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Everything you need to know about Paul Ryan's 2015 budget

What is Paul Ryan's 2015 budget?

Paul Ryan is the chairman of the House Budget Committee and one of the most influential Republican legislators in Washington. His 2015 budget, if it were enacted into law, would provide a blueprint for all further action regarding taxes and spending levels. Congressional budgets instruct other committees about how much money to spend and set guidelines for tax-writing committees about how much revenue to raise.

Ryan's budget is not likely to be enacted into law — at least not now. On April 10th, it passed the House of Representatives 219-205, with all Democrats, and 12 Republicans, voting against it. The budget has no chance in the Senate, and no hope of being signed into law by President Obama. But it's a tremendously important document nonetheless.

Since taking over as the GOP's top budgeteer, Ryan has consistently used the budget process to advance a broad conservative policy agenda touching on most of the crucial issues in American politics. The budget restructures major programs — in particular, Medicare, Medicaid and Obamacare — while rewriting the federal tax code.

Ryan's budget has become the de facto governing platform for the Republican Party. Grover Norquist, the influential anti-tax activist, has explained that all he wants out of a president is a "Republican with enough working digits to handle a pen" - a pen with which he can sign the Ryan budget. Ryan's budget was embraced by pretty much every major Republican candidate for president — the exception being Newt Gingrich, who tried to criticize it and then quickly backtracked in order to save his candidacy.

So while Ryan's budget won't pass this year, if a Republican wins the presidency in 2016, it will likely be at the core of their governing agenda.

How did Paul Ryan's 2015 balance the budget?

In theory at least, Ryan's budget includes neither increases nor decreases revenues, instead relying on $5.1 trillion in spending cuts over the course of 10 years — and some rosy economic assumptions — to balance the budget.

A large share of those spending cuts — nearly $2.1 trillion — come from repealing the Affordable Care Act, also known as Obamacare. Another chunk, nearly $1 trillion, comes from cuts to other mandatory spending at a variety of government agencies, like the Departments of Agriculture and Energy. And nearly $800 billion comes from interest savings. The budget also cuts more than $700 billion from Medicaid and $125 billion from food stamps. All in all, the bulk of Ryan's cuts come from programs that serve the poor.

The Committee for a Responsible Federal Budget has published a helpful list of Ryan's major cuts:

Ryan_budget

Even with all these cuts, Ryan's budget doesn't quite balance over 10 years. So in a new addition to his budget, Ryan is assuming that his other changes will improve economic performance and thus boost revenues by about $75 billion in 2024, bringing his budget into balance.

Can I see those savings in one chart?

You sure can. Here are the numbers from the Committee for a Responsible Federal Budget in a bar chart.

Screen_shot_2014-04-04_at_6

An important point here comes in the savings to "discretionary spending." That's a budget bucket that includes defense spending, education spending, infrastructure spending, worker training, and much more. Ryan's cuts fall heavily on the domestic programs on that side of the budget while increasing defense spending. This graph, also from the Center for a Responsible Federal Budget, breaks it out more clearly:

Discretionary_spending

What did Ryan's budget propose for health care?

The bulk of Paul Ryan's budget cuts come from major health-care programs. More than $2 trillion of his savings come from repealing Obamacare (though he keeps its Medicare cuts). Another $700 billion in savings comes from capping Medicaid's spending. In this, his 2015 budget is similar to past versions of his budget.

Savings that large come at a price for the people who rely on those programs: The nonpartisan Kaiser Family Foundation evaluated the Medicaid cuts in Ryan's previous budgets and estimated that they would lead to around 35 million fewer people having Medicaid in 2022. Add in the repeal of Obamacare and Ryan's budget probably means around 50 million fewer people having health insurance. Ryan says he would like to see new health reforms put in place before that happened but those reforms are not in his budget, and none of the plans Ryan has previously endorsed would make up the coverage gap created by his budget.

Ryan's budget also overhauls Medicare by turning it from a single-payer system in which the government provides insurance into a "premium-support system" in which seniors are given vouchers to choose between traditional Medicare and private insurance plans on a regulated exchange.

In previous versions of Ryan's budget, the Medicare plan saved money by capping the vouchers so their value grew more slowly than health-care costs. The idea was that, over time, seniors would make better purchasing decisions or pay the difference. In Ryan's 2015 budget, however, the vouchers are tied to a price between traditional Medicare and private Medicare Advantage plans, and there is no cap on growth. Instead, seniors who choose cheaper plans get a rebate, and seniors who choose more expensive plans pay more.

An irony of Ryan's health-care plan is that it repeals Obamacare but reforms Medicare into a system that looks very much like Obamacare.

What did Paul Ryan's 2015 budget propose for education?

Paul Ryan's budget makes three major changes to higher education: He would stop the growth of the Pell Grant program, end subsidized loans for undergraduates, and change the federal government's accounting system.

Ryan's plans for K-12 education are less clear. He said he wants to consolidate state grant programs and "reorganize and streamline" federal programs. Usually, that means that states have more discretion on how they spend federal money. Because Ryan wants to reduce spending and leave the military largely alone, domestic programs — including K-12 education — have to be cut to make the budget math work.

Ryan would cap the Pell Grant for low-income college students at $5,730 through 2024. Right now, the Pell Grant is set to increase with inflation every year through 2017, when the maximum grant would top out at $5,975. So to students, that would effectively be a cut: If the Pell Grant stays constant, its buying power decreases every year as prices rise. (That would happen anyway, since the price of college is rising faster the price of other goods and services, but the Ryan budget would increase the gap.)

The budget also calls for making all student loans accumulate interest while students are still enrolled in college. Right now, some loans for undergraduates with financial need don't have interest while students in school.

The budget would also change the accounting formula for student loans. Under current accounting rules, the student loan program looks like a moneymaker for the federal government. Ryan wants to switch to an accounting method that accounts for risk differently. This wouldn't make any immediate changes to the student loan program, but it could push Congress to make changes later on because student loans will appear more costly on federal balance sheets.

What does Paul Ryan's 2015 budget propose for Social Security?

Paul Ryan's 2015 budget does not change Social Security spending at all. Rather, Ryan's outline merely stresses the need to reform the program and makes broad gestures at ways it could be reformed: increasing support for poorer retirees is one example, as well as creating a "trigger" by which the President and Social Security Trustees would have to submit a plan for "restoring balance" if the fund ever looks unsustainable.

In lieu of a specific plan, Ryan's budget requires the president to "put forward specific ideas on fixing Social Security," and also asks Congress to come up with its own plan.

The 2015 Republican budget also stresses that it does not call for privatization of Social Security, a change from Ryan's 2010 budget roadmap.

What does Paul Ryan's 2015 budget propose for taxes?

Paul Ryan's budget blueprint calls for a cut in the corporate income tax rate from 35 percent to 25 percent. It calls for cuts in individual income tax rates to a two-bracket system with a 10 percent rate and a 25 percent rate. It calls for the repeal of the Alternative Minimum Tax. It also calls for changing the corporate income tax system to what's known as a "territorial" tax system that would no longer attempt to tax the foreign profits of US-based companies.

Obviously doing all of those things would result in a substantial reduction in federal tax revenue. Ryan's 2014 budget included a very similar tax plan, and the Center on Budget and Policy Priorities estimated that it would cost $5.7 trillion — dwarfing all of Ryan's spending cuts combined:

Ryan-tax-cuts-spending-cuts

Ryan's budget blueprint, however, calls not for an enormous reduction in federal tax revenue. Instead he says the lost revenue to be made up through revenue-neutral tax reform—i.e., the closing or elimination of tax loopholes or deductions. But Ryan doesn't name those tax loopholes or deductions. He just instructs Congress to do so at some later date.

In the absence of a specific proposal, it's not possible to model who would win and who would lose under this scenario. But Tax Policy Center analysis of broadly similar proposals in the past has indicated that to work mathematically this form of tax reform needs to raise taxes on working- and middle-class families.

Notably, Ryan does not endorse the tax-reform proposal put forward this year by Dave Camp, the Republican Chair of the House Ways and Means Committee.

What does Paul Ryan's 2015 budget propose for federal loan programs?

The short answer: It makes them look more expensive on federal balance sheets.

Ryan wants to switch from the current federal accounting system to a new one that accounts for risk differently. Right now, under the Fair Credit Reform Act, the federal government calculates whether it makes or loses money on loan programs based on "net present value."

Here's how net present value works: The government first determines the amount it expects to receive in the future from loan repayments. Basically, that number includes the repaid principal, interest and fees, minus money the government projects to lose on defaults and administrative costs. Then that amount is cut down, because money in the present is more valuable than money in the future. Then the government takes the amount it expects to receive, subtracts out the amount it's lending, and the result is the "net present value." If that value is more than zero, the government says its program is making money.

But financial institutions do the math differently. They cut the value of future money down even more, because lending money is risky. The government already accounts for the risk that its loans won't be paid back in full. But investors in the private market expect to be compensated for other risks, too, such as another financial crisis. This is called fair-value accounting, and it generally makes government loan programs look more expensive because of the additional risks. The theory is that if taxpayers were lending money themselves, rather than with the government as a middleman, they'd expect all types of risks to be covered.

What does Paul Ryan's 2015 budget propose for the poor?

Paul Ryan believes his budget would generate substantial economic growth which, naturally, would be good for low-income Americans. But in concrete, specific terms Ryan's budget enacts very large cuts in programs that benefit poor people.

This is a basic mathematical necessity. Ryan doesn't want to cut programs for the currently elderly, he doesn't want to raise taxes, he doesn't want to reduce military spending and he does want to balance the budget. That requires large cuts in anti-poverty programs.

Ryan_budget

Of the $5.3 trillion in reduced spending over 10 years that Ryan wants to enact, $2.8 trillion comes from cuts to programs that provide health care to poor people. There are also reductions in food stamp spending and in Pell Grants. In other words, a clear majority of Ryan's cuts come out of the pockets of people in the bottom third of the income spectrum.

What would Paul Ryan's budget do to federal loan programs?

The short answer: it makes them look more expensive on federal balance sheets.

Ryan wants to switch from the current federal accounting system to a new one that accounts for risk differently. Right now, under the Fair Credit Reform Act, the federal government calculates whether it makes or loses money on loan programs based on "net present value."

Here's how net present value works: the government first determines the amount it expects to receive in the future from loan repayments. Basically, that number includes the repaid principal, interest and fees, minus money the government projects to lose on defaults and administrative costs. Then that amount is cut down, because money in the present is more valuable than money in the future. Then the government takes the amount it expects to receive, subtracts out the amount it's lending, and the result is the "net present value." If that value is more than zero, the government says its program is making money.

But financial institutions do the math differently. They cut the value of future money down even more, because lending money is risky. The government already accounts for the risk that its loans won't be paid back in full. But investors in the private market expect to be compensated for other risks, too, such as another financial crisis. This is called fair-value accounting, and it generally makes government loan programs look more expensive because of the additional risks. The theory is that if taxpayers were lending money themselves, rather than with the government as a middleman, they'd expect all types of risks to be covered.

Under current accounting rules, all the federal credit programs together (student loans, mortgage guarantees; loans and loan guarantees for farmers and small businesses; and loans and guarantees from the Export-Import Bank and Department of Energy) make the government money. Under fair-value accounting, they lose money, according to the CBO.

The CBO argues fair-value accounting is more accurate. The Center for Budget and Policy Priorities disagrees. Either way, it's a technical switch that wouldn't lead to immediate changes in loan programs. But it does mean members of Congress would look at them differently. Student loans for graduate students were expanded in 2006 to help reduce the deficit. The projected revenue from that change would look a lot different under fair value.

What else do I need to know beyond the numbers?

One major reform comes largely outside of the bill's 10-year budget scoring timeline. The budget would change Medicare into a "premium support" program (what's that? read here). Though the Ryan budget says this is not a "voucher program," it bears striking similarity to one. This program would create Medicare exchanges, on which seniors could pick either the traditional Medicare plan or a private plan. Seniors would receive a premium support payment, which they could use toward paying for whichever plan they choose. However, that change would only take effect for people who are 55 and older as of 2013, and - importantly - after 2024.

In addition, it's important to remember that Ryan's 2015 budget and President Obama's 2015 budget achieve their numbers in different ways. Ryan's budget uses "dynamic scoring," a method of tallying up a bill's fiscal effects while including anticipated economic effects. Though it has a small effect, accounting for a net $175 billion of the bill's $5.1 trillion in savings over 10 years, this method of counting up a bill's budgetary effects is controversial. Opponents of dynamic scoring say it is too hard to account for a bill's economic effects, and that doing so requires making assumptions about other economic policies.

What did Democrats say about Paul Ryan's 2015 budget proposal?

They've been harshly critical, and made the following arguments:

His Medicare proposal would hurt seniors: Ryan proposes to transition Medicare away from a set benefit package program, toward a plan where seniors receive a voucher for a certain amount of money to cover health expenses. Though the plan wouldn't change anything for people under age 55, Democrats argue that it is such a large change that it would "end Medicare as we know it."

Also, critics say that Ryan's proposal sets the voucher level too low to cover the average senior's health expenses. The Congressional Budget Office analyzed a previous version of Ryan's budget and estimated that the typical 65-year old, after exhausting the $8,000 voucher, would have to spend $6,800 more out of pocket each year on health expenses. Rep. Chris Van Hollen, the top Democrat on the House Budget Committee, said Ryan's plan would "see prices skyrocket, and it will mean the end of the current Medicare guarantee."

His Medicaid, food stamp, and Obamacare cuts hurt the poor, and there's no pain for the rich: Ryan would transition both Medicaid and food stamps to "block grant" programs, and he'd cut their overall funding levels pretty deeply. Food stamps would be cut by $125 billion over five years starting in 2020, while Medicaid and Obamacare would be cut $2.7 trillion from 2015 to 2024. Liberal think tanks like the Center for Budget and Policy Priorities estimate that Ryan's spending cuts come overwhelmingly from programs to help the poor and middle-class. Meanwhile, the Ryan plan advocates to cut the top individual tax rate down to 25 percent. Senate Majority Leader Harry Reid said that the budget would lead to a "Koch-topia," arguing that the budget is so slanted in favor of the wealthy that it's "protecting the Koch brothers."

He's too vague in several areas, and his plan might not even balance the budget: Ryan avoids offering a specific tax reform plan, instead putting out principles that assume some sort of rate-cutting reform that also won't increase the deficit. Then he cuts domestic discretionary spending by $460 billion over ten years, with few specifics on what would be cut. Also, to get his budget to balance, Ryan is forced to rely on "dynamic scoring" assumptions that his spending cuts will spur enough economic growth to produce a surplus. Democrats generally scorn dynamic scoring as a skewed metric. "The Republican claim that their budget balances in ten years is simply a fraud," Van Hollen said.

How have these cards changed?

This is a running list of substantive updates, corrections, and additions to this card stack. These cards were last updated on April 10, 2014. Here is a summary of edits:

  • April 10: Card 1 was updated to reflect the passage of Ryan's budget in the House of Representatives. Card 3 was updated with more detail on the defense/non-defense breakdown in Ryan's cuts. Card 4 was corrected with an explanation of how Ryan's Medicare reforms changed since the 2014 budget.

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