by Randolph T. Holhut
AR Chief of AR Correspondents
September 10, 2010
THE RETURN OF VOODOO ECONOMICS
DUMMERSTON, Vt. -- U.S. Rep. Paul Ryan, R-Wis., the ranking Republican on the House Budget Committee, is currently the party's darling with his "Roadmap for America's Future," a plan for a major overhaul of federal spending and taxes.
His plan, however, is just warmed-over conservative economics from the 1990s, gussied up for a new generation. It calls for steep cuts in both spending and taxes. How steep? According to an analysis by the Center for Budget and Policy Priorities, the Ryan plan would:
This is the economic plan that Republicans are supporting, and Ryan would have you believe that the combined effect of less spending and less taxation on the wealthy would be much lower budget deficits.
Unfortunately for Ryan, most economic experts say his plan would actually make the federal budget deficit even bigger, while transferring even more wealth to the richest people in America.
Eliminating the Bush-era tax cuts for the wealthiest 2 percent of Americans would save somewhere between $700 billion and $900 billion over the next decade. President Obama and Democratic leaders in Congress have pushed to extend the expiring Bush-era tax cuts only for individuals making less than $200,000 and couples making less than $250,000. Meanwhile, Republicans and some conservative Democrats support making them permanent, which would wipe any savings from proposed cuts to Social Security, Medicare and other social welfare programs.
Contrary to some media reports, the Congressional Budget Office has not prepared an actual cost estimate of what Ryan's plan would really cost. The non-partisan Tax Policy Center has prepared an analysis, and it found that the budgetary outlook under the Ryan plan would be substantially worse. It estimates that the budget deficit under the Ryan plan would reach about 7 percent of GDP and the debt would grow to 90 percent of GDP by 2020.
Calling Ryan fiscally irresponsible doesn't begin to describe the damage that would be done to our nation. And it does nothing about the most urgent crisis facing us - the nearly 1 in 5 adult Americans that is either unemployed, underemployed or have given up looking for work entirely.
The American Society of Civil Engineers has identified more than $2.2 trillion in public infrastructure needs nationwide, and a 2008 study by the Congressional Budget Office found that, on strict cost-benefit grounds, it would make sense to increase annual spending on transportation projects alone by 74 percent.
Laura Tyson, the chair of the Council of Economic Advisers and the National Economic Council in the Clinton Administration and a member of President Obama's Economic Recovery Advisory Board, said that the federal government should work with state and local governments and the private sector to finance $1 trillion worth of additional investment in infrastructure over the next five years. She also said the federal government should extend the Build America Bonds stimulus program, which in the past year has helped states finance $120 billion in infrastructure improvement.
A great idea, but, as economic analyst Robert Reich recently pointed out, "The problem is lack of political will to do it. The naysayers, deficit hawks, government-haters and Social Darwinists who don't have a clue what to do would rather do nothing. We are paralyzed."
Reich advocates another good idea - exempting the first $20,000 of income from Social Security payroll taxes and applying the payroll tax to incomes over $250,000. He says that gets money into the hands of people who put it back into the economy and create new jobs in the process. Also a good idea, but one that Republicans will block.
It's time for Democrats to be bold and use the ideas and principles that helped lift America out the Great Depression of the 1930s to help fight what could be - absent bold action - years of high unemployment and sluggish economic growth in the rest of this new decade.
As economist Paul Krugman put it last week, "The actual lessons of 2009-2010, then, are that scare stories about stimulus are wrong, and that stimulus works when it is applied. But it wasn't applied on a sufficient scale. And we need another round."
The plan offered by President Obama this week to spend at least $50 billion to repair, upgrade and expand roads, railways and airports is a good, though cautious, start. But Republicans and conservative Democrats will block this plan, and little of it will be put in motion anytime soon.
The same holds true for another plan from the President - allowing businesses to deduct 100 percent of the cost of U.S.-made equipment - up from 50 percent - and write off that cost immediately, rather than over a multi-year period. This proposal could quickly pump up to $200 billion into the economy at an estimated net cost to the Treasury of $30 billion, which would be offset by closing corporate tax loopholes.
Should Republicans take back control of Congress in November, Krugman believes that "this will be widely regarded as a vindication of the anti-stimulus position. Mr. Obama, we'll be told, moved too far to the left, and his Keynesian economic doctrine was proved wrong. But politics determines who has the power, not who has the truth."
The Republicans aren't afraid of being bold. The Ryan plan is proof of that. But their big idea for the economy would be a disaster.
President Obama is slowly moving in the right direction, but if he and the Democrats can't put together a sound and substantial plan for economic recovery, and fight hard for it against the inevitable conservative backlash, they will lose in November.
Chief of AR Correspondents Randolph T. Holhut has been a journalist in New England for more than 30 years. He edited "The George Seldes Reader" (Barricade Books). He can be reached at email@example.com.