Thursday, April 7, 2011

Hey, Paul Ryan:

How is it that an economy with a 2.8% unemployment rate produces the same revenues as an economy with a 4.3% unemployment rate?

See, here's the thing. Paul Ryan allegedly wrote a budget. Budgets, however, require projections: if I set the tax rates at this level, how much revenue will they generate?

Actual serious budgets get those estimates from neutral sources: for spending from the Congressional Budget Office, for tax revenues from the Joint Committee on Taxation. Ryan didn't do that with his "budget" -- he took it to a GOP-aligned think tank for projections.

That, you probably know. You probably also know that Heritage was caught using entirely unrealistic economic assumptions, including a projection of 2.8% unemployment in 2020 if Ryan's "budget" was passed. You may know that Bill Beach at Heritage responded by re-running his model and now finding that it produced a slightly more realistic 4.3% unemployment rate in 2020. You might even know that Heritage's web site substituted, without comment, a new table for their old one that was the same except for omitting unemployment percentages completely.

I'd give Paul Krugman a "catch of the day" for noticing that unemployment percentage was missing, but the thing is: what's really important is what's still there, not what's gone. Somehow or another, the magic Heritage forecast -- which, at least as Beach tells us, now has a very different unemployment rate -- somehow or another still has the same disposable income number, the same income tax base, the same profits. And, critically for a budget, the same projected federal revenues. Oh, and the same employment numbers. I'm not sure how the unemployment percentage moved from 2.8 to 4.3 with the same number of people employed, but that's what Heritage is telling us.

Whatever; that's Heritage's problem.

What, however, of Paul Ryan, and his supposedly serious, honest budget?

You may recall that when Democrats received unexpectedly bad news from CBO during the 111th Congress, they reacted by changing their programs. That required tough choices, sometimes, but (especially on health care reform) Democrats chose to make tough choices over using fantasy numbers or just adding to the deficit.

Paul Ryan? Not so much.

Ryan has included the memory hole version of Heritage's projections as part of the documentation for his budget at the committee website, and he's moved ahead with his Heritage-based "budget" projections, holding a markup on his budget yesterday. There's very little news coverage of the markup, so I don't know how (or if) he explained the change. But, really, one has to wonder: how could it be, as Beach claims, that everything in the economic projection is exactly the same except for an unemployment number about 50% higher? Does that make sense? And if in fact the economic projection has changed, shouldn't projected federal revenues change as well? (And expenditures, by the way: higher unemployment, higher federal expenditures).

I'd ask whether Ryan changed his tax plans to account for the new projections, but Ryan's tax plan is mostly still a mystery.

Someone serious about the deficit, or serious about the budget at all, would have stopped everything and demanded that the numbers really worked. But someone serious about the deficit, or serious about the budget at all, would have used CBO and Joint Committee numbers to begin with, instead of shopping around for someone who would use David Stockman/Mitch Daniels math to get the numbers to come out right.

In real life, I strongly suspect that the effects of Paul Ryan's budget would be the same as the effects of the Stockman and Daniels budgets: exploding deficits (at least for the next ten years; after that, it's possible that the cuts in Medicare and Medicaid would balance out reduced revenues, although then there's the question of how realistic it is that those cuts would actually happen down the road).

Democrats are mostly attacking Ryan for his policy choices (that is, who wins and loses under his plan), but those who think themselves budget hawks should be first in line to attack. One more time: this is, as Ryan says himself, a cause, not a budget. And the cause sure isn't deficit reduction.


  1. Is it right that the 111th Democrats "chose" to use CBO numbers for healthcare? I remember ten-year CBO numbers being required by reconciliation.

  2. I suppose Bill Beach and Heritage could claim, 'Oops, we forgot that such a booming economy would draw more people into the labor market.' But in real life it makes clear how completely phony these numbers are.

  3. He isn't saying they chose to use CBO numbers - you're right, the reconciliation rules require it. They chose to change the original House bill in response to the CBO calculations in order to offset the costs with more deficit reduction.

  4. I think most thinking people will acknowledge, based upon experience, that there is no relationship between tax rate and employment. Right now, most major corporations, as we are painfully aware, do not pay taxes and yet they are not creating jobs.

    Now, Paul Ryan proposes to "lower" our current corporate tax rate from 35% to 25% which, if corporations, are for at least two thirds of them, not paying taxes at 35% then without knowing which loopholes are to be closed we can only assume that the 10% reduction would end up being a subsidy.

    In regards to the Heritage numbers, again without knowing which loopholes are to be closed they cannot project a thing. I would also like to know what statistical relationship is found between job growth and tax rate vs. job growth and demand....

    The other aspect of job growth is in regards to industry. Obviously, we have an unemployment problem, but creating jobs in technology is not going to solve unemployment if all your unemployed are construction workers.

  5. On using CBO numbers:

    Yes, Congressional procedure required the use of CBO numbers. But the Democrats had huge majorities in the House and the Senate; they could have changed the rules! Or, they could have fired the director of CBO and hired a hack who was willing to make the numbers come out the "right" way. Or, of course, they could have found other ways to fudge it.

  6. I'm not sure how the unemployment percentage moved from 2.8 to 4.3 with the same number of people employed, but that's what Heritage is telling us.

    There's a lot of vague promises of cuts in Ryan's plan. Maybe he just pushed back implementing the Turner Diaries plan until 2021.

  7. When you have an end in mind, the means don't matter.

    Ryan is determined to cut as much government as possible (as much LIBERAL government as possible - no way we would end corporate tax incentives or anything like that to increase revenue) so his "projections" are simply tools to that end. They only have to correspond to reality closely enough to avoid getting called out by people like Krugman, and when he does get called out, a simple "revision" fixes things. Disgusting.

  8. I think David Frum has a good analysis of what's going on with Ryan:

    Key quote:

    If the plan is not a real-world budget proposal, not an electioneering document, not a negotiating position — then what is it?

    Answer: The Ryan plan is a Republican “memo to me” — an attempt by a party emerging from a troubled history to answer the question, “Who are we?” The answer is not aimed at the general public, but at Republicans themselves.

  9. Jeff,

    Yeah, that's a good article. I don't know if I'll get to it, but Douthat had a good post, too -- he hit on the same "replace" point I had made, and the phony #s (although he also had a post praising it, but I figure that goes with the territory).


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