A People's Budget vs. A Path to Disparity

April 25, 2011

fork in the roadTwo very different federal budgets were considered this month by the U.S. House of Representatives: Rep. Paul Ryan's "Path to Prosperity," which was approved by the House, and the Congressional Progressive Caucus' (CPC) "People's Budget."

While both have their ideological streaks, only the latter assumes a firm and rational position on deficit reduction – without economic gimmicks claiming that lower taxes will miraculously produce additional revenue. And most importantly, the CPC's budget takes aim at extreme economic inequality in the U.S and demands more truly shared sacrifice.

Of course, with a corporatist-conservative majority in the House, we couldn't have expected reason to prevail there. However, since the House and Senate still have to find middle ground on the budget, which will then have to be made official by the President, sensible budget ideas continue to stand a chance.

To help make sense of all the partisan rhetoric, our friends at the National Priorities Project (NPP) defined the 2012 budget debate in clear terms, comparing the savings and expenditures of these proposals at polar ends of the budget spectrum. They point to the three most impactful deficit reduction strategies and explain how each budget deals with them:

  1. Reducing social safety net costs (e.g., Medicare/Medicaid and Social Security)
  2. Reducing defense/security spending
  3. Raising revenue with increased taxes

The CPC's budget would reduce the deficit nearly three times more than the House GOP budget between 2012 and 2021, and it would do so without saddling most of the burden on low- and middle-income families (which the House GOP budget does). 

Cumulative differences from the CBO baseline*, 2012-2021The CPC's "People's Budget"House GOP budget
Revenue$3.3 trillion more$4.2 trillion less
Non-security discretionary spending$1.7 trillion in new spending/investments$1.8 trillion in cuts
Security spending$2.3 trillion in cuts$0.8 trillion in cuts
Medicare, Medicaid, Social Security, and other mandatory spendingNo cuts$2.9 trillion in cuts
Net interest on debt payments$0.8 trillion less$0.2 trillion less
Deficit reduction$4.7 trillion less$1.6 trillion less

* The CBO baseline assumes that Congress will make no changes to current law over the next decade and that Congress will allow for Bush era tax cuts to expire in 2013.

NPP also provides a generous overview of the components of each budget, as well as each plan's operating mode vis-á-vis the role of government, highlighting three key distinctions:

The fundamental differences between these two budgets revolve around the role of the government in the economy and the workings of the free market. The Ryan plan relies on free market forces to bring prosperity that will eventually “trickle down” to the lower and middle-classes by putting more money in the hands of businesses and wealthy individuals through tax cuts. The CPC proposal assumes there is a need for the government to make up for the failings of the free market system and to provide programs for the less fortunate.

A second distinction lies in the solution to the growing deficit problem. Chairman Ryan believes that the source of the problem is out of control spending and that slashing government programs alone will reduce the deficit. The CPC believes that raising revenues is as important as managing spending when dealing with the deficit because current taxation policies have reduced government income.

A third difference is the role of tax policy. The Ryan plan reduces corporate taxes and personal income taxes for the wealthy in an effort to spur economic growth, while the CPC approach uses taxes as a mechanism to reduce the growing income and wealth gap.

One additional item worth mentioning is that the CPC plan acknowledges the past successes of government investments—thanks to adequate revenue—in creating the circumstances for innovation, job creation and economic growth. Government intervention made possible one of the largest economic expansions in U.S. history after World War II.

On the other hand, the Ryan-GOP budget relies entirely on the impotent and discredited notion of trickle-down economics by calling for more of what we've experienced for the past decade, which has also contributed to historic levels of inequality: tax breaks for the rich and corporations. To this, Paul Krugman scratched his head:

When I listen to current discussions of the federal budget, the message I hear sounds like this: We’re in crisis! We must take drastic action immediately! And we must keep taxes low, if not actually cut them further!

You have to wonder: If things are that serious, shouldn’t we be raising taxes, not cutting them?

It doesn't take a Nobel laureate economist to see the value in such an approach. With the "People's Budget," the CPC has proposed just that – higher taxes, but on the wealthiest among us, who can certainly afford to contribute more to help keep our supposed civil society in working order.

While Congress may seem to work in strange, counterintuitive and angering ways, it's still our job as citizens to barrage them with a mega-dose of reality. The reality here is that we need a budget that serves the people, not just the rich and corporations.