Paul Ryan Budget Plan

March 21, 2012 by staff 

Paul Ryan Budget Plan, This morning, House budget committee chairman Paul Ryan (R.-WI) unveiled his budget proposal, which took aim at the culture of debt financing that mostanlysts agree is in the process of crippling the American economy.

Utilizing a mixture of spending cuts and supply side tax cuts to promote growth, it stands little chance of passing through the Senate, which has not passed a budget since April 2009. If it were to do so, it would almost certainly be vetoed by the President.

The President’s own proposed budget aims to spur the economy by increasing both federal spending and taxes on wealth-creators. It won’t even reach the floor of the House, as the Constitution reserves the privilege of beginning the appropriations process to the House of Representatives, which is currently controlled by Paul Ryan’s party.

That the two budgets take completely different paths to restoring the economy is indicative of the depth of the political divide in the US. Yet one represents a bold, forward-thinking, hard-headed approach, while the other is stuck in the past and represents a failure to understand the dynamic nature of the US economy.

For instance, the President’s plan assumes that taking money away from wealth-creators by increasing the tax rate on wealthy Americans and redistributing it in the form of increased federal spending on infrastructure and schools will actually stimulate the economy.

However, as economist Art Laffer famously explained with his “Laffer curve,” higher tax rates don’t automatically equal higher tax revenues. His assumption was a fairly obvious one—that is, at a 100 percent tax rate, people will have no incentive to work, and will change behavior to avoid paying any tax, much like the behavior witnessed in the failed communist economies in Russia and China (a current example is Greece). At some point then, increasing taxes actually lowers tax revenue to the government.

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