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Underexplored Elements of Ryan Budget Roadmap

By Matthew Yglesias on March 11, 2010 at 2:28 pm

"Underexplored Elements of Ryan Budget Roadmap"

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There are actually a few more problems with the “budget roadmap” released by top House GOP budgeteer Paul Ryan that have become clear to me based on some conversations with economists. To recall, the basic problem with the Ryan Ripoff is that it doesn’t balance the budget but does raise taxes on 90 percent of Americans, while slashing critical social services.

That said, the plan would also likely destroy the private health insurance system in the United States by eliminating the tax preference for employer-provided health insurance plans. This tax preference is not very good public policy, but it’s a hidden government intervention that’s critical to making our “private” insurance system work, insofar as it works at all. Without it, absolutely everybody is going to wind up on a totally dysfunctional individual market. For rich people, who’ll be getting a giant tax cut, this is fine since just paying out of pocket will be a small price to pay for Ryan’s massive enrich-the-rich tax policy. For everyone else it’s a problem.

Meanwhile, by completely eliminating corporate income tax and taxation of dividends, he’s opening the door to massive tax evasion. Someone like, say, me could quit my job and then start a company YglesiasCorp. YglesiasCorp would employ me for a very low salary, and CAP would contract with YglesiasCorp for blogging services. YglesiasCorp’s income would be untaxed, and as the sole owner of YglesiasCorp, I would have the company pay me dividends, which would also be untaxed. Ta-da! The Tax Policy Center’s analysis of Ryan’s plan doesn’t attempt to capture how much of this would happen, and Ryan doesn’t seem to have any thoughts on what might prevent it. Realistically, his idea would probably need to be reformulated as an even-more-regressive program that relied exclusively on consumption taxes. And it would be doing this not to raise the necessary amount of revenue to keep delivering needed services, but in the context of massive cuts to important programs.

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