TPA’s Analysis Of The President’s Budget

David Williams

April 10, 2013

President Obama released his long awaited budget today (access all budget documents here).  Two months overdue and dead on arrival to a dysfunctional and divided Congress, the fiscal year (FY) 2014 budget is nothing more than a wish list of things that will never happen.  It is important to look through the budget and see where the President’s priorities are.  The budget proposes to spend $3.78 trillion in FY 2014.  That is $10.3 billion per day, $431 million per hour and $7.2 million per minute.  There are two fundamental problems with the budget, there is too much revenue asked for and not enough spending cuts.  Even though the budget calls for $24 billion in specific spending cuts, Defense spending alone will be $52 billion above the budget cap for next year saving some programs that should be eliminated such as the F-35 Joint Strike Fighter.  The President’s budget also wants to raise more revenue via tax increases on the wealthy and a new program to offer preschool to all 4-year-olds from low-and moderate-income families through higher tobacco taxes.

A staple of Presidential budgets is a specific list of spending cuts as detailed in the Cuts, Consolidations, and Savings portion of the budget documents.  Last year, President Obama’s budget offered spending cuts totaling $24 billion.  This year that number is, again, $24 billion (see a full list here).  To put this in some perspective, Sen. Tom Coburn (R-Okla.) just released a report, “Duplication Nation: New Report Finds $95 Billion in Waste and Duplication.”  This comes on the heels of his “Department of Everything,” report that details $68 billion in waste at the Pentagon and his Wastebook 2012 which details billions of dollars in wasteful spending including a $325,000 grant awarded to San Diego State University (SDSU) and the University of California, Davis to develop a “RoboSquirrel.”

The budget also calls for more revenue.  According to Townhall.com, “President Obama wants to use two different measures to increase taxes paid by upper income-earners. The first would be to instate the ‘Buffett Rule,’ which would force taxpayers in upper brackets to pay a mandatory minimum percentage of their income, no matter what deductions they might have. The second would be to cap total deductions at 28 percent of income. Both these would be ways of raising the effective federal tax rate paid by high income-earners.”

Another tax increase would be through the Chained CPI.  It is a wonky Washington term that really means increasing taxes for over 70 percent of Americans.  People would pay higher taxes because they would be pushed into a higher tax bracket and get a smaller deduction for themselves and their dependents.  Moving to a chained CPI would undermine a change made by President Reagan in 1981, when he signed the Economic Recovery Tax Act.  That law provided annual inflation adjustments to income tax brackets to reduce “bracket creep”—the “automatic” tax increases from inflation that push taxpayers into higher marginal brackets over time.   Bracket creep makes taxpayers pay more taxes even when their real wages stay stagnant.

Obama also wants to fund a new program to offer preschool to all 4-year-olds from low- and moderate-income families through higher tobacco taxes.  As the National Taxpayers Union stated, “Calling for a new tax on cigarettes is an extremely blatant cash-grab on the part of the Obama Administration. Raising taxes on a relatively unpopular minority of the general public is a sure sign that an administration is out of ideas and hopes that few will speak-up to oppose the tax hikes. Even if you aren’t a smoker, it’s important to remember that tobacco taxes are a bad policy with widespread consequences.  Cigarette tax hikes are regressive, burdening poor households disproportionately. It’s also inherently unfair to fund a program purportedly for the use of all with a punitive tax on a small group of people. Besides, if the Administration wants people to boost the economy by spending more, it should leave some money in our pockets!”

There is also a lesson to be learned from the states when looking for revenue through tobacco taxes.  The Minnesota State News pointed out that “Since 2003 there have been 57 cigarette tax increases across the nation and 68% of them have failed to meet projected revenues. In 2006, New Jersey raised cigarette taxes with the hope of pulling in $30 million in extra revenue each year.  Not only did the tax hike fail to bring in extra revenue, but the state actually collected $20 million less in cigarette sales.”

Thankfully, fiscally conservative members of Congress will reject this budget because this document does very little to address the massive spending addiction by the federal government.

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