This week, Rep­re­sen­ta­tive Paul Ryan (R-​​WI) pub­lished a bud­get pro­posal called “The GOP Path to Pros­per­ity.” As I men­tioned on Mon­day in “Shut­down Show­down,” the pro­posal nei­ther addresses the issues in the 2011 or 2012 bud­gets, nor makes real­is­tic assump­tions about the expected eco­nomic impacts of the pro­posed changes.

But that was a really hand-​​wavy, dis­mis­sive aside to the now-​​almost-​​certain shut­down. Today, I’d like to elab­o­rate fur­ther on Ryan’s proposal.

First, he pro­poses dra­matic cuts to social ser­vices. With Med­ic­aid, the cuts are both overt and covert. The cuts are overt, in that the out­lay would be reduced to 2008 lev­els, even though far more peo­ple are in the pro­gram now than were in 2008 because of the high unem­ploy­ment caused by the reces­sion. They’re covert, in that it shifts the money to block grants. By doing this, the fed­eral gov­ern­ment washes its hands of any respon­si­bil­ity over match­ing the expen­di­ture to the needs of the cit­i­zens. That is, if the needs rise, the money avail­able remains unchanged, and thus more peo­ple are shar­ing the same sized pie. Absent some other source of fund­ing, or an exter­nal force to change the rate of increase of the per-​​capita cost of health care, I fail to see a means by which this pro­gram would be able to remain solvent.

With Medicare, the cuts are sim­i­larly overt and covert. Here, the overt cut is a form of means-​​testing, where the fed­eral sub­sidy drops as the cov­ered person’s income rises. The covert cut here main­tains sol­vency, unlike the Med­ic­aid cut, but it does so only by forc­ing the cov­ered per­son to pay an ever-​​increasing por­tion of the costs. In other words, over time, Medicare would be cov­er­ing smaller and smaller por­tions of seniors’ care, effec­tively caus­ing the pro­gram to wither away. And any sav­ings that can be achieved in the mean­time phase in grad­u­ally, since peo­ple who are already qual­i­fied for Medicare would remain in the cur­rent program.

Ryan also pro­poses changes to the income tax, reduc­ing the upper two brack­ets to 25%, and mak­ing the imme­di­ate result revenue-​​neutral by elim­i­nat­ing nearly all deduc­tions. While I agree that many of the deduc­tions are market-​​distorting, tax­a­tion itself is inher­ently mar­ket dis­tort­ing. As I’ve noted a few times before, the goal is a “fair” appli­ca­tion of gov­ern­ment rules…but “fair” depends on per­spec­tive. Deduc­tions are one means by which the inher­ent mar­ket dis­tor­tions of tax­a­tion are adjusted in the inter­est of fair­ness. That’s not to say that all such rules are fairly applied; many are forms of quid pro quo for cam­paign dona­tions. But it would be bet­ter to apply a razor to fix those, rather than a chainsaw.

Finally, Ryan claims that the top mar­ginal rate reduc­tion would lead to a reduc­tion in unem­ploy­ment, which would result in a net increase in tax rev­enues (shades of Laf­fer), which would ulti­mately pay off the national debt. But as I demon­strated in “Take 2: Could Employ­ing Tax Cuts Tax Employ­ment?,” at the top income brack­ets for rates below 50%, there is a pos­i­tive rela­tion­ship between the tax rate and the employ­ment rate. That is, for the upper quin­tile of earn­ers, employ­ment rises when the mar­ginal tax rate rises, and falls when the mar­ginal tax rate falls.

Yet the entire foun­da­tion of future gov­ern­ment sol­vency is depen­dent upon a neg­a­tive rela­tion­ship between the tax rate and the employ­ment irate. In fact, it depends upon a strongly neg­a­tive relationship.

Ulti­mately, there is lit­tle rea­son to view this pro­posal any dif­fer­ently from its cousins over the past three decades. It’s a plan to undo gov­ern­ment safety net pro­grams, decrease taxes for the wealthy, and claim that this com­bi­na­tion will make gov­ern­ment more sol­vent. Over the past three decades, this com­bi­na­tion was applied repeat­edly, and our gov­ern­ment has con­sis­tently become less sol­vent with each new appli­ca­tion. It’s time for us to stop play­ing this game.

Related Arti­cles

• Paul Ryan Is the Same as He Ever Was (delong​.type​pad​.com)
• New Repub­lic: Paul Ryan’s ‘No, We Can’t’ Bud­get Plan (npr​.org)
• Thank You, Paul Ryan! (civic​choices​.word​press​.com)
• Paul Ryan Wants To Put Our Coun­try On An Allowance (busi​nessin​sider​.com)
• Paul Ryan’s Growth Bud­get (kud​lows​money​pol​i​tics​.blogspot​.com)
• The Audac­ity of Paul Ryan (busi​ness​week​.com)
• JACOB WEISBERG IN SLATE: Repub­li­can Paul Ryan’s bud­get pro­posal is brave, rad­i­cal, and smart. UP… (paja​mas​me​dia​.com)