Paul Ryan, deficit hawk or dove?

By G.I. | WASHINGTON, DC

FOR politicians, power is usually its own reward. But doing the right thing sometimes comes at the expense of power, which means they need other incentives, too. This seems to be the thinking behind the "FI$CY", awarded to policymakers who lead "on confronting our fiscal challenges."

The Committee for a Responsible Federal Budget, the Comeback America Initiative and the Concord Coalition handed out the awards Wednesday night. Two of the three recipients make sense: Mitch Daniels, Indiana's Republican governor, has balanced his state's budget with tough but judicious spending cuts and tax increases. Kent Conrad, the long-serving Democratic chairman of the Senate Budget Committee, was a driving force behind what eventually became the Bowles-Simpson deficit commission.

The third choice, Paul Ryan, is more of a puzzle. Mr Ryan has been a leading intellectual on economic matters in the Republican House caucus for some time. His "Roadmap for America's Future", was a serious proposal to balance the long-term budget by effective (though politically unpalatable) means, such as replacing traditional Medicare fee-for-service with vouchers.

It's a good thing for Mr Ryan the Fiscy relates only to the fiscal year that ended on September 30th, because ever since then he's been acting less like a deficit hawk. Like Mr Conrad, Mr Ryan was a member of the Bowles-Simpson commission. Unlike Mr Conrad, he voted against its plan to stabilise the debt despite calling it "serious and credible". He opposed it because it left Mr Obama's health-care reform intact, and because it relied too much on tax increases, even though these were smaller than the plan's spending cuts. The opposition by Mr Ryan and his two fellow House Republicans more or less guaranteed the plan would die.

A few days later Mr Ryan congratulated Mr Obama for acting "responsibly" in capitulating to Republicans and agreeing to an $800 billion-plus package that extends all of George Bush's tax cuts and implements new temporary stimulus composed overwhelmingly of tax cuts. Whatever its merits as stimulus, its complete absence of any linkage to long-term deficit reduction is antithetical to the principals behind the Fiscy.

Mr Ryan is now chairman of the House Budget Committee. He has joined his colleagues in calling for the repeal of Mr Obama's health-care law on the grounds Democrats have grossly understated how much it will cost. I agree proponents have oversold the law's deficit-reducing properties. But the GOP goes much further, arguing the Congressional Budget Office's scoring of its cost is misleading. Ezra Klein does a good job of analysing the shortcomings of this claim; I'll focus on one: Mr Ryan criticises the act for assuming Medicare's "sustainable growth rate" (SGR) mechanism will be allowed to cut physician payment rates, when in fact Congress regularly overrides the SGR. Mr Ryan says this assumption artificially reduces the law's deficit impact by $208 billion. True enough; but Mr Ryan himself voted along with almost the entire House last December to override SGR. In doing so he implicitly sided with the advocates of health-care reform who said SGR is deeply flawed and needs its own fix. Nor can the fiscal watchdogs who gave Mr Ryan the Fiscy be pleased to see him and his House colleagues begin their tenure by undermining the CBO.

But the most important reason to question Mr Ryan's deficit-hawk credentials was his support for certain changes to the budget process to constrain spending. Specifically, “Paygo”, the current rule that requires any cut in taxes or increase in spending be offset by equivalent tax increases or spending cuts elsewhere in the budget, will be replaced with "Cutgo", which imposes that requirement only on spending. The new rules could actually weaken rather than strengthen, deficit reduction; so says none other than the Committee for a Responsible Federal Budget:

[T]he additional focus on both short and long-term spending is a plus, but in many cases these rules focus on spending reductions at the expense of deficit reduction… Replacing the two sided PAYGO rule with a one-sided CUTGO rule will not only make it harder to offset legislation, but also exempt potentially budget-busting tax cuts from any discipline. The one-sided focus on spending also could result in the further proliferation of tax expenditures. As the Bowles-Simpson commission has highlighted, tax expenditures are simply spending by another name and should not be exempt from scrutiny.

If CRFB had known this was coming, one wonders if it would have backed Mr Ryan for a Fiscy.

What should be made of Mr Ryan's rhetoric? The charitable interpretation is that he is pursuing a more patient strategy of adhering to the party line until Democrats cave on entitlements, and then he will put tax increases on the table. The less charitable interpretation is that as his prominence in the party has risen, he has morphed from a principled fiscal hawk to an old-school "starve the beast" Republican for whom lower taxes always trump deficit reduction. Deficit hawks earn their feathers by championing balanced budgets even when it crosses its own party's priorities; by that standard, Mr Ryan has work to do.

(Photo credit: AFP)