Monday, March 15, 2010

Ryan's Voodoo Economics

Much hay has been made recently of Rep. Paul Ryan's "Roadmap" to fiscal responsibility. You know, the saying goes, if it sounds too good to be true, it probably is. And guess what, it is.

Due to an assumption the Congressional Budget Office made, as requested by Ryan's staff and in keeping with the historical analysis CBO does for members of Congress, Ryan's plan has been hailed as THE Republican alternative. What is that assumption?

Ryan's staff requested the CBO assume that tax revenues would remain unchanged, despite all the changes to tax policy the plan outlines. Talk about sleight of hand. The Center of Budget and Policy Priorities has a great analysis of the plan integrating revenue changes as outlined by the Brookings Institution Tax Policy Center.

Rep. Ryan's response basically says the normal scoring bodies can't do it, so we'll just go with our numbers. Basically 2 + 2 = 5. If this is the serious Republican proposal then I feel sorry for the intellectual state of the party.

1 comment:

Colin said...

I don't find this terribly outrageous. The fact is, despite the array of changes that have been made to the US tax code since WWII, tax revenues as a percentage of GDP have held remarkably constant. In fact, over the last 50 years tax revenue as a percentage of GDP has only varied between 16.4 to 20.9 percent, with the average about 18%:

http://greenewable.files.wordpress.com/2008/10/total-federal-government-receipts-as-a-percentage-of-gdp-1945e280932008.jpg

It's interesting to note that from 1964 to 1981 the top marginal tax rate on income was reduced from 91% to 50% and yet if you compare the tax revenue as a percentage of GDP from, say, 1960 (91%) to 1985 (50%) you don't see a massive change.

So Ryan was faced with two choices: Either he could have had his plan scored over 50 years -- which requires a level of prognostication on the part of the CBO which is thoroughly unrealistic -- or he could have used the % GDP model, using past as prologue. That the left-wing CBPP finds Ryan's model would lead to a precipitous decline in revenue is about as surprising as the sun rising.

I will concede that perhaps Ryan would have been better off using 18% instead of 19% percent, and frankly I find the idea of any plan with a 50+ year time horizon a bit silly, but this is far from "voodoo economics."