By Jeanne Sahadi and Rich Barbieri@CNNMoneyMarch 12, 2013: 3:52 PM ET
Why Paul Ryan wants to balance the budget
NEW YORK (CNNMoney)
Republican House Budget Chairman Paul Ryan proposed Tuesday to eliminate the annual deficit by 2023, in large part by cutting projected spending growth over the next decade by roughly $5 trillion.
The plan, which contains many of the same provisions he offered last year, hits all the GOP high notes: less spending, lower tax rates and a rejection of most of President Obama's health reforms.
Ryan's proposal represents the start of a months-long process on Capitol Hill aimed at enacting a budget for the 2014 fiscal year, which begins in October.
On Wednesday, Democratic Senate Budget Chairman Patty Murray will put out her own 2014 proposal that is expected to contrast sharply with Ryan's.
But the two sides are likely to view each other's budget proposal as dead on arrival.
While Democrats and Republicans have called a truce in their fight over this year's budget, vowing to work to avoid a government shutdown later this month, they remain sharply divided over broad fiscal policy for 2014 and beyond.
Still, their plans set the boundaries as lawmakers try to negotiate some kind of middle ground.
Here are the main provisions of Ryan's budget proposal.
Ryan's proposal doesn't detail all of the assumptions he makes about certain variables like economic growth or when some of his proposals would go into effect. So it's hard to know exactly how he so quickly and steeply cuts deficits.
But lower spending and a revenue windfall from the fiscal cliff deal brokered over New Year's are key drivers.
His plan would leave the country's accrued debt at just under 55% of gross domestic product by the end of the decade, according to Ryan's estimates. That's well below the 77% projected by the Congressional Budget Office under current law.
It should be noted that CBO won't analyze Ryan's -- or Murray's -- budget resolution since each simply proposes targets for taxes and spending and does not detail legislative changes for hitting those targets.
Broad reductions: Ryan estimates that his proposals will grow spending at an average rate of 3.4% a year, rather than the 5% projected.
In 2014, his plan calls for $3.53 trillion in spending -- a little less than the $3.62 trillion projected by the CBO
By 2023, however, spending under the Ryan plan would fall about $985 billion below the level the CBO has projected for that year.
His budget calls for discretionary spending levels that are lower than what CBO assumes. That's partly because Ryan does not include emergency spending on disasters like Hurricane Sandy. He would also reduce transportation spending, noted Marc Goldwein, the senior policy director for the Committee for a Responsible Federal Budget.
And he would extend the lower caps on discretionary spending set by the 2011 Budget Control Act for two more years through 2023.It's not clear how much extra savings he derives from doing that, since the CBO assumes that spending levels after 2021 only grow by inflation thereafter, in essence preserving sequester-level spending, according to Goldwein.
The allocation of those cuts would likely be a source of contention with Democrats and concern among budget experts.
The budget relies on "unreasonably deep cuts" to non-defense discretionary spending to fund more defense spending than called for under current law, William Hoagland, senior vice president at the Bipartisan Policy Center, wrote in a statement.
Reform Medicare, preserve cuts: As Ryan did last year, he is proposing the creation of a Medicare premium support system starting in 2024. That means those 55 and older would not be affected.
Future seniors could choose between traditional fee-for-service Medicare and the premium support system, which would offer them a fixed amount of money to buy private health insurance.
The premium support payment, which would be established through competitive bidding, would grow at a rate equal to economic growth plus 0.5 percentage points.
Such a system would limit federal spending on Medicare, whereas today there is no cap on what the government pays.
Ryan also wants to repeal major elements of Obama's health reform law, a move that would cut spending by an estimated $1.8 trillion. That's largely because he would repeal the new subsidies for Americans who buy their insurance on exchanges and he would repeal the expansion of Medicaid.
But Ryan wouldn't repeal all parts of the law. He has said that he would preserve the law's spending cuts to Medicare, saving more than $700 billion. But instead of using those savings to fund insurance subsidies he would apply them to deficit reduction.
Medicaid block grants: Ryan again proposes converting federal Medicaid funding for states into block grants and repealing the health reform law's expansion of the program to low-income, nonelderly adults.
Currently, spending on Medicaid is variable because of fluctuations in enrollment.
Block grants could increase the burden on states, but also give them more autonomy about how to set up their Medicaid programs. For example, a state could reduce how many people are eligible or increase enrollees' cost-sharing obligations.
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Food stamp block grants: Ryan would also convert funding for food stamps to block grants to states and change the terms of eligibility by imposing time limits on participation and work requirements.
Currently, federal spending on food stamps varies because enrollment fluctuates.
Require federal workers to contribute more to savings:Federal civilian employees under Ryan's plan would have to contribute more money toward their retirement pension plans.
Matches the CBO on revenue: Ryan's budget would raise the same amount of revenue as projected by the CBO. Over 10 years, revenue would total $40.241 trillion.
Republicans have lambasted health reform for the taxes it raises to pay for insurance subsidies, and Ryan's budget would repeal those taxes. But it still counts on the money they raise to reduce deficits. A Ryan spokesman said "fundamental tax reform" would replace that revenue.
Overall, annual revenue would average 18.8% of GDP, slightly more than the 18.3% average over 40 years. In some years, revenue would go as high as 19.1%.
Reform the tax code: The Ryan budget calls on Congress to complete major tax reform by 2014.
Fellow Republican Dave Camp, chairman of the House Ways and Means Committee, in a letter last week itemized GOP priorities: simplify the tax code; reduce the number of individual income tax rates to two (10% and 25%); repeal the Alternative Minimum Tax; lower the top corporate tax rate to 25%; and change the rules for international taxation.
And, Camp added, "the committee will continue to oppose any and all efforts to increase tax revenues by any means other than economic growth."