October 23, 2014

Concord Coalition Commends Paul Ryan for Proposing Major Entitlement and Tax Reform But Key Details Must Be Filled In

WASHINGTON -- The Concord Coalition today commended House Budget Committee Chairman Paul Ryan (R-WI) for including proposals to rein in federal health care spending and greatly simplify the tax code as part of his Fiscal Year 2013 budget. Concord cautioned, however, that the favorable deficit reduction numbers shown in Ryan's budget depend upon a broad array of policy choices that are not spelled out and seem unrealistic. 

“We have a major fiscal challenge that cannot be cured by minor tweaks,” said Robert L. Bixby, Concord’s executive director. “Chairman Ryan’s proposal fits the magnitude of the challenge, particularly in suggesting major structural changes in Medicare and Medicaid, which comprise the biggest share of projected federal program costs. These proposed changes will no doubt prove controversial but they should spark a needed debate about the most effective way to control health care costs.”

The proposal to shift Medicare to a premium support system is improved from the version in last year’s Republican budget. Traditional “fee-for-service” Medicare would be retained as an option and the allowable annual increase in the level of support is more realistic than last year’s inflation-only target. Both changes demonstrate an encouraging attempt to make the proposal more attractive from a bipartisan perspective.  

“The proposal relies solely on competition among insurance entities to bring costs in line with very austere health care spending targets,” said Josh Gordon, Concord’s policy director. “The best evidence suggests that we also need to work on controlling costs on the provider side, while researching best practices, in order to meet those targets.”

The assumptions for discretionary spending appear unrealistic, both in the short term and longer term. From materials Ryan released prior to the mark-up, it appears that the proposal would lower discretionary spending from 7.7 percent of GDP in 2013 to 5.1 percent in 2022. Furthermore, the budget reflects a reluctance to cut defense spending. Thus, even accepting the amount of defense spending proposed in President Obama’s budget -- which might be lower than preferred by Republicans -- the House budget appears to limit non-defense discretionary spending programs to 1.7 percent of GDP by 2022, less than half of the amount it will see in 2013. This would be an amount substantially lower than at any other time since before World War II.

The tax proposals in the House budget build further momentum for a system-wide reform that would broaden the tax base while lowering rates. Like the President’s fiscal commission (Bowles-Simpson) and the Bipartisan Policy Center’s Debt Reduction Task Force (Domenici-Rivlin), the House budget acknowledges the numerous spending programs that are funneled through the tax code in the form of deductions, exclusions, and preferences (i.e., “tax expenditures”). 

“While the basic idea is sound, Ryan’s budget fails to make clear just how extensive the paring-back of these ‘tax expenditures’ would need to be in order to lower rates to the proposed 10 percent and 25 percent brackets,” Bixby said. “The lowering of rates is specified, but the tax exemptions and deductions that would be eliminated are not. In order to lower rates to Ryan’s preferred levels, it is likely that almost all tax expenditures would have to be eliminated.” 

Given Ryan’s intention to keep revenues as a share of the economy around the 40-year historical average of 18-19 percent, his proposal makes clear that the revenue raised from base broadening will be used “not for the purpose of increasing total tax revenues, but instead to lower rates.” This is a departure from the fiscal commission’s proposals which attempted a more balanced approach that devoted revenues raised by reduced tax expenditures to both deficit reduction and rate reduction.