Ryan budget comes from essentially shutting down the federal government, except for Social Security, health care programs and the military. The CBO analysis of his budget [Table 2] shows that all other areas of federal spending falls to 4.75 percent of GDP by 2040 and 3.75 percent of GDP by 2050. Military spending is currently more than 4.0 percent of GDP and Representative Ryan has indicated that he wants to keep spending at its current levels or raise it. This means that under the Ryan Budget, by 2040 there will be almost no money left for national parks, education, the State Department, the Food and Drug Administration, federal courts and all the other activities currently supported by the federal government. By 2050 there will be no money left for these activities. The Post has seriously misrepresented Representative Ryan's agenda by not pointing out thus fact to readers.
Let’s review this CBO document starting with its opening line:
At the request of the Chairman of the House Budget Committee, Congressman Paul Ryan, the Congressional Budget Office (CBO) has calculated the long-term budgetary impact of paths for federal revenues and spending specified by the Chairman and his staff.
In other words, this is not the CBO’s analysis of some detailed set of Republican policy proposals – these are assumptions as to the path of spending specified by Congressman Ryan. Dean asks us to examine table 2, which compares the fantasy paths specified by Ryan to an “extended baseline scenario”. Notice in particular, that both scenarios have Social Security being 6% of GDP from 2030 to 2050. In other words, Romney-Ryan have yet to go after this program. George W. Bush tried to bamboozle us back in 2005 and hopefully the Republicans learned their lesson back then. While the baseline scenario has Federal spending on health care growing to 10.75% of GDP by 2050, Ryan claims that replacing Medicare as we know it with a poorly funded voucher system and the virtual elimination of Medicaid and CHIP can magically reduce this share to only 5.75%. So yes – part of the big difference between Ryan’s proposal and what Democrats propose is in the area of health care. Then again – Mitt Romney is shying away from Ryan’s budget and other Republicans are criticizing President Obama on any proposed Medicare cost containments. So who knows? Even if Ryan’s draconian cuts to health care spending were to become reality, we would not see the asserted reduction of Federal spending to a mere 15.5% unless we did eliminate the rest of the Federal government. While the baseline scenario has other spending (defense and nondefense) at 7.75% of GDP, Ryan’s fantasy scenario has this at 3.75% of GDP even though Romney has promised that defense spending alone will be 4% of GDP. So maybe Dean is being generous when he claims we would have to eliminate the rest of the government as the Romney-Ryan plan asserts we can have negative spending on the rest of the Federal government. They must have some secret new fuzzy math! Or maybe this is why Romney is promising to keep Federal spending at 20% of GDP rather than Ryan’s assertion that it will be only 16% of GDP. Then again – Romney-Ryan are promising to balance the budget even as they cut all sorts of tax rates. Ryan asserted to the CBO that his tax plan would generate revenues equal to 19% of GDP even though under current tax rates, revenues in 2011 were less than 16% of GDP. While I trust we will eventually have economic recovery, the last time we tried Laffer Curve tax policies, taxes as a share of GDP fell. I wish I understood this secret new fuzzy math that leads Romney and Ryan to think this time will be different.


Robert said...

Press well and truly beaten. I add one teeeny tiny thing. Tumulty is not using the technical term "entitlement" correctly. It refers to programs which do not have a defined budget. "other programs for the poor" are not entitlements. For example, TANF is not an entitlement*. Nor are section 8 housing vouchers. Nor is Head Start.

I don't claim that this is an exhaustive list but the only other entitlements for the poor listed here are child nutrition programs (OK when I started typing I forgot about them)

On the ther hand " farm commodity price and income support programs, crop insurance" are entitlements which aren't means tested.

*for the sole reason that then Gingrich and Clinton could brag about eliminating the Federal Welfare Entitlement at the cost of blowing tons of money in the late 90s (fine by me) and a massive record smashing deep poverty rate now.

Don Levit said...

As I understand entitlement, it simply means if you qualify for the program, you are "entitled" to the benefits.
In the case of Social Security and Medicare, these ( I assume like all entitlements) are not carved in stone, and cam be changed at any time by the Congress.
The only benefits that are legally required to be paid if one qualifies for Medicare and Social Security, are the benefits during the current fiscal year.
Beyond that time frame, due to the flexibility of the programs, the federal government does not consider its "burden" to be a liability.
Rather, its "burden" is termed an implicit promise, and as far as the strength of the government's obligation, it is a level one, the weakest obligation to fulfill, as opposed to a level 4, an explicit liability, the strongest to fulfill.
Don Levit

Bruce Webb said...

Don you were doing so well. For three paragraphs. Alittle spin and ignoring some political realities sure, but logically and legally sound.

But then you had to spoil it with the level 1-4 crap in para 4 which has no legal, logical, or political reality. Under current law Special Treasuries are not in a redemption position behind regular Treasuries. They just aren't. Absent you citing some actual controlling legal authority.

Damn Don! You missed rationality by THIS MUCH!

Don Levit said...

There are actually 2 papers which discuss the various levels of debt.
This may sound shocking, as it was to me.
But, not all federal obligations are created equally.
See a paper entitled "Federal Debt, Answers to Frequently Asked Questions, An Update," published by the GAO.
See pages 65 and 66.
In a paper entitled "Budget Issues Accrual Budgeting Useful in Certain Areas But Does Not Provide Sufficient Information for Reporting on Our Nation's Longer-Term Fiscal Challenge," published by the GAO:
Page 12, where it discusses Explicit Liabilities and Implicit Exposures.
Don Levit

Bruce Webb said...

Don GAO is not a controlling legal authority. It is in origin a simple auditing organ of Congress (when it was formally known as the General Accounting Office) converted to a pseudo-think tank pushing opinion pieces known as the Government Accountability Office. In the procees a formally technocratic bureau under the 'Comptroller' became the mouthpiece of Peter G Peterson in the living form of David S Walker, still ear universally referred to in the press as 'Former Comptroller General' Walker rather than in his years long role as President, CEO and I would add Head Cheerleader of the billion dollar endowed Peter G Peterson Foundation.

As such I regard no production of GAO in the 'Accountability' advocacy era as compared to the 'Accounting' auditing era as having any independent authority at all. Instead GAO simply commissions right wing papers in much the same way as Heritage does.

But either way it is neither a judicial or executive office and absent some specific act or resolution of Congress has no independent authority at all. Find that Level 1-4 in even a 'Sense of the House' Resolution and we can talk, that it has a GAO document number means nothing.

Don Levit said...

You are certainly entitled to your opinions of the GAO.
Part of what you say may indeed be true.
I do know they have come out with a lot of quality work (in my opinion). In this particular case, we are looking at 2 papers, several years apart, which I believe indicates a lot of validity to the reports.
In the case of debt held by the public (strongest obligation to fulfill) and intragovernmental debt (future Social Security and Medicare benefits, weakest obligation to fulfill) we know 2 items:
1. Many economists tend to overlook intragovernmental debt, for they see it as "debt we owe ourselves."
2. Intragovernmental debt is treated differently than debt held by the public, as IG debt credits interest with more debt, while debt held by the public pays interest with cash - an immediate budget expense.
You and I are on the same page regarding the importance of maintaining Social Security. But until we try to look at how the program works internally, we will continue to get external results which are not sustainable.
Don Levit

Bruce Webb said...

Don the Treasury Dept and the Bureau of Public Debt don't "overlook" Intragovernmental debt nor do they treat interest on it "differently"

And I find it interesting that some of the same economists who implicitly discount Trust Fund assets to zero even though they are legally backed by Full Faith and Credit while peddling SS 'crisis' based on 'unfunded liability' which is under current law no legal liability at all. Instead the concept rests on an instated political prediction of the reaction of future beneficiaries in the face of an immediate cut, making it a political liability or alternately on a green eyeshade technocratic measure of the gap between current Income projections and current law scheduled benefits. Which doesn't make it a debt equivalent,indeed passage of PPACA had the effect of wiping out 75% of Medicare A Unfunded Liability even asno actual provisions of the law were then in effect. Notably this event went unnoticed even as much smaller changes the other direction for SS were trumpeted to the sky as Signs of the Imminent Fiscal Apocalypse.

That is from all the evidence you have presented your case boils down to "Some (right leaning) economists judge that-----". Big whup, sell that to the Orthodox, it doesn't automatically pass as currency among at least some readers of this site.