House Republicans say they want to balance the federal budget and eventually eliminate the federal debt. They do not have a plan to do so.
Oh, to be sure, they have a plan! Just not a realistic one that will actually accomplish their goals.
The GOP-led House Budget Committee just released a 43-page blueprint, "A Balanced Budget for a Stronger America." It contains many charts, graphs, and tables showing how the committee's ideas would turn red ink to black while increasing economic growth.
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It's hard to see how the math works. To balance the budget over a decade, the GOP plan would cut $5.5 trillion from planned spending — no tax increases — generating a tiny surplus in 2025. Of those total savings, $2 trillion would come from repealing the ObamaCare insurance subsidies and Medicaid expansion and replacing them with… well, nothing right now. Although the plan gives a nod to "starting over with a patient-centered approach to health care reform," it doesn't actually allot any money for such reform. Of course, center-right replacement plans for ObamaCare do exist. The 2017 Project has devised a thoughtful ObamaCare alternative that would include refundable tax credits for individuals and the uninsured to buy private health insurance. But it isn't free. The proposal would cost about a trillion bucks over ten years.
There are plenty more cuts in the GOP plan, of course. Another $900 billion from Medicaid. More than $1 trillion from a collection of programs, including food stamps and Pell Grants.
One of the more unfortunate aspects of the GOP plan is that it would immediately cut welfare spending for low-income Americans. Medicare reform would wait a decade, and Social Security reform is left vague. Reducing benefits first for older, wealthier Americans seems a smarter priority, no?
And what about tax revenue? Well, the GOP wants to lower tax rates and broaden the tax base. No specifics, but other plans following that formula devised by Paul Ryan, the previous House Budget boss and current Ways and Means chairman, have been scored as massive revenue losers. This new plan just assumes tax revenue as a share of GDP stays steady. Seems unlikely.
Long term, the House GOP's new plan predicts decades of budget surpluses as the national debt falls by a whopping three-fourths, to 18 percent of GDP by 2040. Reality check: A few years ago my American Enterprise Institute colleagues put together a budget that reformed Medicare (much like the House does), reformed Social Security (which the House does not), and offered a tax credit to buy health insurance (which most every ObamaCare alternative will). It also turned the current income tax into a consumption tax, which many economists think would boost economic growth. Basically an all-star team of center-right economic policy ideas. By 2035 under such a plan, the debt-to-GDP ratio might fall to 60 percent, from 74 percent today. No small feat. But that's still twice as high as the 32 percent debt-to-GDP ratio under the House plan for that year. Somehow, I don't think my wonk colleagues are the ones who got the math wrong...
But the biggest problem with the House budget isn't faulty math but a faulty premise. House Republicans apparently believe the federal debt is at unsustainable levels, needs to be reduced ASAP, and eventually eliminated. Indeed, the entire thrust of the budget seems to be that the federal debt is America's biggest problem. But where's the evidence? Low interest rates are hardly signaling investor alarm. And not only is the federal debt issued in U.S. dollars, our currency is the world's reserve. The U.S. is not Greece. The big economic danger here isn't a debt-driven financial crisis. It's chronic slow growth from having to sharply raise taxes if we don't restructure entitlements in a way that promotes savings and work. Fixing Medicare and Social Security should be the GOP priority on spending — even if it irks its older-voter base — along with trimming tax breaks for the wealthy.
If there is a good economic reason for actually paying off the national debt — much less making it a key goal — I am unaware of it.
