Chairman Ryan Releases FY 2014 Budget

Budget season is underway! House Budget Committee Chairman kicked off the budget resolution exchange by releasing his FY 2014 budget "The Path to Prosperity." As has been the case over the past few years, Ryan has shown an aggressive spending-side approach to getting debt and deficits under control. Let's take a look.

Congressman Ryan outlines a budget with $4.6 trillion in savings relative to a current policy baseline that includes the sequester cuts. Relative to CBO's current law baseline, the savings are about $5.7 trillion, and relative to the CRFB Realistic baseline, the savings total $6.1 trillion. You can see a more detailed breakdown of how the plan compares to different baselines below.

As we wrote last week, Ryan's last budget was already close to achieving the goal of balancing the budget in the tenth year, and he succeeds with a surplus of $7 billion in 2023. Debt would fall from 77.2 percent of GDP in 2014 to 54.8 percent of GDP in 2023.

To achieve these savings Ryan proposes a number of changes, many in health care. Ryan finds the most significant savings by repealing most of the spending increases in the ACA, including the Medicaid expansion and the exchange subsidies, but leaving the revenue increases and spending cuts in place. This saves about $1.8 trillion over ten years. He also proposes block-granting Medicaid and reducing spending on the program by about $750 billion. Medicare is largely unchanged in the first ten years, although Ryan does propose additional means-testing of premiums and tort reform. The budget, of course, still has premium support for Medicare beneficiaries born after 1959 starting in 2024. Medicare again is allowed to compete with private plans and bids are tied to the second-lowest bid or fee-for-service Medicare's bid, whichever is lower. The backstop growth rate of payments is GDP growth plus 0.5 percent.

Ryan's budget also contains a great number of cuts to domestic spending. He proposes reforms to the Pell Grant program, block granting of food stamps, farm subsidy cuts, increased federal employee retirement contributions, reforms to financial regulations, and the winding down of Fannie Mae and Freddie Mac. Ryan also retains the across-the-board cuts in sequestration, but it appears he would re-allocate at least some of the savings from defense to non-defense.*

On the tax side, Ryan proposes revenue-neutral tax reform similar to what he proposed last year, although he would maintain the revenue levels from the American Taxpayer Relief Act and the Affordable Care Act's tax increases. He would consolidate the tax code into two rates of 10 and 25 percent, repeal the Alternative Minimum Tax, and reform the corporate tax code to achieve a top marginal rate of 25 percent and a territorial tax system.

Below is a breakdown of the savings in the Ryan budget as we understand them, measured against three different baselines. As more information is made available, we will update this table with further details.

^{Source: House Budget Committee, CBO, CRFB calculations
*The budget resolution includes a deficit neutral “reserve fund” to pay for the doc fix, but does not offer details on the pay-fors.
^Current law assumes continued funding at inflation-adjusted levels for war spending and Hurricane Sandy disaster funding. By assuming a more realistic funding path, the Ryan budget is $931 billion below current law, but we would not count these savings as real.}

Ryan has certainly outlined a bold approach, albeit one that relies entirely on the spending side. However, it does show that significant deficit reduction can be achieved, even beyond the $2.4 trillion target we have proposed.

We will publish further analysis of the Ryan budget and Senate Budget Committee Chair Patty Murray's (D-WA) budget throughout the coming week.

*This sentence has been clarified since its original posting to indicate that the budget would shift funding to -- and thus shift sequester cuts away from -- defense spending.

Note: CRFB Realistic numbers have been corrected since original posting. Doc fix numbers have been changed to include interest.