Reducing deficits the wrong way

Paul Ryan released today the House Republican budget. In Ryan´s own words, the main objective of his plan is reducing the deficit, the biggest issue that the country is facing right now: "Yet the most important question isn't how we balance the budget. It's why."

Well, it turns out that "how" happens to be a fairly big deal, as Ryan´s budget includes a bold, radical redefinition of how the Federal government works and what it does. The main bullet points on this plan are fairly straightforward:

What remains the same:

  • Social Security is held harmless. 
  • The cuts on military spending from the sequester remain largely in place, with only modest changes.
  • Medicare cuts from the Affordable Care Act remain in place.

Program cuts:

  • Huge, harsh cuts on Medicaid, turning the program into a block grant state program.
  • It turns Medicare into a voucher program (it is a voucher program, not premium support) to anyone under 55.
  • Repeal of the Affordable Care Act, but leaving its tax increases in place.  The nonpartisan Kaiser Family Foundation estimates that cuts on the order of what Ryan is proposing will mean around 35 million people lose their health-care coverage.
  • Block granting SNAP (food stamps) and passing it on to the states, with huge spending cuts.
  • Big spending cuts in education, infrastructure, research, public-safety, and low-income programs.

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To complement these changes, Ryan also proposes a vaguely defined tax cut on the wealthy and lowering corporate tax rates, just in case the list above was not regressive enough. Ezra Klein describes the proposal as "social engineering with a side of deficit reduction", and he is right. For a party that spends most of its time bemoaning any tax increase as "class warfare", the budget truly looks like class warfare on behalf of the rich.

The House Republicans have decided to double down on the list of proposals that led them to defeat in last year´s election. The Affordable Care Act and increasing some revenue to pay for government programs were clearly on the ballot, and they won. The GOP negotiating position, however, remains the same, as the election never happened.   The only significant change is that Ryan now seems to support the cuts to Medicare included in Obamacare that he opposed on the campaign trail.

The cuts would have devastating effects both on low income families and the middle class. The cuts on Medicaid and SNAP would really hurt the poor. Repealing the affordable care would be a major blow to working families, as the health care subsidies cover households making up to $92,000 for a family of four (400% FPL, to be more precise). Gutting Medicare will endanger retirement for all but the very wealthiest Americans.

The fact that most of the money saved from these changes is used to pay for a gigantic tax cut for the rich is just the icing on the cake; in a country were income inequality has risen to almost insane levels, putting forward a budget proposal that redistributes level upwards at this rate is beyond belief.

Budget deficit at the Federal level are an issue, but not on the short run. Interest rates are extremely low (the 10 year treasury note is at 2%; essentially zero, if we account for inflation), and they don´t seem to be going moving up in any meaningful way. Congress has passed, in the past few months, more than $2.4 trillion dollars in deficit reduction, to the point that the medium term budget outlook is basically stable. Inflicting untold amounts of pain on American families trying to solve a problem that is years in the future in a context of sluggish growth and high unemployment is deeply irresponsible.

If we were to cut deficit and reduce debt levels, Congress does need to use a balanced approach. First of all, it needs to make sure that any reduction happens down the road, not in the midst of a slow recovery. Second, the cuts need to be targeted and focus on truly wasteful programs, without hurting those that are the most vulnerable. Third, it needs to include revenue, either with higher rates (not just on the rich - Clinton-level middle class taxes were slightly higher than today, and it did not hurt the economy one bit) or reducing tax expenditures, closing loopholes and eliminating inefficient tax deductions. The Senate Democrats proposal, although with some flaws, is a much better model than they Ryan plan.

I wonder if the media will pay the same level of attention to both documents, or they still think that Paul Ryan is a reasonable guy with a reasonable plan. We will see tomorrow.

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