Path to Prosperity? How about Path of Austerity

Paul Ryan’s FY2014 budget alternative was released earlier this week, and though titled Path to Prosperity, a more appropriate title would be “Path of Austerity.” Ryan’s budget alternative dwarfs the austerity already hitting the economy, such as the expiration of the payroll tax cut, the Budget Control Act spending caps, and the sequestration cuts that just went into effect. His plan would slash spending by $5.7 trillion relative to CBO’s current law baseline and $4.6 trillion relative to his current policy baseline (which removes CBO’s unrealistic extrapolations of war and emergency spending). As my colleague Andrew Fieldhouse detailed in an analysis earlier this week, cuts of this magnitude would have negative impacts on both economic growth and employment. But Ryan’s budget would also have huge impacts on the actual programs themselves, and by extension the people who rely on those programs.

Ryan’s budget doesn’t stretch all to far from his FY2013 budget alternative last year in terms of tone or policy prescriptions, though this year he does propose fully eliminating the projected deficit in ten years. He does this almost exclusively by targeting spending (and to the chagrin of some of his conservative allies, he does not repeal some recent changes to revenue under current law—namely revenue raised under the American Taxpayers Relief Act and some revenue raisers included in the Affordable Care Act).

So where would these cuts land? This chart depicts, by category, the share of these savings relative to total savings, by budget area (as defined in Ryan’s summary tables, but adding in the effects of sequestration).

Excluding the savings Ryan counts from net interest, almost 20 percent of his cuts would fall on programs that appear in the “other mandatory” part of the budget—that is, mandatory programs outside of Social Security, Medicare, and Medicaid. The Ryan budget would eviscerate this area of the budget; by 2023 only 8 percent of Ryan’s greatly diminished pool of resources would go toward other mandatory programs (in 2011 “other mandatory” outlays made up 18 percent of total outlays). This part of the budget includes things like food stamps and child nutrition programs, family support programs, social services, student loans, supplemental security income, unemployment compensation, and veterans benefits and pension programs.

Almost 15 percent of Ryan’s cuts (excluding net interest) would fall onto Medicaid and “other health” programs (Medicaid only accounted for 8 percent of total federal outlays in 2011) and the lion’s share of cuts—about 37 percent—Ryan books from repealing the Affordable Care Act (ACA). It should be noted, however, that he only proposes eliminating the law’s benefits, choosing to keep in place its tax increases as well as the Medicare savings (which, ironically, Ryan and Mitt Romney repeatedly attacked during the presidential campaign).

The majority of Ryan’s changes to Medicare, which include raising the eligibility age from 65 to 67 and turning Medicare into a voucher program, would not have budgetary effects in the immediate ten-year budget window, as Ryan vows to preserve Medicare as it is for those in or near retirement (though adverse selection would likely cause even those 55 and older to be negatively impacted). Thus, Medicare cuts account for a much smaller share of his total ten-year savings, and some of them come from including the effects of sequestration on Medicare. (CBO provided a longer-term analysis of Ryan’s FY2013 budget, but recently announced they would not be doing so for the FY2014 version).

Adding in the sequestration effects, 22 percent of his savings comes from cutting into the discretionary portion of the budget. And since Ryan actually provides $500 billion more than what would be available for defense with sequestration in effect, we can assume that these discretionary cuts would fall on nondefense discretionary (NDD) programs, which accounted for 17 percent of total outlays in 2011. The NDD portion of the budget has already seen significant cuts, as the Budget Control Act cut $668 billion from NDD over FY2013-2023. In fact, Ryan’s cuts would eviscerate NDD programs, and outlays would fall to levels much lower than any seen in the last 50 years. By 2023, discretionary spending under Ryan’s budget would be 37 percent lower than it would be under the Congressional Progressive Caucus’ Back to Work budget, and 45 percent lower than the historical average.


  • marvinmcconoughey

    I don’t see much to praise in the proposed reforms I’ve read thus far. But, there must be thousands of reform proposals by now, and some may be soundly based. I followed the path of austerity when young, in the belief that it would pay off in later years. That is exactly what happened, but I have zero hope that the government will practice austerity. Too many beneficiaries gain from high government spending.