Budget Blunders

For about the last four years, the US government hasn’t passed a budget. Yet budget debates have become standard practice in the US. 2011’s debt ceiling debate, the supercommittee, the fiscal cliff and the sequestration all effectively stemmed from budget debates. Still, no budget. Recently, the Democratic-controlled Senate passed one version containing some spending cuts and a roughly equal share of tax hikes. The Republicans also have theirs, full of spending cuts and entitlement reform—with no new taxes. Neither of these seem likely to stand much chance of passing the other chamber. Enter, a third option—billed as more “middle-of-the-road.”

On Wednesday, the White House released President Obama’s 2014 Budget. Calling it a “fiscally responsible blueprint,” the proposed plan, if passed by Congress, would take effect at the expiration of the most recent continuing resolution in September 2013—the beginning of the next fiscal year.

Some of the proposed changes in the $1.3 trillion budget include:

• Eliminating certain (so-called) “tax loopholes” for middle class families
• Entitlement reform to cost-of-living adjusted Social Security
• Tax cuts for small businesses to incentivize hiring and growth
• $100 million to map the human brain (ahem)
• $50 billion in infrastructure investment
• Investment in renewable energy and clean air subsidies
• Decreasing oil, gas and coal subsidies
• A “Financial Crisis Responsibility Fee” seeking to raise $59 billion by taxing banks and financial firms

Something for everyone to love and hate! Most notable of these quibbles will likely be the tax increases for higher income earners in search of higher government revenue and reforms to Social Security seeking to decrease entitlement expenditures. To clarify, entitlement reform wouldn’t mean direct cuts, but rather changing the method for calculating the growth rate of benefits to chained CPI—essentially lowering the measure of CPI. Given the power of compound growth, Social Security’s funding issues (which are long-term in nature) can be greatly altered with small-seeming changes. More interesting, though, is the fact this change has often been a Republican idea—one criticized by many then. Politics. C’est la vie. Democrats are lambasting it already—most don’t want any cuts to Social Security, no matter who suggests it.

Tax reform would seek to limit high earners’ use of deductions, establishing a tax floor of 28% of income. Deductions pushing their income below that mark would be disallowed. The so-called Buffett Rule would target taxpayers in higher tax brackets to close loopholes and would subject incomes over $1 million to a new 30% tax floor. That’s been a big Democratic platform point, so it likely thrills some and riles just as many.

Another proposal, the bank tax, is designed to ensure the “American people are fully compensated for the extraordinary assistance they provided to Wall Street,” per Obama. It targets firms above $50 billion in assets and those “most highly levered” to act as a theoretical deterrent to banks boosting leverage greatly. This is likely politically popular in some circles, but it ignores some facts: Like the fact taxing capital from levered banks may make them more leveraged. Or the fact TARP, which is specifically referred to in the proposal, has already turned a profit on the bank bailout (a subset of TARP called the Capital Purchase Program). The overall outstanding funds are nearly entirely due to the homeowner bailout and automaker assistance. These bailout recipients’ funds apparently came sans responsibility.

For now, the proposal still has to survive committee hearings before even making it to a floor vote. In this case, bipartisan seems to mean both parties hate the proposal. Maybe that changes, maybe not. Maybe this is just the start and we do get a budget, at long last. But we’ve gone four years on continuing resolutions. What’s one more?