Many people are beginning to wrap their minds around the House Republicans’ proposed destination-based cash-flow tax and what it means for tax reform. Most people are still looking into the tax’s impacts on trade and how...
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Don't Be Fooled By Hysterical Talk of Deep Cuts in Taxes or Spending
Since House Budget Committee Chairman Paul Ryan released his latest budget plan, there has been the usual gnashing of teeth and histrionics about how much the plan will cut federal spending and taxes. Ryan himself has made a big deal out of the fact that the plan will shrink government by "cutting" $6 trillion in spending over the next ten years.
Of course, the real question that needs to be answered about all these cuts in spending and taxes is "compared to what?" Truth is, Ryan's plan is being compared to either the CBO "baseline" or President Obama's FY 2012 budget plan. Since each of these have rather substantial increases in both tax revenues and spending build into them, Ryan's budget sounds pretty draconian.
However, it will shock a lot of Americans (and many members of Congress) to learn that tax revenues will double under the Ryan plan and spending will increase by one-third. As the charts below indicate, this hardly seems like an austere budget as many critics have labeled it.
The first chart compares the outlay levels projected under the Ryan plan to those outlined in the President's budget, according to the CBO. Under the Ryan plan, outlays grow an average of 3 percent per year, compared to an average of 5 percent under Obama. In only one year, 2012, does Ryan cut outlays below the previous year's level. Overall, outlays will grow by $1.1 trillion over the next ten years under Ryan, a 31 percent increase above 2012 levels. Obama's budget increases spending by 57 percent over the next ten years.
The revenue picture is even more startling. Under Ryan's plan, tax revenues grow $2.1 trillion over the next ten years - an increase of 95 percent. His plan expects revenues to grow an average of 7 percent per year throughout the period. By contrast, under Obama's budget, revenues were expected to grow by nearly $2.3 trillion, or 106 percent. On average, revenues were expected to grow by 8 percent per year under the Obama budget.
Over the ten-year period, the government would collect $34.87 trillion in revenues under the Ryan plan and spend $40 trillion. By contrast, the government would collect $36.7 trillion under Obama's plan and spend $46 trillion.
Legend has it that President Reagan's first budget director David Stockman invented the concept of "baseline" budgeting to give the impression that Reagan was cutting federal spending far more than he actually was. Since then, the baseline concept has been misused by both parties to confuse taxpayers about the true nature of taxing and spending policies in Washington.
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