Path to Prosperity

The Path to Prosperity is a ten-year budget plan introduced in the House of Representatives by Rep. Paul Ryan (R-WI) in April 2011. The budget passed the House on April 15 along party lines (with four Republicans opposed) but is not expected to pass the Democrat-controlled Senate.

The "Path" includes many elements of Rep. Ryan's Roadmap for America's Future, including cutting the top income tax rate by nearly a third, from 35 percent to 25 percent, dismantling Medicaid and cutting Medicare, among other budget cuts. The plan has been criticized for resting on the assumption that tax cuts will generate incredible levels of economic growth, employment, and new construction.

In response to Ryan's plan, President Barack Obama offered an alternative plan that purports to reduce deficits without dismantling social programs and cutting taxes on the rich (a comparison of the two programs can be found here).

See also Paul Ryan, Roadmap for America's Future

Rep. Ryan's April 5, 2011 "Path to Prosperity" Budget

Ryan announced his budget proposal in an April 5, 2011 press conference and in an op-ed in the Wall Street Journal. With Democrats controlling the Senate, the proposal is not expected to become law in the near future but explains the Republican agenda. Ryan claims the national debt would be $1.1 trillion less over the next five years than Obama's budget, but his assumptions and numbers have been called into question.

The plan would mostly privatize Medicare, and convert Medicaid from a guaranteed benefits program to a block grant state-managed program that would likely limit eligibility and benefits. Medicare and Medicaid currently account for 25 percent of the federal budget, but spending on those health programs and Social Security is expected to grow substantially in coming years; Ryan's plan is one of the first to suggest substantial reforms to these programs. Defense spending and Social Security are mostly unchanged from President Obama's proposed budget.

Ryan's plan would reduce the top income tax rate for both individuals and corporations from 35 percent to 25 percent, repeal estate taxes, and institute a national sales tax that would likely have the greatest impact on America's poor-and middle-class. The plan's budget calculations rest on the assumption that the Affordable Care Act ("Obamacare") will be repealed (even though the Congressional Budget Office has said the healthcare reforms will produce budget gains over the next decade). The plan does not confront spending on the military and America's two wars (the most expensive parts of the federal budget).

The full plan can be found here. Ezra Klein has a brief summary of the "Path to Prosperity" here. The Congressional Budget Office has its analysis of the plan's budgetary impact (but not a cost estimate) here.

"Path" Assumes Incredible Growth and Focuses Only on Spending, Not Raising Taxes to Increase Revenue

The "Path to Prosperity" does not consider raising revenue to reduce the deficit, with Ryan saying "I do want higher revenues but I want to get them through economic growth," and that "if you raise revenues you take the pressure off of spending." However, critics such as Paul Krugman say Ryan's assumptions for economic growth reflect a "belief in the impossible:" the projections assume "unemployment will plunge right away; that by 2015 it will be down to the levels at the peak of the 1990s boom (and far below anything achieved under the sainted Ronald Reagan); and that by 2021 it will be below 3 percent, a level we haven’t seen in more than half a century."

On April 1, 2011, just before Ryan's budget was released, the International Monetary Fund released an assessment of the US' deficit problems and determined "the federal government can restore fiscal balance by raising all taxes and cutting all transfer payments immediately and for the indefinite future by 35 percent." (Read the IMF report here). The "Path," though, not only focuses exclusively on the spending side of the equation, but actually decreases taxes.

Krugman also points out that most of the "savings" from Ryan's ambiguous and severe spending cuts will not be directed at reducing the deficit, but financing the very large tax cuts that will primarily benefit the wealthy. Considering that Ryan's assumptions on economic growth and employment rates are unrealistically rosy, the fall in revenue will likely be even larger than the plan anticipates. Krugman writes "the bottom line is obvious: this is not the budget of a deficit hawk. It’s the budget of a deficit exploiter, someone who is trying to use fears of red ink to push through a political agenda that includes major losses of revenue."

Ryan Cites Flawed Analysis by the Heritage Foundation

In his Wall Street Journal op-ed supporting his "Path to Prosperity," Ryan writes:

"A study just released by the Heritage Center for Data Analysis projects that The Path to Prosperity will help create nearly one million new private-sector jobs next year, bring the unemployment rate down to 4% by 2015, and result in 2.5 million additional private-sector jobs in the last year of the decade. It spurs economic growth, with $1.5 trillion in additional real GDP over the decade. According to Heritage’s analysis, it would result in $1.1 trillion in higher wages and an average of $1,000 in additional family income each year."

The Heritage Foundation Analysis was called "simply outlandish" by The Economist. David Weigel at Slate writes "Heritage sees unemployment falling, by 2018, to the lowest level since the roaring 20s -- and then going lower!" The Economist points out "when the Obama administration projected a 5.9% unemployment rate in 2015 falling to 5.3% by the end of the decade, the Congressional Budget Office chided it for excessive optimism. . . [the Heritage Foundation's] assumption, in other words, [is] unrealistic enough to be considered somewhat bizarre. Everyone puts a positive spin on their policy proposals. But fundamentally worthy policies shouldn't need to promise laughably overoptimistic outcomes to win support. Bruce Bartlett, a former Treasury official under President George H.W. Bush, told TPMDC that analysis from the nonpartisan Congressional Budget Office "is what they use on the budget side -- as a matter of procedure, any numbers from the Heritage Foundation or anybody else are essentially worthless . . . You can assert whatever you want to assert, but you can always find some half-baked tax think tank that will make up any number you feel like."

Paul Krugman also points out that the Heritage analysis Ryan relies on assumes "housing investment in 2015 would be back to its level in 2006 — at the height of the housing bubble," and would continue rising. "You can’t have this kind of housing boom without massive borrowing," Krugman writes.

Matthew Yglesias points out that the Heritage Foundation also predicted in 2001 that President George W. Bush's tax cuts "would lead the country into a brave new era of prosperity."

Medicaid Reforms

The "Path" aims to turn Medicaid into a "block grant" program that gives state governors wide discretion on how it is spent. Healthcare advocates say this will lead to reduced benefits and make fewer people eligible for the program.

Ezra Klein at the Washington Post points out that, even though Ryan lists Medicaid under "welfare reform," two-thirds (67%) of Medicaid payouts go towards seniors and the disabled, not the poor. This is despite the fact that seniors and the disabled are only 25% of Medicaid's members. Klein notes that Medicaid is 20 percent cheaper than a private-insurance plan, and that converting Medicaid into block grants is not intended to reduce costs, but to limit eligibility and benefits.

Food Stamps

The "Supplemental Nutrition Assistance Program," otherwise known as the food stamp program, is treated the same as Medicaid: block grants to states, indexed for inflation and population growth.

Medicare Slowly Eliminated

Ryan's "Path" would phase- out traditional pay-for-service Medicare, the government program providing health insurance coverage to persons 65 and older, and replace it with government subsidies for the elderly to obtain healthcare through private insurers. According to Ryan, "this is not a voucher program but rather a premium-support model." The plan would be phased-in and only take effect for persons currently under age 55.

The Congressional Budget Office estimates that seniors will be paying on average 68% of their health care costs by 2030, more than twice as much than under current law. The economist Dean Baker points out seniors would end up spending most of their income on healthcare.

In his Wall Street Journal op-ed announcing the plan, Ryan writes: "starting in 2022, new Medicare beneficiaries will be enrolled in the same kind of health-care program that members of Congress enjoy. Future Medicare recipients will be able to choose a plan that works best for them from a list of guaranteed coverage options."

Rep. Paul Tonko (D-NY) points out that this is an unfair comparison: members of Congress are only expected to pay 28% of their health care costs, in contrast to the 68% seniors will be paying under Ryan's "Path." What's more, with seniors' medical costs being even higher than the broader population, and the amount of the voucher fixed and not based on healthcare costs, the difference is even more striking. He writes: "when the plan takes effect in 2022, the average senior would receive $8,000 to buy insurance. Plans for Members of Congress cost $9,012 in 2010. What kind of health care plan will $8,000 buy in 2022 for our sickest and oldest seniors, when $9,000 can't buy a plan for a Member of Congress today?"

With healthcare costs rising, the Medicare reforms have been criticized by Democrats such as Rep. Chris Van Hollen, D-Md, who says "all the risk of increased costs will be borne by seniors." He says "they're ending Medicare as we know it. They take away the Medicare guarantee for seniors."

Ryan has claimed the "Path's" Medicare proposal resembles the one he developed with Alice Rivlin, Brookings scholar and former advisor to President Bill Clinton, but Rivlin has said she does not support Ryan's plan. Rivlin says she does not want to eliminate Medicare entirely, and would increase the value of the vouchers at GDP+1 (inflation plus productivity growth (which is what GDP represents) plus one additional percentage point). She also states that she supports upholding the Affordable Care Act ("Obamacare"), particularly in regards to its promotion of research and pilot programs aimed at reducing healthcare costs.

Ambiguous Cuts to Non-Discretionary Spending

Paul Krugman writes "the biggest source of supposed savings in the plan isn’t actually health care, it’s an assumption that federal spending on everything except health and Social Security can somehow be squeezed, as a percent of GDP, to a small fraction of current levels . . . Ryan is assuming that everything aside from health and SS can be squeezed from 12 percent of GDP now to 3 1/2 percent of GDP. That’s bigger than the assumed cut in health care spending relative to baseline; it accounts for all of the projected deficit reduction, since the alleged health savings are all used to finance tax cuts. And how is this supposed to be accomplished? Not explained. This isn’t a serious proposal; it’s a strange combination of cruelty and insanely wishful thinking."

Other Criticisms of the "Path to Prosperity"

In response to claims that Paul Ryan was "courageous" for confronting budget issues with difficult cuts, Chris Van Hollen said:

“To govern is to choose, and it is not courageous to protect tax breaks for millionaires, oil companies, and other big money special interests while slashing our investments in education, ending the current health care guarantees for seniors on Medicare, and denying health care coverage to tens of millions of Americans. That’s not courageous, it’s wrong.”

Robert Greenstein of the Center on Budget and Policy Priorities writes that Ryan's plan is expected to "shrink federal spending to about 20 percent of Gross Domestic Product (GDP) by 2015 and to 14.75 percent of GDP by 2050 — the lowest level since 1951, a time when Medicare and Medicaid did not exist."

"Yet, Medicare and Medicaid would actually fare better than most of the rest of the budget. Perhaps the single most stunning piece of information that the CBO report reveals is that Ryan's plan "specifies a path for all other spending" (other than spending on Medicare, Medicaid, Social Security, and interest payments) to drop "from 12 percent [of GDP] in 2010 to 6 percent in 2022 and 3½ percent by 2050." These figures are extraordinary. As CBO notes, "spending in this category has exceeded 8 percent of GDP in every year since World War II."Defense spending has equaled or exceeded 3 percent of GDP every year since 1940, and the Ryan budget does not envision defense cuts in real terms (although defense could decline a bit as a share of GDP). Assuming defense spending remained level in real terms, most of the rest of the federal government outside of health care, Social Security, and defense would cease to exist."

"Path" passes House April 15, 2011

Ryan's budget passed the Republican-controlled House on April 15, 2011. No Democrats voted for the bill and four Republicans voted against it.

Representatives Ron Paul (R-TX) and Walter Jones (R-NC) voted against the budget in part because it continues funding America's ongoing wars in the Middle East. While Rep. David McKinley (R-WV) also opposed President Obama's alternative proposal, he wrote that he voted against Ryan's bill because:

"My home state of West Virginia has the highest percentage of Medicare beneficiaries in the country, and I cannot support a plan that the Congressional Budget Office (CBO) has determined would nearly double out-of-pocket healthcare costs for future retirees. Unfortunately, Medicare is on a path to bankruptcy unless action is taken. However, I am not convinced that such a dramatic overhaul of benefits for future retirees is necessary to save the program."