Yesterday, presidential candidate and Congressman Ron Paul (R-TX) released his budget blueprint for what would be his first term in office, which he claims would balance the budget by 2015 as a result of a small $13 billion surplus in that year.
Rep. Paul's plan relies exclusively on spending cuts, eliminates all public debt held by the Federal Reserve (thus reducing debt held by the public by $1.6 trillion), and includes substantial tax decreases and tax cut extensions. His plan would be a bold shift for the federal budget.
Some of the major proposals are:
- $1 trillion in spending cuts in 2013 through the elimination of five departments (Energy, HUD, Commerce, Interior, and Education)
- Freezing spending, block-granting, and moving to the discretionary side of the budget for Medicaid, SCHIP, SNAP, family support programs, and child nutrition programs
- Full Extension of 2001/2003/2010 income tax cuts
- Repeal PPACA, including tax increases
- Eliminate estate, gift, capital gains, and dividends taxes
- Reduce corporate tax rate to 15%
His estimates of the plan rely on dynamic scoring when determining the costs of the policy proposals, GDP, spending and revenue levels and, thus, deficits and debt. In 2013 alone, Rep. Paul claims that he will cut spending by $902 billion and reduce revenue by $527 billion when compared to CBO's August baseline. He estimates that his plan would reduce debt held by the public to 52 percent of GDP in 2016, compared to 67 percent under CBO's current law baseline and about 76 percent under CFRB's Realistic Baseline.
While dynamic scoring would be ideal in a perfect world, in which experts fully understood the macroeconomic effects of policy changes on output, interest rates, and other variables, and where the difficulty of separating/disaggregating the impact of government policies on the economy from other factors affecting the economy didn't exist, the economics profession has not been able to fully solidify this process because of the sheer number of assumptions required. Thus, while Congressman Paul claims his plan would put debt on a downward path this decade, it's possible that conventional budget scoring could show that his plan would not reduce deficits and debt as much as he claims. As we see it, budget proposals should be scored based on existing methods and as accurately as possible, and any additional savings from dynamic effects should be a bonus. It’s possible that more will need to be done to put debt on a stable and falling path, but we congratulate Congressman Paul for putting out specific recommendations.
Click here to read Congressman Paul's latest budget proposal.