Yesterday, the President announced his budget for fiscal year 2013, a plan that, if implemented, would raise taxes and burden younger Americans with a legacy of chronic budget deficits. The budget the President is proposing is a house of cards on a foundation of volatile debt that is quite obviously not “built to last.”
During his announcement speech in Annandale, Virginia, the President focused on education, but also touted the deficit reduction included in the budget plan saying, “We’ll be able to reduce our deficit by $4 trillion by 2022.” A closer look shows this level of deficit reduction relies heavily on tax increases on upper-income taxpayers, more than $1.4 trillion and a number of questionable assertions. Let’s start with the tax provisions.
In his budget description and rhetoric of late, the President has harshly attacked upper-income taxpayers for using their wealth to gain special treatment in the tax code, for avoiding paying “their fair share,” and for creating an inefficient, duplicative, and unnecessary tax code. The President admonishes them and asks them to pay more. Yet the federal tax system as is, is progressive. Gordon Gray of the American Action Forum aptly points out that the average effective tax rate on people making over $1 million is about 25 percent, while for those making between $50,000 and $200,000 – it’s about 9 percent.
The tax code is a behemoth that has been tacked onto over the years by politicians with varying agendas and motives. It is complex. A massive overhaul is needed, not one that simply attacks those most economically well off. Such one-sidedness distracts the country from the reality of a code that is fundamentally broken, and certainly does nothing to set an example of bipartisan leadership. Letting the 2001-2003 tax cuts on upper-income taxpayers expire is not a fix; it is a cop-out. While the President has very broadly endorsed simplifying the code and limiting tax expenditures, he falls short on specifics and has not embraced the kind of holistic reform approach necessary. We don’t need to replace the AMT with the “Buffet Rule” and extend tax cuts for some but not for others; we need to reform the code so that is truly works for everyone.
President Obama has told Congress to pass the payroll tax cut extension “ without drama,” but his budget contains quite a bit of dramatic partisanship and hyperbole. This budget is about setting election-year priorities. It is a follow-up to his State of the Union, not a commitment to the fiscal sustainability of our country. Apart from real tax reform, this is obvious in the remainder of the deficit reduction calculation. Of the purported $5.3 trillion in deficit reduction over the next 10 years, roughly two-thirds is the product of legislation passed before the release of the budget, debt service and war savings. The other third is made up almost entirely of tax increases. Yet the President can hardly claim credit for savings implicit in legislation already passed or from a decline in war spending, which is simply money previously allocated that was not and should not be borrowed and spent.
This budget represents an abdication of responsibility from making the hard choices that will inevitably be required of us. The course of entitlement spending is factually not sustainable. Not to propose meaningful entitlement or tax reform is a letdown. It is a letdown to a generation of young Americans that came out in force in 2008 believing this President was not messing around when he said, “The stakes are too high and the challenges too great to play the same old Washington games.” If young Americans are not yet angry, they should be.
Though the law requires putting the budget together, the actual plan has no legal standing. In light of this, it seems that the President has decided to make this a wish list of his policy proposals; we’ve seen many of them before. This budget is not meant to lead Congress on the areas of the budget that need real change: taxes and entitlements. We will know with greater certainty how the numbers add up once the CBO has reported on the budget, but the assumptions already appear dubious to anyone that takes more than a first glance at the numbers. What seems certain now, this budget is not the brainchild of the Simpson-Bowles Commission or some other debt reduction panel. It is an election-year agenda that does not deliver on the promise of deficit reduction.
Excellent article, thanks!