Ryan's sword of fiscal glory and the slaying of Bloated Monster

[Slushie]

Rep. Ryan (R-WI) has recently proposed a solution to the Fed's long-term fiscal problems.

His solution goes to such lengths, nobody seems to be taking it seriously. A few links are at the bottom of this post, and here's a quick rundown of what he's proposing:


Employers' tax-exemptions for health insurance are replaced by tax credits.
Medicare and Medicaid benefits would eventually switch to vouchers for private insurance
Social Security would be cut back for my generation, and we could redirect our payroll taxes into private accounts
Income-tax code is split into just two brackets
Corporate income taxes switch to an 8.5% consumption tax
Capital gains are eliminated
Ten-year freeze on non-defense discretionary spending

<!-- col --> <script type="text/javascript" language="JavaScript"> <!-- // script hiding function getTitle() { return 'Ryan to the rescue?'; } function getStoryDate() { return '20100211'; } onerror=handleErr function handleErr(msg,url,l) { return false } // end of hiding --></script> <script language="JavaScript" type="text/javascript"> function toggle(embed){ if(document.getElementById(embed).style.display == 'none'){ document.getElementById(embed).style.display = 'block'; }else{ document.getElementById(embed).style.display = 'none'; } }</script>So, eventually this plan would move us into a small surplus by 2080, whereas if current spending trends continue, Uncle Sam's budget would be 42% of GDP by that same time.
From The Economist article: He deserves credit for an honest and daring proposal. Tellingly, his plan has faced criticism from both parties. Republican leaders have been careful to distance themselves from the slashing of programmes dear to one of their core constituencies. If nothing else, Mr Ryan has reminded everyone of the hard choices that will soon have to be made.Also, an 18-member bi-partisan panel has been formed to address our current budget problems, saying "everything is on the table" (http://www.usatoday.com/news/washington/2010-02-18-obama-deficit-panel_N.htm). So it seems this issue might be this years health-care reform, from a media perspective. As AWers, we should be at the cusp of the public-discourse trends, right?

Is Mr. Ryan's proposal too crazy to consider? Or is he on to something?

Clickities for you:
http://www.economist.com/world/united-states/displaystory.cfm?story_id=15498288
http://business.theatlantic.com/2010/02/paul_ryans_shocking_budget_proposal.php
http://blog.heritage.org/2010/02/18/the-new-party-of-%E2%80%9Cno%E2%80%9D/
http://www.roadmap.republicans.budget.house.gov/plan/
http://voices.washingtonpost.com/ezra-klein/2010/02/rep_paul_ryans_daring_budget_p.html

[GregB]

The plan itself has no chance of becoming law, and even the GOP leadership can't ignore it fast enough. That said, he's putting pieces on the table that probably will be part of any real solution, namely some form of VAT and "reform" of the tax exemption on employer-provided health benefits. Medicare, Medicaid, and SSA will never be privatized, but qualifying age is going to be bumped. And "yes" to spending cuts, but "no" to the idea that defense can continue to get a pass.

No *major* progress on any of this will be made until a severe crisis is imminent, of course.

[blacbird]

"Capital gains are eliminated", which I assume means that taxation of capital gains is eliminated. This is hardly a new idea. Republicans have been pushing this for a long time, and have partly succeeded, getting the tax rate on capital gains slashed to considerably below that on "earned income".

It's a classic benefit for the welfare of the uptrodden, which has always been a major tenet of Republican economics. At the high end of the wealth scale, capital gains have become a major haven for income, not generally available to the middle class, and certainly not to the poor.

And a VAT (8.5% consumption tax) is, in practice, a direct reversal of progressive income tax brackets. If you don't understand this, you don't understand what it means.

As far as two income tax brackets, that's meaningless without knowing what those two brackets would be.

The Social Security idea has some merit, and should be looked at seriously, but it will be tricky to make that transition smoothly. The biggest problem being that your current payroll taxes fund current social security recipients; you cut back on those, in the current system, you cut back on current benefits.

[GregB]

And a VAT (8.5% consumption tax) is, in practice, a direct reversal of progressive income tax brackets. If you don't understand this, you don't understand what it means.


A VAT doesn't have to be regressive. You can exempt specific types of purchases, (food, diapers, clothing, etc.), for example, and that's the only way it would ever survive Congress. Granted, that probably isn't the kind of VAT Mr. Ryan has in mind.

[Romantic Heretic]

The problem with a VAT is that it isn't fair. Contrary to popular belief consumption doesn't make up a huge portion of the economy. So it falls most heavily on the middle class and the poor.

It's also inflationary. Administering a VAT forces small business people and customer to waste time in a non-productive activity; figuring out taxes.

Plus financing multi-billion dollar projects by taxing a few dollars here and there is so inefficient it's silly beyond words.

[ColoradoGuy]

The GOP hates entitlements. But they love "defense" spending. To my mind, such spending is in many ways an entitlement. And, following Sutton's law, defense spending is where the money is, so that is where the major savings are to be found.

[Slushie]

Yeah, we account for something like half the worlds defense spending. We can cut back on that, I think.

What is most interesting about all this is, these are somewhat standard Republican talking points. Yet, he's being left out to dry by the party. Medicare and Medicaid are such sacred cows that their survival transcends party lines. Nobody want to make those tough decisions.

But I just don't know how we can curb our debt without biting into entitlements.

[Romantic Heretic]

By broadening the tax base.

A little factoid: In the late fifties-early sixties jointly held stock companies carried from thirty to forty per cent of the tax burden in the West depending on which country they were in. By the early 90s they carried about ten to fifteen per cent.

As my favorite writer notes much of the debt crisis is really a taxation crisis.

[Don]

Businesses don't really pay taxes. They simply pass them on to their customers. Triple Wal-Mart's taxes and the only impact is to raise the price of milk for Bettie Sue and her three kids with no dad.

[ColoradoGuy]

Businesses don't really pay taxes. They simply pass them on to their customers. Triple Wal-Mart's taxes and the only impact is to raise the price of milk for Bettie Sue and her three kids with no dad.
But, but, aren't corporations people? The Supreme Court says so.

[Don]

"If the law supposes that," said Mr. Bumble, "the law is an ass, a idiot."

[blacbird]

"If the law supposes that," said Mr. Bumble, "the law is an ass, a idiot."

But you loved every moment of that logic in the recent decision about campaign finance limits.

caw

[Don]

I think you have me confused with rob, bb. I don't believe that corporations are people or that corporations should have any right to free speech.