Wednesday, February 10, 2010

Ryan's Road Map & Revenues

Reihan Salam (one of my favorite bloggers) notes a criticism of Paul Ryan's Roadmap when it comes to revenues:

I've been heaping praise on the Ryan Roadmap because it strikes me as a serious, thoughtful response to our long-term, slow-burning fiscal crisis. But it suffers from a glaring flaw, namely it's too-rosy revenue projections. Howard Gleckman has offered a smart critique that deserves Ryan's attention.

But, and this caveat is a whopper, CBO assumed this wonderful outcome would occur only if the revenue portion of Ryan’s plan generated 19 percent of GDP in taxes. And there is not the slightest evidence that would happen. Even though Ryan’s plan has a detailed tax component, his staff asked CBO to ignore it. Rather than estimate the true revenue effects of the Ryan plan, CBO simply assumed, as the lawmaker requested, that it would generate revenues of 19 percent of GDP.

It does seem to be a legitimate criticism that Ryan has decided to pick the revenue level rather than subject his own revenue plan to scrutiny at this time. Having said that, it's important to consider the number that he settled on.

Using CBO and OMB figures, The Heritage Foundation reports that the 30-year average historical tax burden is 18.4% of GDP. In other words, this average is very close to the 19% that Ryan chose for the CBO analysis.

Ryan could have chosen a number lower than this average in some attempt to score points with the hardcore anti-tax faction, or he could have chosen a much higher number which would have allowed him to spend even more on his Medicare vouchers and deflect at least some of the criticism he has faced. That he chose to do neither of these and instead went with an utterly reasonable assumption is certainly to Ryan's credit.

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