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The $6 Trillion Man

April 11, 2012

Now for a thought experiment. Suppose that I told you I had a plan which over the next decade would slash $6 trillion from the national debt of the United States. Imagine further that I promised I would achieve those savings just by closing some tax loopholes and deductions, so-called tax expenditures that all told cost Uncle Sam over a $1 trillion a year. But when you naturally asked me which ones I would eliminate, my response was "I won't tell you."
And the now the test: would you call me a fraud? A charlatan? A disgrace?
The answer: you should call me Paul Ryan.

In March, House Republicans passed Budget Chairman Paul Ryan's 2013 budget proposal, his supposed "Path to Prosperity." But that draconian plan doesn't merely end Medicare as we know it, slash Medicaid spending by a third and extract 62 percent of its total savings from programs helping low-income Americans. The Ryan plan also dramatically reduces taxes for the rich and corporations, a $ 3 trillion, 10-year giveaway which lowers the top rate from 35 to 25 percent.
But there's a problem with Ryan's boast that his plan will "prevent an explosion of debt from crippling our nation and robbing our children of their future." That is, his math doesn't work. As the Washington Post's Ezra Klein explained, Ryan has a roughly $6 trillion hole to fill:

The Tax Policy Center looked into the revenue loss associated with House Budget Chairman Paul Ryan's plan to cut the tax code down to two rates of 10 percent and 25 percent. They estimate the changes would raise $31.1 trillion over 10 years, or 15.4 percent of GDP. That's $10 trillion less than the tax code would raise if the Bush tax cuts were allowed to expire, and $4.6 trillion less than it would raise if all of the Bush tax cuts were extended.
The Republican congressman says he'll "broaden the tax base to maintain revenue...consistent with historical norms of 18 to 19 percent." So let's say Ryan needs to find close-enough deductions and loopholes to hit 18.5 percent of GDP. That means he'd need to close about $6.2 trillion in tax deductions and loopholes over 10 years.

But so far, Rep. Ryan has refused to answer the $6 trillion question: which tax deductions and loopholes will he close.
As Matthew Yglesias pointed out, in Ryan's 13-page description of his tax reform vision, those politically tough choices are completely missing:

Thirteen pages dedicated to explaining his vision for revenue-neutral tax reform. And even so he manages to not name a single tax deduction that he's planning to eliminate. Home mortgage interest deduction? I dunno. Electric vehicle tax credit? I dunno. Deductibility of state and local income taxes? I dunno.

Ryan has admitted as much. Appearing on MSNBC's "Morning Joe" on March 20th, Congressman Ryan declared he would "Get rid of the special interest loopholes, special deductions, lower everybody's tax rates, bring in at least as much revenue to the government but grow the economy and create jobs, and get spending under control so we can pay off this debt." But when host Joe Scarborough asked "Which one of those [loopholes] do you eliminate," Ryan decided discretion was the better part of valor (starting around the 1:15 mark above):

"We want to do this in the light of day and in front of everybody. So the Ways and Means Committee, which is in charge of the tax system, sent us the plan here, which is a 10 and 25 percent bracket for individuals and small businesses, and then they want to have hearings and, in light of day, show how they would go about doing this."

Appearing on CBS Face the Nation just days later, Ryan again claimed that "We're proposing to keep revenues where they are, but to clear up all the special interest loopholes, which are uniquely enjoyed by higher income earners, in exchange for lower rates for everyone." But he once again pleaded the Fifth when asked which "special interest loopholes" he would do away with:

"That's what the Ways & Means Committee is supposed to do. That's not the job of the Budget Committee," Ryan said on Fox News Sunday. "What we're saying is, we want to do this in the light of day, not in some backroom deal. We want to have hearings in the Ways & Means Committee that Chairman Dave Camp has already started that work, to say what tax benefits should go."

It's important to understand that most of the estimated $1.3 trillion in annual tax expenditures in 2015 (a figure larger than the entire 2012 budget deficit and equivalent to about a third of the $3.8 trillion in federal spending next year) benefit working and middle income Americans. For example, the home mortgage tax deduction was worth $89 billion in 2011. Tax-deferred 401K accounts cost the Treasury $63 billion. The Earned Income Tax Credit, which President Ronald Reagan famously called the "the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress," had a similar $63 billion price tag last year.
So what deductions and loopholes are actually in the mystery meat that is Paul Ryan's budgetary dog food? As Paul Krugman explained in "Pink Slime Economics":

We're talking about a lot of loophole-closing. As Howard Gleckman of the nonpartisan Tax Policy Center points out, to make his numbers work Mr. Ryan would, by 2022, have to close enough loopholes to yield an extra $700 billion in revenue every year. That's a lot of money, even in an economy as big as ours. So which specific loopholes has Mr. Ryan, who issued a 98-page manifesto on behalf of his budget, said he would close?
None. Not one. He has, however, categorically ruled out any move to close the major loophole that benefits the rich, namely the ultra-low tax rates on income from capital. (That's the loophole that lets Mitt Romney pay only 14 percent of his income in taxes, a lower tax rate than that faced by many middle-class families.)

For his part, Ryan has claimed - but not detailed how - he would leave "middle-income tax write-offs" in place. Instead, he recently told ABC's This Week, "With respect to the wealthy, we're saying, 'Stop subsidizing the wealthy. Close the tax shelters and loopholes that are disproportionately used by the wealthy so that we can get more tax revenue by having a broader tax base with lower rates.'" As Fox News dutifully reported:

But Ryan argued that popular deductions might not have to be eliminated for everybody -- just the high-income earners who "disproportionately" use them. He indicated a willingness to end the home mortgage interest deduction and other breaks for top earners...
Ryan said it's "impossible" to know whether the wealthy would end up benefiting more or less from all these changes.

Of course it's impossible to know the magnitude of the tax cut windfall for the wealthy if you refuse to say which of their deductions you would limit or even who qualifies as wealthy. Which, as Crooks and Liars noted, is exactly what Paul Ryan will not do:

"I don't even want to get into what the cutoff is because I don't think we should get into this definition," Ryan said. "But I'm not going to give you what I think is a rich person and what I think is not a rich person because you have to look at the fact that these are job creators."

Unfortunately, the historical record shows that lower tax rates for the supposed "job creators" do not create jobs. But if Paul Ryan doesn't come clean about which loopholes he will close for the rich, Americans can expect his plan to deliver a $248,000 annual tax cut to the top 1%.
This week, Paul Ryan explained that his Catholic faith helped shape his budget plan. But when it comes to magically filling that plan's $6 trillion gap, apparently Congressman Ryan's message is we just have to have faith in him.
Faith, that is, in the $6 trillion man.


Jon Perr
Jon Perr is a technology marketing consultant and product strategist who writes about American politics and public policy.

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