Paul Ryan is Overrated and his Budget Plan Sucks

There. I said it. I know there are a large number of people who worship him thanks to his youth, his charisma and his knowledge, but I also think people have been blowing so much smoke up his a** (myself included on occasion) that he thinks his plans are great even when they are obvious duds. Like many people who have spent too much time inside the beltway, he seems to have lost sight of reality and possibly honesty. Do you know that the much vaunted conservative savior Paul Ryan only had an ACU score of 80 in 2011? On 2 key votes he took the union side and then also "took some for the team" on votes to increase the debt ceiling and to pass huge spending bills. He seems to be about as economically conservative as Rick Santorum (i.e. not as much as you would like).

Then there are his so-called "groundbreaking" plans. Take the much heralded Ryan-Wyden plan to reform Medicare. It was scheduled to kick in in the year 2022 which even Ryan's own House Budget website admits is 2 years AFTER Medicare is scheduled to go bankrupt by the Congressional Budget Office (his new plan has it starting even later, in 2023). Imagine if you or your business was going to go bankrupt in 5 days and the bank tells you that they will be happy to lend you money in 1 year. Only in a beyond the looking glass land that is Washington could anyone think this makes any sense.

Now, on to his current budget plan. I know that the Club for Growth has issues with it, all of which are fair, but those aren't really my major issues with it. My problem is with the tax reform segment, specifically his desire to get rid of "tax subsidies" though he declines to actually let anyone know which ones he would eliminate (though the Weekly Standard said that it would "virtually eliminate" all deductions). Obviously, he knows that the deductions he is targeting are popular and just doesn't want to deal with it right now, leaving Americans in the dark about what his tax reform would actually mean for them (note he also doesn't say who would be paying what tax rate). I guess we are supposed to pass this plan in order to find out what's in it?

There are plenty of deductions that we can probably get rid of but the main ones that he is likely targeting are the ones for mortgage interest, charitable contributions and health insurance. Let's go down the list and point out how getting rid of these could be quite destructive. First, mortgage interest. I've heard some people claim that this deduction is "welfare for the middle class". Well, not exactly. Welfare is someone getting a check thanks to money taken from someone else. The mortgage interest tax deduction simply lets people keep more of the money they rightfully earned. Also, I would argue that the mortgage interest deduction doesn't actually benefit most homeowners because when they bought their home, the price was inflated due to the existence of the tax deduction. Sellers generally price items to the level that the market can bear, if there is a major tax deduction that makes a home more affordable, sellers know they can ask for more money than if there was no tax deduction. That home that you paid $550k for, might have been $450k or less if you didn't have that deduction. In other words, you can argue that when you bought your home you prepaid for your annual tax deduction. Getting rid of it will effectively be robbing the middle class of quite a bit of money. Many will now not be able to afford their homes and probably won't be able to sell them either because their values will have crashed. It would be one thing if people bought homes knowing that the deduction was temporary but didn't seem to care due to shortsightedness. But the deduction has been in place since the income tax first started a hundred years ago so it's been understood to be permanent and people have acted accordingly. Some would argue that because tax rates would decrease, there shouildn't be too much of a negative impact. But the problem nobody knows at what point the 25% tax rate is supposed to start. I can see a scenario where quite a few middle class people see their effective level of taxation double thanks to Paul Ryan's plan.

And the problems don't just start there, there are also the economic impacts. People could see tens or hundreds of thousands of dollars knocked off the value of their homes. Between that and higher taxes (due to fewer deductions), you will see them spending far less. Also, the hit to the value of real estate will also hit banks once again, banks that are still barely on their feet (remember Citibank recently failed their stress test). Simply put, the Paul Ryan budget could put us on a road to another financial crisis.

Ryan is probably also going to want to eliminate the charitable contribution deduction. Yes, those deductions often do go to the wealthy but so what? Aren't they giving their money away to people who are helping others? If you take away that incentive for people to give, you're going to see a lot less giving. This will make the poor even more dependent on centralized government programs. I would expect this from Obama, not from someone who is supposedly conservative. And finally, there is the health insurance deduction, which really isn't a deduction at all. We are getting benefits through work and have never had to pay taxes on those before as we aren't actually receiving any cash. What Ryan is probably going to do is make us pay taxes for money we don't even see, taxes that would be inflated by the fact that our health insurance is so expensive due to government handouts to other people. How the heck is that fair?

What would be fair you ask? What would be fair would be a proposal like the one that Newt put out:

I have proposed an alternative flat tax that people could fill out where you could either keep the current system — this is what they do in Hong Kong — . . . with all of its deductions and all its paperwork, or you'd have a single page: 'I earned this amount. I have this number of dependents. Here is 15 percent.' My goal is to shrink the government to fit the revenue, not to raise the revenue to catch up with the government.

The beauty of this plan is it actually gives you a choice (I know, choice, what a concept for government). You can either go to a simple system or you can keep the complex system (and all the accountants and copies of Turbotax it requires) if you think it will be a net benefit to you. It's a no lose situation for taxpayers. The only loser would be government. Now that's a plan that I could get behind!

Cross-posted from libertarian neocon's blog.

Posted in: budget,Newt Gingrich,Paul Ryan