Ryan’s numbers don’t add up

The Urban-Brookings Tax Policy Center has shown that Rep. Ryan’s proposal would result in substantially less revenue than the Congressman has alleged. As a result, the debt would continue to grow faster than the size of the economy for at least 40 more years — reaching 100 percent of GDP in 2023 and over 175 percent of GDP by 2050. Even under Rep. Ryan’s own overly optimistic revenue assumptions, the debt would reach 100 percent of GDP by 2043.

Last March, after we demonstrated that revenues under the Ryan plan were inadequate to rein in rising debt, Rep. Ryan wrote, “If needed, adjustments can be easily made to the specified [tax] rates to hit the revenue targets and maximize economic growth.” But he still hasn’t explained how he proposes to make his numbers add up.

The Ryan plan would provide the largest tax cuts in history for the wealthy. It would cut the top income tax rates, eliminate income taxes on capital gains, dividends, and interest, and abolish the corporate income tax, estate tax, and alternative minimum tax. At the same time, it would raise taxes on the middle class by creating a new consumption tax on most goods and services.

The top one percent of Americans would see their taxes cut in half, and households with incomes above $1 million would receive a $502,000 tax cut each year, on average, according to the Tax Policy Center. The richest one-tenth of one percent — people making more than $2.9 million a year — would do even better, receiving an average tax cut of $1.7 million a year. And these tax cuts would be on top of those that high-income households would get if the Bush tax cuts were made permanent.

Finally, the Ryan plan would impose massive cuts in Social Security and Medicare. Medicare beneficiaries would no longer have access to a guaranteed set of benefits from any participating health care provider. Instead, they would be given a voucher, or coupon, with which they could try to buy health insurance on their own. The value of the vouchers would be designed to fall further behind the rising cost of health care with each passing year, so they would purchase less health coverage over time. 

By 2080, Medicare would be cut 76 percent below its projected size under current policies, according to the Congressional Budget Office. In other words, the vouchers that would replace Medicare would receive one-quarter of the resources that Medicare would otherwise use.

The plan also would divert substantial sums from the Social Security trust funds into private accounts and impose large and growing cuts in Social Security benefits for future retirees compared to current law, in part by raising the full retirement age even more than it is already scheduled to rise. 

A medium earner (someone earning $43,000 in today’s terms) retiring in 2080 would receive Social Security benefits worth 46 percent less than the currently scheduled amount. A higher earner (earning $69,000) would receive a 56 percent reduction, and someone who earns the maximum taxable amount (currently $106,800) would receive a 61 percent reduction. 

Tough choices will indeed be needed to bring long-term deficits under control. But those choices should form part of a balanced approach that combines sustained reforms of the U.S. health care system, reductions in federal expenditures, and increases in federal tax revenues. Rep. Ryan’s reverse-Robin-Hood approach of cutting taxes for the wealthy, raising taxes for the middle class, slashing Social Security and Medicare, and letting debt rise for decades to come isn’t the answer. 

Paul N. Van de Water is a senior fellow at the Center on Budget and Policy Priorities.