Comparing the Budget Proposals from President Obama, Chairman Paul Ryan and the Republican Study Committee

- April 2011 -

Overview

House Budget Committee Chairman Paul Ryan and the Republican Study Committee (RSC) have released two separate budget proposals for FY2012.  Both differ significantly from President Obama’s vision of ever-expanding government as laid out in his FY2012 budget proposal released earlier this year.  While the tax plans of these two new proposals are identical, reducing taxes by $1.8 trillion when compared to the president’s proposal over ten years, both cut trillions of dollars in federal spending and reduce deficits over the next ten years.  The RSC achieves more aggressive spending cuts in both discretionary and mandatory spending, further reducing the economy-crushing budget deficits proposed by the president, and balancing the budget by the year 2020. 

The RSC’s efforts at accelerated spending cuts are laudable; we need to get control of the nation’s deteriorating fiscal situation right now.  Cutting $387 billion from the president’s budget in FY2012 alone (a full $208 billion more than the chairman’s proposal) is a good start.  However, too-aggressive cuts to the nation’s largest entitlement programs (Medicare, Medicaid, and Social Security) may not be politically viable and may undermine efforts at tackling the nation’s fiscal problems.  Chairman Ryan’s proposal offers a more sustainable and politically-viable vision for reforms to these entitlement programs. 

Headline Numbers – When compared to the chairman’s budget, the RSC budget has an additional $3.3 trillion in spending cuts, including an additional $208 billion in cuts in FY 2012. 

In terms of total federal outlays, both proposals work to limit government spending.  Chairman Ryan’s proposal reduces spending by $6.2 trillion when compared to the president’s budget, including $179 billion in spending cuts in 2012 alone.  As a share of the economy, the president proposes a much larger public sector presence, keeping federal spending as a share of GDP at nearly 24 percent in 2021, far above the 40-year average of 20.8 percent.  Chairman Ryan would reduce this public sector presence, reducing federal spending as a share of GDP to 19.9 percent by 2021.  The RSC proposal is more aggressive in achieving spending cuts, cutting an additional $3.3 trillion from spending over ten years, including $208 billion in additional cuts in 2012. 

On the revenue side, Chairman Ryan has proposed reducing tax revenues by $4.2 trillion over ten years when compared to the CBO baseline, a full $1.8 trillion in tax cuts when compared to the president’s proposal.  The proposal makes permanent the 2001 and 2003 tax cuts that were recently extended only to 2012; individual income tax revenues are reduced by consolidating the current six brackets and cutting the top rate from 35 to 25 percent; the corporate tax rate is reduced from 35 to 25 percent; and finally it eliminates over $800 billion in tax increases that were set to kick in under ObamaCare.  Revenue reductions are offset by efforts to broaden the tax base – the proposal eliminates or modifies a significant number of deductions, credits, and other tax expenditures.  This brings tax revenues back to their historical average of approximately 18 percent of GDP, whereas the president’s proposal would further raise taxes, taking a total of 19 percent of GDP in federal revenues.  The RSC has announced that its tax reform proposal is identical to the chairman’s.

Both budget proposals make a strong effort to control deficits over the next ten years (see chart).  Compared to the president’s proposal, the chairman’s budget reduces deficits by $4.4 trillion, with $168 billion in deficit-reduction in FY2012 alone.  With their more aggressive spending cuts, the RSC plan would reduce deficits by $7.7 trillion over ten years, bringing the budget into balance by 2020.  The chairman’s plan does not bring the budget into balance until the late 2030s. 

Discretionary Spending – When compared to the chairman’s budget, the RSC budget cuts an additional $1.6 trillion from discretionary spending over ten years, including an additional $55 billion in cuts in FY 2012.

Chairman Ryan achieves savings by returning non-defense discretionary spending to below FY2008 levels and freezing spending there for five years, cutting over a trillion dollars in defense spending over ten years, reducing the federal workforce by 10 percent over three years and reforming generous public-sector benefit programs, banning earmarks, reducing farm subsidies, eliminating a $26 billion fund for financial bailouts, eliminating continued support for Fannie Mae and Freddie Mac, and locks in these savings with enforceable spending caps and budget-process reforms. 

The RSC plans to achieve more savings from significant additional cuts including setting FY2012 non-defense discretionary spending at FY2006 levels and freezing spending at FY2008 levels for the nine years thereafter, selling federal land and assets, eliminating the Tennessee Valley Authority’s electric utility function, prohibiting further spending under the TARP program, and reducing the federal workforce by an additional 5 percent.

Medicare – When compared to the chairman’s budget, the RSC budget has an additional $1.1 trillion Medicare savings over ten years, including $83 billion additional savings in FY2012. 

The chairman’s budget proposes reform in the Medicare system by providing a premium support model. Eligible recipients would be able to choose from a list of guaranteed coverage options, similar to those currently available to Members of Congress. Medicare would pay into the plan chosen by the beneficiary, subsidizing its cost. The subsidy amount would be on a sliding scale relative to income. The current generation of Medicare recipients would see no changes to their health care; the chairman’s proposal doesn’t kick in until FY2022.

The RSC proposal differs in that it kicks in four years earlier in FY2017. The RSC model is also completely optional, as opposed to the chairman’s plan which puts all eligible recipients under the premium support model after 2022. Additionally, even current beneficiaries would be able to opt into the premium support model after 2017, as opposed to only having the traditional Medicare system option (as under the chairman’s plan).

The chairman’s budget estimates a savings of $30 billion in Medicare spending over the next ten years when compared to the CBO baseline; $389 billion when compared to the president’s budget.  The RSC’s more aggressive cuts result in additional Medicare savings of $1.1 trillion when compared to the chairman’s budget over ten years. 

Medicaid – When compared to the chairman’s budget, the RSC budget has an additional $712 billion Medicaid savings over ten years, including $78 billion additional savings in FY 2012. 

Arguably the biggest change in entitlement spending is with Medicaid. Under both proposals, Medicaid funds are block-granted to the states, which are then responsible for structuring their own programs and tailoring them to their particular needs.  The chairman’s proposal presents a savings of $771 billion over the next ten years compared to the CBO baseline.

The RSC’s proposal results in additional savings of $712 billion over the next ten years, on top of the chairman’s cuts.  The main reason for the extra savings in the RSC plan is that the chairman’s budget indexes Medicaid spending at the rate of inflation and population growth. The RSC Medicaid budget is indexed only at the rate of inflation.

Both plans also entirely defund ObamaCare, saving $677 billion over ten years.

Social Security – When compared to the chairman’s budget, the RSC budget has an additional $56 billion in Social Security savings over ten years, though none in FY 2012.

The chairman’s proposal contains little significant action on Social Security, only setting a requirement that should the program become “not sustainable,” the president and the Board of Trustees must submit a plan to restore balance to the fund.   In contrast, the RSC budget proposal gradually phases in an increase in the full retirement age, moving from the current age 65 to age 70, with the proposal affecting only those currently younger than 60.  According to RSC estimates, this solution would save $56 billion between 2014 and 2021, and close more than half of the funding gap over the next 75 years.

Additional Mandatory Spending Items – The chairman’s budget actually cuts $681 billion more in “other mandatory spending” when compared to the RSC budget over ten years, including $11 billion more than the RSC budget in FY2012.

Both the chairman’s proposal and the RSC proposal call for deep cuts in other entitlement programs, including cuts to the SNAP food-assistance program, the Temporary Assistance to Needy Families (TANF) program, the Social Security Income (SSI) program, federal Pell Grants, etc.  While the chairman’s proposal lacks exact dollar figures for cuts to these specific programs, examples of cuts under the RSC budget include:

• Capping SNAP tat pre-stimulus FY2007 levels and block-granting these funds to the states, resulting in a savings of $45 billion in FY2012 and $350 billion over ten years.
• Capping SSI at pre-stimulus FY2007 levels. This results in a savings of $36 billion annually. These funds would also be block-granted to the states.
• Reducing TANF funds to FY 2007 levels and indexed to inflation beginning in FY 2015.

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