Update on the Republican’s Budgetary Ideas

Previously, I said that Republican Paul Ryan had proposed a 75-year budget plan that would eliminate the federal deficits and debt over the time period.  I said that was great if that is all that you cared about.  I went on to explain that the only way he got there was by privatizing / eliminating much of the New Deal and Great Society.  But it is actually much worse than that.  When the CBO scored the plan and said it eliminated the deficits and debt, it was doing so using Ryan’s assumptions that his massive tax cuts would not decrease tax revenues (p. 4, other tax provisions)  There is no credible economist–Art Laffer is not a credible economist–who will tell you with a straight face that if you drastically cut income taxes there will be no effect on revenue.  Reagan’s tax cuts did not do it and neither did Bush’s tax cuts.  If there is a drastic reduction in tax revenue, his plan does not eliminate the deficits or the debt.  So not only does Ryan eliminate programs such as Medicare and Social Security, he does not even eliminate the debt after their elimination.

Ryan’s tax proposal, as described by CBO is as follows (from p. 4, footnote 2):

The proposal would offer individuals the choice of paying their income taxes under the existing
tax code or a highly simplified tax system. The simplified system would broaden the tax base, compress
the tax schedule down to two rates, and retain a standard deduction and personal exemption.
No tax would apply to capital gains, dividends, or interest. No alternative minimum tax or estate
tax would exist. Taxpayers would pay 10 percent on earnings up to $100,000 for joint filers
($50,000 for single filers) and 25 percent on earnings above that amount. The standard deduction
would be $25,000 for joint filers ($12,500 for single filers), and the personal exemption would be
$3,500. The corporate income tax would be replaced with a broad-based business consumption
tax of 8.5 percent. New business investment could be immediately expensed. Payroll taxes, excise
taxes, customs duties, and other miscellaneous receipts would be maintained.

CBO said that it was scoring the plan based on Ryan’s assumption that this tax system would bring in the same amount of revenue as our current system.  How he gets there is anyone’s guess.

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