Why Paul Ryan's Budget Is A Fantasy

Rep. Paul Ryan, the chair of the House Budget Committee, released the fiscal-year 2015 House Budget proposal on Tuesday, a largely political document that will help shape the partisan debate ahead of the 2014 midterm elections.

As with some of his past budget proposals, Ryan will have trouble explaining the details and the means that get to the end - a balanced budget. This year, the consensus on the most implausible parts of his plan comes on two fronts.

The first are the levels at which non-defense discretionary spending is set in the budget. Discretionary spending is comprised of spending on programs that have to be reauthorized by Congress every year, not including entitlement programs like Social Security, Medicare, and Medicaid.

The second is an accounting trick that is likely to be controversial, and that some call a gimmick.

The last year of the budget window, 2024, gives a good example of what Ryan does to balance the budget:

• He ups non-defense discretionary cuts by $50 billion in 2024.
• He assumes lower war spending by about $25 billion that same year.
• He still needs a trick to get the budget to complete balance. Ryan uses a "dynamic" scoring method that helps balance his budget - one that could generate controversy. The "macroeconomic feedback effect" assumes the macroeconomic effects of cutting deficits will lead to about $74 billion in savings in 2024.

The non-defense discretionary spending levels, especially in the last year, seem to be the most implausible part of the budget. In 2024, per the budget, the non-defense discretionary spending levels would be $467 billion - a 22 percent cut from post-sequester levels. In raw dollars, that's lower than it was in 2005. It's also much lower than the 2013 level of $576 billion.

Loren Adler, a research director at the at Committee for a Responsible Federal Budget, told Business Insider it would "certainly be one of the toughest pieces to feasibly achieve."

In inflation-adjusted terms, it amounts to about a 29 percent cut from current levels. According to a Senate Democratic aide, it's also 28 percent below the average amount of the non-defense discretionary spending levels during the Bush administration.

By 2024, the Ryan budget adds $483 billion to defense spending beyond sequester-set spending caps. But to get overall savings, the budget cuts $791 billion from non-defense discretionary spending.

"NDD levels by end of budget window totally implausible - damage to safety net as well," Jared Bernstein, a former Obama administration economist and now a senior fellow at the left-leaning Center on Budget and Policy Priorities, said in an email.

Ryan also uses the accounting trick to achieve balance. It's a method he hasn't employed in past budgets, and one that usually isn't used by the Congressional Budget Office when scoring legislation. Ryan says the "macroeconomic feedback effect" of the deficit-cutting provisions in his budget will amount to $175 billion in savings over the 10-year budget window. And about $74 billion of that will come in the last year - coincidentally providing the U.S. with a $5 billion surplus.

Here's Ryan's reasoning for doing so:

The Congressional Budget Office has estimated several times over nearly 20 years that congressional
action to reduce deficits will ultimately result in lower interest rates and faster economic growth by
freeing up savings for use in productive investment. In addition, CBO has estimated that the positive
economic effects of deficit reduction will feed back into the budget and further reduce deficits and debt
over the medium and longer term.

Ryan notes the CBO used such dynamic scoring, for example, in 1998, when analyzing the 1998 bipartisan budget resolution that planned to balance the budget. But in general, the CBO says it does not usually analyze the macroeconomic effects due to several reasons (emphasis added):

Doing macroeconomic analysis of all proposed legislation would not be feasible; nearly all legislation analyzed by CBO would have negligible macroeconomic effects anyway (and thus negligible feedback to the federal budget); and estimates of macroeconomic effects are highly uncertain.

In his budget last year, Ryan included guidance about the macroeconomic effects to argue how his budget would be even better for deficits than the numbers showed. However, he did not employ the scoring method to achieve a balanced budget.