The right budget? Ryan plan correctly focuses on deficit

By Robert Robb

Critics of Rep. Paul Ryan's proposed budget resolution are almost universally unserious about getting federal debt and deficits under control. The country will be very lucky if it gets a chance to implement as gentle and gradual a path to fiscal sobriety as the Ryan plan outlines.

Economists believe there are two red lines for debt and deficits. If accumulated debt exceeds 90 percent of gross domestic product, it begins to affect private-sector economic performance and raise questions about the ability of the government to pay it back.

And annual deficits of more than 3 percent of GDP are regarded as a sign of a government that has lost control of its finances.

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Right now, total federal debt exceeds 100 percent of GDP. The deficit is 8.5 percent of GDP. And that's the lowest it's been in four years.

The Ryan budget would get the annual deficit below 3 percent of GDP by 2015. At the end of the 10-year planning horizon, total federal debt would be an estimated 87 percent of GDP, barely out of the red zone.

Despite the caterwauling of critics, Ryan doesn't achieve this through brutal budget cuts. Quite the contrary.

Under Ryan's budget, federal spending would increase from $3.6 trillion today to $4.9 trillion 10 years from now. That's an average annual rate of increase of around 3 percent. Hardly a starvation diet.

What is the alternative to Ryan's plan to get the federal government out of the red zone on debt and deficits? It certainly isn't President Obama's budget.

Under Obama's budget, the annual deficit wouldn't get under 3 percent of GDP until 2017. That would mean eight consecutive years of exceeding the deficit speed limit. That's not a country in control of its finances.

Under Obama's budget, the country would never get below 100 percent of GDP in terms of total debt. After 10 years, the country would still be deep in the red zone.

Rather than increase federal spending to $4.9 trillion over 10 years, Obama would increase it to $5.8 trillion - or nearly 5 percent a year, compared with Ryan's 3 percent.

Obama's tax increases aren't really to reduce the deficit, as he claims. They are to support his higher rate of growth in spending.

Right now, there's not a political urgency to do something meaningful about debt and deficits because the federal government can borrow a seemingly unlimited amount of money at very low interest rates.

But that could change. And it could change overnight. And if it changes, the federal government will have to take action much more drastic and quicker than the relatively gentle and gradual pathway provided by the Ryan budget.

The most controversial parts of the Ryan budget - tax reform and Medicare reform - are actually irrelevant to the task of getting out of the red zone for debt and deficits. The tax reform is intended to be revenue-neutral. The Medicare reform doesn't kick in until after the 10-year planning horizon of the budget resolution. It's intended to reduce the debt problem of the future, not get us out of our current hole.

If Democrats were serious about doing something about debt, there would be room for discussion about changes to the Ryan blueprint. The Simpson-Bowles commission proposed tax reform similar to what Ryan advocates, lower rates on a broader base, but in a way that increases revenues to the government. Ryan proposes spending $440 billion more on defense over 10 years than does Obama. The relative allocations within the Ryan spending limits are certainly arguable.

But Democrats aren't serious, so the Ryan budget is the only current alternative to just waiting for the credit markets to start saying no. If that day arrives, the Ryan plan will look awfully lovely in retrospect.

Robert Robb is a columnist for the Arizona Republic and a RealClearPolitics contributor. E-mail him at robert.robb@arizonarepublic.com