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Paul Ryan's Budget Plan

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Paul Ryan's Budget Plan

Ryan's budget plan would cut taxes and spending in many areas.

(Photo: Getty Images)

What Is Paul Ryan's Budget Plan?:

In 2012, U.S. Congressman Paul Ryan (R-Wisconsin), Chairman of the House Budget Committee, submitted a FY 2013 budget proposal as part of the U.S. Federal budget process. It countered President Obama's FY 2103 budget, was passed by the House but was defeated by the Senate. It built on Ryan's FY 2012 budget proposal, known as the Road Map, which followed a similar fate.

On August 13, 2012, Republican Presidential Candidate Mitt Romney picked Ryan as his Vice-Presidential nominee. Although Romney didn't formally adopt Ryan's budget, he wouldn't have picked Ryan if he didn't fundamentally agree with the plan.

Ryan's budget, named the Path to Prosperity, would cut $5 trillion from the Federal Budget over the next 10 years. That's a good thing. Obama's FY 2013 budget would add $901 billion to the heavily groaning $15 trillion Federal debt.

Ryan's plan addresses five broad areas:

  1. Social Safety Net - Follow the recommendations in the Simpson-Bowles plan to stabilize Social Security.
  2. Health and Retirement Security - Repeal Obamacare. Privatize Medicare. Change Medicaid to state block grants.
  3. Defense - Cut spending to $554 billion in FY 2013.
  4. Tax Reform - Lower income taxes to 10% and 25% by cutting all tax deductions. Repeal the Alternative Minimum Tax. Reduce the corporate tax rate to 25%.
  5. Spending - Reduce spending to 20% of GDP by 2015. Privatize Fannie Mae and Freddie Mac. Freeze federal workers pay.
However, this mix of spending and tax cuts would not balance the budget or begin paying down the Federal debt until 2040. (Source:Path to Prosperity, March 20, 2012)

What Is Ryan's Budget Plan for Medicare and Social Security?:

The plan achieves cost savings by converting the current Medicare program to one where seniors receive payments to buy their own health insurance policies. The payments grow over time with consumer prices. Ryan's Medicare changes would only affect those who turn 65 in 2023 or later. At that time, it also raises the age of eligibility for Medicare by two months per year until it reaches 67 in 2033. Similar to the Simpson-Bowles plan, it also allocates more funds to go after the health care fraud that adds $115 billion to the budget.

However, it proposes changes to Mandatory Spending, Ryans' budget would require legislative approval outside of the budget process.

To keep Social Security solvent, Ryan's plan suggest the President and Congress adopt the recommendations in the Simpson-Bowles plan.

What About Medicaid and Education?:

Ryan's budget plan converts the Federal payments for Medicaid and food stamps (SNAP program) into state block grants that are indexed for inflation and population growth. This would begin in 2013, with fixed dollar amounts that grow with overall consumer prices and population growth. Food stamp aid would be contingent upon work or job training.

Ryan proposes to limit education lending and Pell grants, and consolidate overlapping Federal job training programs into a "streamlined workforce development system." Any type of welfare payment would be tied to education and job training programs, and their progress would be tracked for five years. This makes sense, since many of the long-term unemployed are losing the job skills needed to compete.

Ryan's Budget Plan Dismantled Obamacare:

The budget plan repeals some key provisions of Obamacare that dealt with insurance coverage. Health care spending for the government would be reduced to 6% of GDP in 2030. However, critics argue that it simply transfers health care costs from the government to those who aren't covered by health insurance at work. These are exactly the people that health care reform was trying to protect.

What About Defense Spending?:

Ryan's plan cuts defense spending to $554 billion. Total security spending in the FY 2013 Military Budget was $851 billion, and is the single largest budget category.

Dismantles Fannie Mae and Freddie Mac:

Ryan's plan would eventually privatize Fannie Mae and Freddie Mac. It proposes limiting the two government insurance programs to smaller home values. It blames Fannie and Freddie for "monopolizing" 97% of the housing market. This statistic is true, but it's simply because banks won't issues mortgages without government insurance. Before the financial crisis, Fannie and Freddie only had 50% of the market. Ryan's plan calls for more privatization of the mortgage market, but doesn't specify how. Previous attempts by former Treasury Secretary Hank Paulson and Treasury Secretary Tim Geithner have all failed because banks aren't willing to take on the risk. Eliminating Fannie and Freddie without a solid replacement would cripple the struggling housing recovery.

Ryan also proposes to cut farm subsidies, saving $30 billion over the next decade. Many of these subsidies go to corporate agri-businesses that no longer need them to safeguard the nation's food supply.

Cuts Federal Workers's Pay and Benefits:

Ryan would freeze salaries until 2015, increase benefit contributions and allow attrition to reduce the workforce by 10% over the next three years. This makes sense, since the non-partisan Congressional Budget Office recently reported that federal workers are compensated, on average, 16% higher than their private-sector counterparts. This would save $368 billion over the next ten years.

In addition, Ryan proposes that all Congressional Oversight Committees annually submit recommendations to the Budget Committee to cut waste, as outlined by the GAO. He also suggests the Federal government sell unused property and equipment.

Ryan's Budget Plan Reduces the Deficit - Eventually:

The biggest problem with Ryan's budget is that it pushes a lot of the substantial changes 20 years into the future. The plan reduces the budget deficit to 2% of GDP by 2020, but wouldn't result in a budget surplus until 2040.

Second, it does so by taking away benefits such as Medicare from future generations by forcing them to use private sector insurance. Third, the idea to lower tax rates by simplifying the tax code is a good one. Everyone agrees that the tax code, with all its deductions, is too complex and mainly benefits corporations and the wealthy. However, Ryan's plan reduces taxes more than even the most severe Simpson-Bowles alternative. In other words, the numbers may not work out.

However, if successful, Ryan's budget would reverse deficit spending, which has been ongoing since 2002. By reducing the deficit and debt, Ryan's budget plan would allow the dollar to strengthen, lowering the price of imports. However, it would also increase the price of exports, reducing competitiveness of U.S. companies. Article updated August 13, 2012

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