Why the GOP’s Deficit Plan Won’t Work

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NEW YORK (MainStreet) — Many Americans breathed a sigh of relief Friday night as legislators came to a last-minute agreement on a budget to fund the government for the rest of the 2011 fiscal year, thereby averting a government shutdown. But as one fiscal battle comes to a close, an even greater fight is just beginning to heat up.

The debate in Washington is already shifting to next year’s budget, which must be passed in September, and the long-term of goal of reducing our national deficit and bringing the country’s balance sheets back to black. Unfortunately, there’s one big problem: So far, budget proposals from both sides of the aisle fail to accomplish this.

Following the president’s State of the Union address earlier this year, the White House released its budget proposal for the 2012 fiscal year, a plan that pledged to cut $1.1 trillion from the deficit during the next decade. The proposal was ambitious, especially given the fact that government spending – and the national deficit – consistently increased throughout much of the previous decade, both under President Obama and President Bush.

While this was a step in the right direction, even Obama’s budget director admitted the plan was simply a “down payment” and would not be enough to lift us out of the red. For that, more steps would need to be taken down the road.

Not content with this plan, Republicans in Congress have come up with their own initial budget proposal for next year and the decades to come that looks to make more severe cuts and changes to eliminate the deficit. The proposal, crafted by Rep. Paul Ryan (R-Wis.), chairman of the House budget committee, has earned as much praise as controversy, but for all the buzz around this budget plan, it too falls short.

Ryan initially claimed that his proposal would cut an astounding $5.8 trillion in government spending during the next decade, but nearly a third of that assumes cuts to military spending in the coming years from gradually getting out of the wars we’re involved in, a factor that has little to do with his plan. Instead, the Center on Budget and Policy Priorities places the total possible spending cuts specifically from Ryan’s plan at $4.3 trillion, but even this comes with a major caveat.

The centerpiece of Ryan’s plan is a proposal to overhaul the current Medicare program so that the federal government would only contribute block grants to states to cover some of their Medicare costs, rather than matching payments made by all states as the government does now. Beyond this, Ryan calls for reducing overall government spending (with the exception of Social Security) so that it declines by about half relative to the total gross domestic product, while setting revenues in such a way that they rise by 4% relative to the GDP in the next 20 years, largely by cutting spending on public programs like food stamps and Medicaid.

But even putting aside the issue of whether one should attempt to balance the budget on the backs of the poor, as some have put it, the CBPP’s analysis of the plan shows that it doesn’t actually work. While it cuts $4.3 billion in spending, these savings would be offset by Ryan’s plan to reduce taxes for corporations and the wealthy, a proposal that the CBPP estimates will cost the government roughly $4.2 trillion in revenue.

Ryan’s ambitious plan would account for just $155 billion in savings over the next decade, or about $15 billion a year, while drastically limiting public service programs for the poor in the process.

A separate study found that in the short term, Ryan’s plan would actually make the nation’s balance sheet worse than if we did nothing at all. According to the Congressional Budget Office, a group that Ryan and other members of Congress often rely on for budget projections, the national debt would rise to 70% of the nation’s GDP by 2022 under this plan, compared to 67% if we continued on our current course. After that, the percentage would begin to improve incrementally in the following decades, but even 30 years from now, the debt would still be nearly half our total GDP.

In effect, then, Washington – and the American public – is caught between two flawed proposals for fixing our financial future: a Republican plan that is overly aggressive but produces minimal results and a White House plan that looks for gentler ways to eliminate the deficit, but does so at a glacial pace.

This week, President Obama is planning to take another stab at putting forth a budget plan for the future in an address to the nation Wednesday, and we can only hope that he recognizes the best and worst parts of Ryan’s proposal and his own. Perhaps by omitting most of the tax cuts for the wealthy called for in Ryan’s plan, while simultaneously getting more serious about reimagining entitlement programs in the coming decades, it may be possible to push the country out of the red once and for all.

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