Ryan’s Budget Cuts Spending By $5.3 Trillion
House Republicans released an election-year budget on Tuesday that they said would cut $5.3 trillion in spending over the next decade compared to President Obama’s budget while slashing tax rates for households and businesses.
As might be expected, The Hill promotes the meme that lower tax rates always cause lower revenues, and they do it in the second paragraph:
The blueprint from House Budget Committee Chairman Paul Ryan (R-Wis.) would collapse the tax code from six individual tax brackets into a 25 percent top rate and a 10 percent lower rate, significantly cutting taxes and reducing revenue to the government by $4 trillion over the next decade.
Uh, excuse me, that’s so far off the mark that it’s beyond “wrong,” and that’s been known for over a decade and a half (emphasis added):
High marginal tax rates discourage work effort, saving, and investment, and promote tax avoidance and tax evasion. A reduction in high marginal tax rates would boost long term economic growth, and reduce the attractiveness of tax shelters and other forms of tax avoidance. The economic benefits of ERTA were summarized by President Clinton’s Council of Economic Advisers in 1994: “It is undeniable that the sharp reduction in taxes in the early 1980s was a strong impetus to economic growth.” Unfortunately, the Council could not bring itself to acknowledge the counterproductive effects high marginal tax rates can have upon taxpayer behavior and tax avoidance activities.
ERTA is the technical name for the Reagan tax cuts… it’s interesting that even Clinton’s advisers noted that it spurred growth.
Several conclusions follow from these data. First of all, reduction in high marginal tax rates can induce taxpayers to lessen their reliance on tax shelters and tax avoidance, and expose more of their income to taxation. The result in this case was a 51 percent increase in real tax payments by the top one percent. Meanwhile, the tax rate reduction reduced the tax payments of middle class and poor taxpayers. The net effect was a marked shift in the tax burden toward the top 1 percent amounting to about 10 percentage points. Lower top marginal tax rates had encouraged these taxpayers to generate more taxable income.
Exposing more income to taxation and/or generating more taxable income = higher revenues. It’s undeniable. Would you rather have 50% of $100, or 10% of $5,000?
There is little reason to expect static revenue analysis to evaluate the economic or distributional effects of current tax reform proposals much better than it evaluated the Reagan tax program 15 years ago.
And yet, lefties and the MSM (but I repeat myself) keep using static revenue analysis to argue against tax cuts, even after over 30 years (the article linked to is from 1996).
Anyway, back to the spending cuts:
While Ryan would cut domestic discretionary spending, he would increase the 2013 defense budget from $546 billion to $554 billion.
Ryan’s budget would shield the Pentagon from $500 billion in cuts triggered by the supercommittee failure while rolling back the $487 billion in defense cuts planned over the next 10 years by Obama, who Ryan argues is funding favored domestic programs at the expense of national security.
The Ryan budget turns off an initial $97 billion in automatic supercommittee-triggered cuts scheduled to begin in January.
It puts $20 billion of the cuts into the 2013 spending cap, bringing that cap down from the August debt deal’s $1.047 trillion figure. Ryan’s budget then instructs six committees to find $261 billion in replacement savings over ten years, and $18 billion in savings in the next year alone.
The Ryan plan’s reconciliation instructions contain suggestions for the committees on where to find savings, such as by cutting the federal workforce and freezing salaries through 2015. The plan calls for $30 billion in farm subsidy cuts, more than the $24 billion rural lawmakers are comfortable with but slightly less than Obama has called for.
It looks like a pretty good plan, though I doubt that the Democrat-controlled Senate will let it go through. But it’s a good blueprint for a future conservative Congress and President to follow.