Paul Ryan's Roadmap Was an Epic Fiscal Failure
(Bloomberg View) -- A decade ago, Paul Ryan was the man who was going to fix America's fiscal ills. The young Republican congressman from Wisconsin unveiled a "Roadmap for America's Future" -- in his words, "a real plan, with real proposals, real numbers to back them up, and real legislation to implement it" that would "address what I believe is the greatest threat to our nation’s long-term prosperity: the looming entitlement crisis." Many in the news media hailed him as a hard-nosed realist whose ideas deserved to be taken seriously.
Now Ryan is ready to quit Congress after a three-year run as Speaker of the House of Representatives and stints before that as chairman of the Ways and Means and Budget committees. The "entitlement crisis" he warned about is still looming, and he will be leaving Capitol Hill with the country's fiscal position far, far worse than when he was first elected in 1998. One could argue that it's the worst ever, given that we're in the ninth year of an economic expansion and haven't fought a major war lately, yet gross federal debt is more than 100 percent of gross domestic product and the structural deficit has grown to something like 5 percent of GDP.
I don't blame Paul Ryan for all of this! The single biggest cause of the sharp increase in debt during Ryan's time in Congress was the global financial crisis and subsequent recession, and no, Paul Ryan did not cause the financial crisis. He has nonetheless failed pretty spectacularly in what he set out to do a decade ago, and I would venture that his actions have made the situation much worse than it had to be. I pin this on two main flaws in his approach: One has to do with the term "entitlement crisis," the other with tax policy.
The big problem with "entitlement crisis" is that it's a political framing designed to appeal only to very wealthy people and/or those with excellent health insurance and retirement plans. I think pretty much everyone can agree that this country faces challenges in financing Social Security as the ratio of working-age Americans to the elderly shrinks, and that health-care spending has been rising at unsustainable rates. Improving Social Security, Medicare and Medicaid so that they can keep delivering benefits is a political project that, while fraught with pitfalls, has a chance of eventual success. Hacking at them to avert an "entitlement crisis" decades in the future appears to be a non-starter.
The reason I keep putting "entitlement crisis" in quotes is, first, that "social insurance" better describes the programs than "entitlements" does and, second, that projected increases in social spending alone are unlikely to bring on a crisis. It is increasing government spending without also increasing government revenue that could, eventually, cause trouble. Yet Ryan's "Roadmap" called for tax cuts that would have, in the 2010 estimate of the Urban-Brookings Tax Policy Center, reduced federal revenue from the post-World War II average of 17.3 percent of GDP to about 16.5 percent of GDP. That happens to be just about where revenue will come in this fiscal year and next in the wake of the Tax Cuts and Jobs Act that Ryan helped push through Congress last year, according to the Congressional Budget Office's latest projections. In short, Ryan got his way on tax cuts while making no progress whatsoever on that "entitlement crisis."
A 0.8 percent-of-GDP drop in tax revenue isn't the end of the world. It is, however, a move in the wrong direction if you're worried about growing fiscal imbalances. My impression -- and I think it is pretty widely shared among those who seriously study these things -- is that federal tax revenue will have to rise a few percentage points in the coming decades to meet the challenge of an aging population. This could be done at relatively low economic cost if Congress added a consumption tax, such as a value-added tax, to the federal government's sources of revenue. It would not necessarily imply turning the U.S. into anything close to a high-tax nation; raising the tax burden to Australian or Canadian levels might be enough to do the trick. Raising the tax burden, though, was never part of Paul Ryan's plan. He wasn't even willing just to hold it constant. Which would seem to mean that he was never all that serious about fixing America's fiscal ills.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
OK, Paul Krugman didn't
I would guess that the worst fiscal situation the country has ever been in was during and immediately after the Revolution, but that qualifies as a major war and things got better pretty quickly after the Constitution was ratified and Alexander Hamilton took over at Treasury.
It's supposed to start rising again after that, according to the CBO, but in making such projections the CBO has to assume that none of the temporary tax cuts written into last year's law will be extended, which seems unlikely.
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