Sunday, August 19, 2012

Paul Krugman on Paul Ryan Part II

My first hastily written post on this subject didn't come out exactly as I intended, so I wanted a follow up to clarify a few things.  First, I hardly mention Krugman, so let me lay his posts out here now.

First let's start with this post:
In the first decade, the big things are (i) conversion of Medicaid into a block grant program, with much lower funding than projected under current law and (ii) sharp cuts in top tax rates and corporate taxes.
Is this a deficit-reduction program? Not on the face of it: it’s basically a tradeoff of reduced aid to the poor for reduced taxes on the rich, with the net effect of the specific proposals being to increase, not reduce, the deficit. Yet Ryan claims a big deficit reduction, via two big “magic asterisks”. First, he insists that the tax cuts won’t reduce revenue, because they’ll be offset with unspecified “base-broadening”.
Second, there are large assumed cuts in discretionary spending relative to current policy...
In my last post, I summarized these points and defended them in some detail.  I really do have some amount of sympathy for Paul Ryan's point of view.  Our current system of government has been a rather large buildup of the federal government, starting from FDR's New Deal, culminating in LBJ's Great Society and now Obama's Health Care layered on for good measure.

This has meant expensive entitlements promised to the elderly and a fairly significant safety net for the poor.  To pay for this, a pretty steep progressive tax code with an attempt to put much of the burden on the rich.  Some of this progressiveness has been muted by an increasingly complex tax code riddled with exemptions that favor those with the money to purchase tax professionals to take full advantage of these exemptions.   So, far too many of those rich are not paying for it as intended and instead we have plunged the nation into debt, especially as are country ages and more and more people are making claims on these promised entitlements.

I also share some wariness that the federal government can manage to care for our most vulnerable better from their lofty Washington DC towers than those of us who love and care for them more directly.

The Medicaid block grant is an attempt to shift the responsibility for this program to the states and to put a constraint on its burden no matter what happens to the economy.   The states now have the freedom to spend this money how they will and as I said before, the freedom to supplement it further, considering they do have the power to tax locally.

Ryan's plan weakness is that beyond the medicaid grant, it lacks specificity.  Which loopholes will he cut?  Which federal programs will get the ax?  What will be the consequences of each?  Can he really remove the deduction for charitable donations?  Deductions on mortgage interest?  Deductions for employer insurance?   It's all far easier than it sounds, which is why Krugman comes down so harshly on Paul Ryan and justly questions whether he would just add to our debt and deficit, as his tax cuts are not matched by either spending cuts or "base broadening", similar in effect, to the Bush tax cuts before.

I do think Paul Ryan's vision has substance and his views have merit.  If he's willing to be pragmatic, willing to compromise, and willing when it comes down to it, to defend and expand his vision in the face of real attacks and critiques, he will show his meddle as the leader of the Republican party.  We'll see.

I will come to the medicare part of Ryan's plan in another post.

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