An Overview of the Ryan FY 2015 Budget

This morning, House Budget Committee Chairman Paul Ryan released his FY 2015 budget proposal, "The Path to Prosperity." The budget reaches balance in 2024 by cutting over $5.1 trillion of spending over ten years (relative to a "PAYGO baseline"), and it assumes an additional $175 billion in deficit reduction from a "fiscal dividend"

which incorporates the longer-term economic benefits (and short-term economic drawbacks) of the deficit reduction contained in the budget.

Importantly, the budget puts debt on a clear downward path as a share of the economy, falling from about 73 percent of GDP today to 56 percent by 2024. Even excluding the higher revenue and higher GDP created from the fiscal dividend, debt would still fall to just above 57 percent by 2024 and would still be on a clear downward path.

Given the deteriorations in CBO's underlying projections, Ryan's current budget is somewhat more aggressive and creative than last year's. For one, the budget no longer delays the start date for adopting a premium support system for Medicare to outside the budget window, and instead maintains last year’s start date of 2024. In addition, the budget calls for somewhat deeper discretionary cuts and faster phase-ins of various policies. Finally, the budget assumes the fiscal dividend would generate $75 billion of savings in 2024.

This last assumption is based on CBO's estimate about the economic benefits of the budget's deficit reduction, though we would caution against banking these uncertain savings. Still, even without the fiscal dividend, the 2024 deficit would only be $70 billion, or about one-quarter of one percent of GDP.

The deficit reduction in the budget causes deficits to fall from the 2014 level of 3 percent of GDP to zero in 2024. This is a large improvement over the 3.6 percent of GDP deficit in 2024 in the PAYGO baseline. By the end of the ten-year window, both spending and revenue would equalize at just over 18 percent of GDP.

As in previous budgets, the Ryan budget would achieve all of its deficit reduction on the spending side. The largest savings, $2.1 trillion, come from repealing the coverage expansions in the Affordable Care Act while leaving the bulk of the Act's Medicare reductions and additional tax revenues in place. The budget also banks about $730 billion of savings by block granting and capping the growth of Medicaid. It abides by the discretionary spending limits in the Murray-Ryan deal for FY 2015, but lowers discretionary budget authority after that to $310 billion below sequester levels through 2024 -- the net effect of $791 billion in non-defense cuts and $483 billion in defense increases. The budget gets sizeable savings from other mandatory programs, with policies such as block granting food stamps, increasing federal employee retirement contributions, and reducing fraud and abuse throughout government.

Over the course of the week, we will continue to analyze the Ryan budget and any alternative budget resolutions on our blog. You can also read more about developments with the FY 2015 budget here.