Let’s put aside Paul Krugman’s rather scurilous ad hominem attack today on Rep. Paul Ryan. (“He’s a garden-variety modern G.O.P. extremist, an Ayn Rand devotee who believes that the answer to all problems is to cut taxes on the rich and slash benefits for the poor and middle class.)
Let’s stick to Krugman’s analysis for the Ryan budget recently passed by the House.
… $4.6 trillion is the revenue cost over the next decade of the tax cuts embodied in the plan, as estimated by the nonpartisan Tax Policy Center. These cuts — which are, by the way, cuts over and above those involved in making the Bush tax cuts permanent — would disproportionately benefit the wealthy, with the average member of the top 1 percent receiving a tax break of $238,000 a year.
Mr. Ryan insists that despite these tax cuts his proposal is “revenue neutral,” that he would make up for the lost revenue by closing loopholes. But he has refused to specify a single loophole he would close. And if we assess the proposal without his secret (and probably nonexistent) plan to raise revenue, it turns out to involve running bigger deficits than we would run under the Obama administration’s proposals.
1. If only Krugman gave the same benefit of a doubt to Ryan that he does Obama. For instance, Krugman recently had nothing but good things to say about Obama’s plan to control Medicare costs:
The main thing, though, is the strengthened role of and target for the Independent Payment Advisory Board. This can sound like hocus-pocus — but it’s not. As I understand it, it would force the board to come up with ways to put Medicare on what amounts to a budget — growing no faster than GDP + 0.5 — and would force Congress to specifically overrule those proposed savings. That’s what cost-control looks like!
Yeah, it kind of does sound like hocus pocus to think you can cut provider payments without many providers taking a walk and turning Medicare into Medicaid. And many liberals like Krugman ripped the Congressional Budget Office for not giving Obamacare all due — in their view — deficit-cutting credit for all its unproven cost-control experiments.
2. While Ryan did not specify what tax breaks he thinks should be scaled back or eliminated, he has dropped strong clues that ones benefiting wealthier Americans will catch the blade, as this chart from Ryan indicates:
3. Krugman assumes that cutting marginal tax rates will do little to nothing to boost growth, even though economists across the political spectrum think raising taxes would have at least some dampening effect on the economy. Here is former Obama White House economic adviser Christina Romer: “Tax increases and spending cuts hurt the economy in the short run by reducing demand.” Oh, the impact of changes in tax rates only work in one direction? And a simpler, more efficient tax code combined with lower marginal rates could have a significant growth impact. Take the corporate income tax. Static analysis estimates calculate Ryan’s plan to cut the top rate to 25% from 35% as losing $1.1 trillion over a decade. Yet the U.S. corporate rate — the highest among advanced economies — is so distorted that there might not much revenue loss at all.
You know, there’s an old joke about economists. It goes something like this: A bunch of academics are shipwrecked on an island. Each of them tries to think up a rescue plan. The economist among them then says he has it all figured out, “First, assume a boat …” That is pretty much was Krugman does. He starts by assuming everything that Ryan says will work won’t — and then proceeds from there.