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Conrad Schmidt / Associated Press

Conrad Schmidt Associated Press Republican vice presidential candidate Rep. Paul Ryan of Wisconsin makes a campaign appearance before a crowd at the Iowa State Fair in Des Moines.

Who wins, what's cut in Ryan's plan

Published: Tuesday, Aug. 14, 2012 - 12:00 am | Page 1A
Last Modified: Monday, Aug. 20, 2012 - 8:42 am

WASHINGTON — Rep. Paul Ryan's proposed federal budget – now starring as the centerpiece of the presidential campaign as he joins the Republican ticket – would reshape American government, achieving long-sought conservative goals and reversing an 80-year path of larger, more expensive federal programs.

Under Ryan's plan, which has passed the Republican-controlled House twice in slightly different versions, the Internal Revenue Service would tax wealthiest Americans less, but many of the poorest ones more; Medicare would be transformed; Medicaid would be cut by about one-third; and all functions of government other than those health programs, Social Security and the military would shrink to levels not seen since the 1930s.

The Ryan plan would not balance the federal budget for another 28 years at least, according to an analysis by the nonpartisan Congressional Budget Office.

That means the federal debt would continue to rise. That's partly because the tax cuts take effect right away while the Medicare cuts kick in later, as people now 55 hit retirement. It's also partly because Ryan's proposed tax cuts considerably outweigh even his spending reductions.

Ryan contends his plan could balanced the budget by the "mid-to-early 2020s" because it would ignite rapid economic growth.

But even if low tax rates spur the economy – a debatable point – a balanced budget will depend on wiping enough tax breaks off the books to offset the new cuts.

Ryan has not specified any tax breaks he would end. Independent analyses have shown that offsetting the tax cuts would require changing things such as the mortgage interest deduction, the tax exclusion for employer-financed health insurance or other popular tax preferences widely used by the middle class.

Ryan would shift Medicare from a system in which everyone gets the same set of benefits, paid for by tax funds, to one in which the government would give each senior citizen a fixed amount of money.

When people now 55 or younger hit retirement, they would be given the option of using that "premium support" payment, or voucher, to buy private insurance policies or enroll in Medicare.

The amount of the payment would vary from one region of the country to another, depending on the cost of private insurance plans. In some places, at least in the early years, the premium-support payment might cover the full cost of Medicare, but there's no guarantee of that.

Medicare beneficiaries have average incomes of $20,000 a year. Last year, the federal government spent $5,500 for each beneficiary, according to the CBO, which projects that cost will rise to between $8,600 and $9,600 by 2030. Ryan would cap the spending at $7,400 per senior. So unless costs grow much more slowly than expected, the average retiree on Medicare would have to make up the difference.

Ryan's plan would keep the tax cuts enacted under President George W. Bush and add $4.5 trillion more in cuts over the next decade. It would do that by replacing the current six tax rates with two — 10 percent and 25 percent – and cutting the corporate tax.

Not all Americans would get a tax cut. The plan would repeal tax breaks for low-income families with children and other changes adopted in 2009 under President Barack Obama.

To keep the tax cuts from ballooning the deficit, Ryan would end existing tax breaks to "broaden the base" of the tax code.

Many of the breaks he's targeted are largely used by people in the top tax brackets. But many of those tax benefits are either supported by Ryan and Romney or don't come close to closing the gap.

One of the largest benefits for upper-income taxpayers, for example, is the lower tax rate for capital gains. But Ryan, like Romney, opposes raising the capital gains tax rate.

The biggest single source of cost savings in Ryan's budget would come from cutting Medicaid (Medi-Cal in California), the joint state-federal program that provides health care for the poor and disabled, and a program that pays for health care for children.

Under the Ryan plan, funding would be cut by one-third, according to the CBO, and the remaining federal funds would be given to the states as a block grant.

One important display of priorities in Ryan's budget is the trade-off between defense spending and domestic programs other than Social Security, Medicare and Medicaid.

Last summer, Congress and the White House reached a deal that would trigger automatic across-the-board spending cuts of nearly $1 trillion over 10 years, beginning Jan. 2 – half from defense, half from domestic programs.

Ryan would upend that deal. Instead of cutting defense – which Obama also opposes – Ryan would increase the military budget by $300 billion over the decade.

Ryan would keep in place the across-the-board cuts on the domestic side and deepen them by $700 billion more over the decade.

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