Are the Ryan Budget’s Spending Cuts Credible?

In comments, North writes what has become conventional wisdom in the press these days with regards to Paul Ryan’s budget proposal:

But let’s give credit where it’s due. Ryan’s budget is at least putting Team Red back onto the board in terms of credibility for economic constraint. That’s a big achievement all by itself after the debacle of the Bush years you so earnestly try to pretend never happened….

The GOP and Tea Party has claimed to care about spending. I personally and many who I read have challenged them to identify what they would cut. This budget, like it or hate it, does identify what they’d cut.
-Yes: It is larded with more tax cuts.
-Yes: It has a blatant sop to the GOP white-old-angry-base in that it excludes the next decade of pensioners from cuts.
-Yes: because of both of those things it makes the budget picture worse for the next decade.

But it is ballsy and it does cut spending so for me at least it does lend some credibility.

Having now read through that budget proposal, I have to say that the conventional wisdom is a lot of hooey.  I’m not at all certain it deserves the praise of being “serious” about cutting spending and/or the deficit.

After reviewing it myself, it seems to me to get the praise of being serious about cutting spending mostly because it throws some nice big numbers around.  But most of the “reductions” in spending are purely theoretical.

I shall explain:

– Cuts to Defense are limited to a net of $78 billion spread over five years, or $17 billion a year for five years.  After that – no cuts whatsoever to defense.  And a good chunk of even the aforementioned cuts are offset by increased spending on the GWOT in 2012-2013.  After 2014, victory in the GWOT is effectively assumed, with projected spending thereon basically limited to $50 billion/year.*  This is equivalent to assuming in 1991 that the War on Drugs would be effectively won by 1994 such that the budget therefore could be permanently slashed by 50%.  It’s now 2011, and no politician of note thinks it’s been won and should be de-escalated.  This is especially important because about 20% of the spending reductions in the Ryan plan versus the CBO baseline come from assuming a victory in the GWOT.
-About 25-30% of the spending cuts versus the CBO baseline (and, for that matter, the President’s budget) come from repeal of health care reform.  That Republicans wanted to repeal HCR isn’t exactly new.  And, of course, there’s plenty of debate as to how much the HCR will ultimately cost in terms of outlay.  This is hardly something that should be a source of newfound credit for the GOP’s seriousness on the budget.

-“Cuts” to Medicaid make up about another 15% of the savings.  These cuts are purely theoretical, relying on the assumption that introducing more federalism into Medicaid will save tons of cash.  Of course, there’s no reason why it couldn’t just make the program cost more.

– About 15% of the cuts come primarily out of “cuts” to food stamps and housing assistance.  Again, these cuts are purely theoretical rather than hard cuts, assuming that adding something akin to a “workfare” requirement will drastically reduce those on food stamps and housing assistance.  And, of course, the savings here are also dependent on the extraodinarily rosy economic forecast of the plan coming to fruition.   More on this provision in a later post.

– About 7-8% of the savings comes from a reduction in interest on the national debt.  If the above assumptions turn out to be false, or if the rosy assumptions about revenue turn out to be false, then the savings on interest payments are going to be drastically reduced.

– This pretty much leaves us with about 35% of the cuts, which are cuts to non-defense discretionary spending.  This includes earmark reform (which requires an assumption that elimination of earmarks will reduce the total size of spending bills….a big assumption), a federal wage freeze, holding non-defense discretionary spending at 2008 levels until 2016 (an old idea that has been laughed at for months as unserious), Cantor’s laughable YouCut, a mere suggestion that the Ag Committee should reduce Ag subsidies by an average of $3 billion per year, reductions in fraud (ha! like no one’s ever tried that before), and a raid on the EPA.  The bill also assumes that banking reform will guarantee bailouts of banks at the taxpayers’ expense which would not happen if that reform were repealed – this is not a cut, but an assumption.

In summary, what we are left with in terms of new, demonstrable cuts that give rise to the “seriousness” of Ryan’s proposal are, at most, a handful of relatively small and new cuts to non-defense discretionary spending.  Whoopee!  Maybe I’m missing something here, but even if I am, so much of this proposal is entirely theoretical, with the savings based on ideological and theoretical assumptions that it’s tough to understand how it is “serious” about cutting spending.

*To be fair, the President’s budget relies on a similar assumption about the GWOT, though the CBO’s baseline does not.