Obama Budget – Would No Budget Have Been Better?

Obama Budget – Would No Budget Have Been Better?

On Wednesday President Obama introduced his proposed budget for the 2014 fiscal year. However the administration has already received heat from Congressional leaders on the left and right for the substance of the document. In all economic analysts have highlighted that the President’s budget has 8 key themes.

Boost infrastructure spending: The president’s budget calls for a $50 billion investment to, among other things, repair highways, bridges, transit systems and airports. He would also create a National Infrastructure Bank to bring together public and private capital for important projects.

Change how inflation is measured: Obama is supporting a switch to “chained CPI,” which is a new way to measure inflation that would reduce projected federal spending by slowing the growth in federal benefits that are annually adjusted for cost of living. Those include Social Security benefits. According to a CNN Money article Chained CPI would also raise more revenue, since many parts of the tax code are adjusted for inflation every year — including income tax brackets, the standard deduction and contribution limits to 401(k)s. The Tax Policy Center estimates by 2020, the use of chained CPI could mean an average tax increase of $311 among the nearly 81% of households that would see a tax increase.

Cap value of itemized deductions: As he has proposed before, the president wants to limit the value of itemized deductions and exclusions for high-income households.

Enact a Buffett Rule: Last year, Obama proposed the “Buffett Rule”. The idea: to make sure that people earning more than $1 million paid their “fair share” of federal tax — which he defined as a minimum of 30%.

Impose new limit on tax-deferred retirement accounts: Among his new tax measures, Obama would set a limit on the tax-advantaged portion of an individual’s savings across IRAs and other tax-preferred retirement accounts.

Raise tax on cigarettes and other tobacco products: Politico reported that the biggest new revenue in Obama’s proposal is nearly doubling the federal tax on a pack of cigarettes, from $1.01 per pack to $1.95. That funding is meant to subsidize Obama’s universal preschool program, a major new program he proposed in the State of the Union.

Raise tax rate on investment fund manager income: Managers of private equity, venture capital and hedge funds are taxed 20% on the portion of their compensation known as carried interest. The result of the Obama budget would be fund managers could pay a rate as high as 39.6%, or more than 2.5 times the rate they pay now.

Reduce deficits by $1.8 trillion: This is another of the president’s greatest hits. The exact same proposal made to House Speaker John Boehner last year during their fiscal cliff negotiations.

In all the President has clearly stated that this is the end all be all for him. Framing the budget as pitting the rich against the middle class, and smokers and the tobacco companies against preschool students, he asked Republicans to decide which side they’re on. In a rose garden statement the President said “When it comes to deficit reduction, I’ve already met Republicans more than halfway so in the coming days and weeks I hope that Republicans will come forward and demonstrate that they are really as serious about deficits and debt as they claim,” Obama said. “And I don’t believe that all these ideas are optimal, but I’m willing to accept them as part of a compromise — if, and only if, they contain protections for the most vulnerable Americans.”

His Republican counterparts in the House and Senate, Speaker John Boehner (R-Ohio) and Senate Minority Leader Mitch McConnell (R-KY) were less then enthusiastic about the president’s plan. Boehner offering this comment to capitol hill reporters. “I would hope that he would not hold hostage these modest reforms for his demand for bigger tax hikes. Listen, why don’t we do what we can agree to do? Why don’t we find the common ground that we do have and move on that?” “The president got his tax hikes in January; we don’t need to be raising taxes on the American people.”

No comments yet.

Leave a Reply