The $5 trillion hole in Paul Ryan’s budget

In Washington, it’s called the “magic asterisk,” the fudge factor that policymakers use to make recalcitrant numbers come out as desired.

Such devices often surface during budget discussions, when a convenient bit of legerdemain, usually accompanied by a promise to fill in the details later, often can get a lawmaker past a politically difficult choice.

Rep. Paul D. Ryan’s budget plan includes a massive example. In his case, the asterisk covers the heart of his budget.

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The chart further below illustrates the problem. The top line shows spending – outlays in budget jargon – for the next 10 years under Ryan’s plan. The bottom line shows the amount of revenue that the government would bring in after Ryan’s proposed tax cuts, as calculated by the analysts at the nonpartisan Tax Policy Center. The large gap between the two represents a budget deficit that would be considerably larger than the one President Obama provided for in his budget.

The line in the middle is where the asterisk comes in.

That center line shows the revenues Ryan would like to have. In this scenario, the new tax cuts get fully offset by new revenue. The problem is that Ryan hasn’t said how he would do that, other than that he wants to eliminate unspecified tax breaks.

How much new revenue would be needed? Over the next 10 years, the total comes to around $5 trillion.

Enough tax breaks exist to make that possible in theory – tax preferences total some $1.3 trillion a year, according to a Tax Policy Center analysis. But most of the big ones – the mortgage interest deduction, the deduction for charitable contributions, the exclusion from income of the value of employer-provided health insurance, to cite several – are big precisely because lots of people use them. Taking them away – or even scaling them back – would be very difficult politically.

Ryan has suggested he would target upper-income tax breaks. One of the biggest tax preferences used by upper-income taxpayers, however, is one that Ryan and GOP presidential hopeful Mitt Romney have specifically said they do not want to change – the lower rate for taxes on capital gains. Until recently, Ryan was proposing to go in the other direction and eliminate capital gains taxes entirely.

Notice that even if the $5 trillion hole can be plugged, the Ryan budget would still have a deficit – the top line and center line don’t meet during this decade. The Congressional Budget Office estimates that Ryan’s budget wouldn’t reach balance for another 28 years. But if no steps are taken to offset the new tax cuts, the deficit would balloon.

David.lauter@latimes.com

Twitter: @davidlauter