The GOP's Alternative Budget -- It's Like George Washington vs. Che Guevara

Wed, 01 Apr 2009 20:01:01 +0000 – By Peter FerraraDirector of Entitlement and Budget Policy, Institute for Policy Innovation

This morning, Congressman Paul Ryan, ranking Republican on the House Budget Committee, released the GOP alternative budget, which will be voted on, along with Obama's budget, this week. Ryan's budget charts a course of lower taxes, lower spending and lower debt so radically different from Obama's budget plan that it's like George Washington vs. Che Guevara.

For 2010, Ryan's GOP budget spends $2.7 trillion, almost exactly $1 trillion less than Obama's budget. The GOP budget would consequently spend next year only 75% of what the Obama budget spends.

From 2010-2014, Ryan's budget spends almost $5 trillion less than the Obama budget.

Under Obama's budget, the national debt -- as a percent of GDP -- will soar over the next 10 years from 40% of GDP today to a shocking 82.4%! Over the longer run, due to exploding entitlement costs, that debt will soar to 200% of GDP by 2035, and keep growing. Even at the height of World War II, the national debt as a percent of GDP was 113%, the previous high.

Under Ryan's GOP plan, the national debt stays below 65% of GDP over the long run, and then declines eventually to below current levels.

Obama's budget would increase taxes on the top 5% of income earners by a trillion dollars over the next 10 years. Yet the top 1% of income earners already pay 40% of all federal income taxes, and the top 5% already pay 60% of those taxes. Obama's tax increases would include a 20% increase in the effective top marginal income tax rate, a 33% increase in the capital gains tax rate, and another 33% increase in the tax on corporate dividends. Obama will also restore the death tax on lifetime savings with a top rate of 45%.

Ryan's GOP budget, in contrast, includes no tax increases. Instead, Ryan would reform income taxes to provide for a 10% flat rate on taxable income up to $100,000 a year, and a flat 25% rate on income above that. Generous exemptions would eliminate income taxes for a family of four making less than $39,000 per year.

One of the biggest problems hurting the American economy is the corporate federal tax rate, which is the second highest in the industrialized world at 35%. The average corporate tax rate in the EU has been reduced to 24%, with Germany and Canada recently adopting 19% rates. Corporate rates are lower in India and China too. How are American corporations supposed to compete with this huge tax disadvantage?

Ryan's budget addresses this problem by reducing the federal corporate tax rate to 25%. Obama's budget projects that corporate taxes will more than double in 3 years, increasing, in fact, by more than 124%

Obama's budget includes yet another $645 billion tax increase in his anti-global warming cap and trade system, even though atmospheric world temperatures have actually declined over the past 11 years, with the trend recently accelerating. This tax increase will be paid by consumers in increased prices for gas, home heating oil, electricity, food, and every other product whose production uses energy. It will eventually cost families an extra $1,600 annually, much more than Obama's much ballyhooed tax cut for 95% of Americans, which turned out to be a miserable $400 tax credit per worker, or less than $8 a week.

By contrast, instead of this cap-and-trade foolishness, the Ryan plan would allow for more energy production in the U.S. through increased drilling for oil and natural gas offshore and onshore, construction of new nuclear power plants, and other measures. This would reduce prices for gas and energy across the board, providing a low cost, reliable supply of energy for our economy. Between global warming and heavy restrictions on traditional sources of energy, prices for gas and energy will eventually soar under the Obama plan.

The question is, where do the so-called Blue Dog Democrats stand? The Democrats owe their House majority to the election of 40-50 Democrats in conservative districts who promised to vote as solid conservatives in Washington. Are these Democrats going to vote for Obama's Che Guevara budget plan that massively increases federal spending, taxes, deficits and debt all to record levels? Or are they going to vote for the Ryan alternative budget which holds the line on the explosion of big government?

Peter Ferrara is Director of Entitlement and Budget Policy at the Institute for Policy Innovation, among other posts. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under the first President Bush.