Here's Paul Ryan's Plan To Save America

Paul Ryan

Mitt Romney’s VP pick Paul Ryan published a huge plan to save America earlier this year.

Called the “Path To Prosperity,” it is a proposed budget for the federal government that includes massive tax cuts and tax simplification, with spending cuts to major government entitlements like Medicare, Medicaid, and Social Security. 

Here are the big things:

  • Ryan’s plan calls for major cuts in government spending (on Medicare and Medicaid) and reduced tax revenue.
  • The plan does not balance the budget for at least 20 years
  • Ryan would redraw personal income taxes into two brackets–25 per cent and 10 per cent. The plan doesn’t exactly specify yet what income would qualify you for the higher bracket. 
  • There would also be a massive drop in corporate taxes from 35 per cent to 25 per cent.  And there would be hardly any tax deductions either.
  • Big cuts to Medicare, Medicaid, and (implied) Social Security, along with the elimination of Obamacare.
  • Existing Medicare users would keep their current plan (a bribe for existing seniors).
  • In the future, the plan would offer a government subsidy that Americans could use to buy private insurance. The idea is that competition among insurers would keep costs down.

There are hundreds of little details that you can find in the plan itself

The plan is similar to Romney’s own plan for the economy, which calls for cutting tax rates 20% across the board and trimming government spending expect for defence.

Ryan’s plan has been blasted for being a cynical attempt to shame the Democrats without having any realistic chance of being passed. It also has been criticised for proposing to fix America’s budget problem by cutting benefits for those who can least afford them.

But Ryan deserves credit for having done what the rest of Congress refuses to do, which is acknowledge that U.S. government spending is on an unsustainable path–and offering specific ways of addressing that.

Other Congressmen, and Romney, pay lip service to the need to cut the budget deficit, but they lack the balls to actually come out and offer a specific plan. Ryan did that.

Ryan projects that, on our current path, we'll end up with debt of 900% of the GDP by 2090. (We won't, because the bond market will force changes before then, but he's right that the current path is unsustainable.)

Ryan's plan is based on the premise that ballooning entitlement spending are the biggest cause of the deficit problem--which they are..

Ryan observes that keeping our heads stuffed in the sand is only going to make the inevitable cuts more painful.

Rising health care costs are the biggest thing driving government spending up.

Ryan argues that the complicated tax code benefits the wealthiest, and so his plan eliminates deductions. This sounds wise, but middle-income people benefit heavily from deductions, too--much more so on a percentage basis than rich people.

This chart shows that however high top tax rates go, government tends to collect a very even amount of revenue. So it's a question of who shoulders the tax burden.

What really drives government tax revenue growth is GDP growth.

According to the plan, spending will be the major factor in growing government debt, not declining revenue. This is not entirely true.

The U.S. is already approaching levels of debt comparable to the European nations in crisis.

And the debt isn't just owed to ourselves, foreign countries have been buying it up.

If nothing is done, public debt will continue to be a drag on the economy.

The Ryan plan proposes bringing spending down to historical revenue levels. Romney's plan proposes something similar--capping federal spending at 20% of GDP.

The Ryan Plan promises a return to government surpluses, but not until the 2030s.

Here's the first chart again, but with Ryan's plan added in green.

The Ryan plan even proposes that federal government spending can go way below the level it has been since the New Deal and World War II.

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