360° Coverage : On Taxes, President Obama's Latest Budget Is a Mess

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On Taxes, President Obama's Latest Budget Is a Mess
Photo Credit: Forbes Business

On Taxes, President Obama's Latest Budget Is a Mess

Mar 4 2014, 3:31pm CST | by

President Obama released his administration’s FY 2015 budget resolution today. I wanted to write a piece examining the tax side of the equation, but I’ve come to the conclusion that this is...

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21 weeks ago

On Taxes, President Obama's Latest Budget Is a Mess

Mar 4 2014, 3:31pm CST | by

President Obama released his administration’s FY 2015 budget resolution today.

I wanted to write a piece examining the tax side of the equation, but I’ve come to the conclusion that this is impossible to do in anything like a coherent way.  I can only speculate that this scatter-shot treatment of tax policy in the budget (which has gotten worse and worse every year, dating back to the George W. Bush administration) is on purpose.  The writers of this budget have made it intentionally difficult to do anything like a rigorous analysis.  Nonetheless, here’s the best I’ve got for you.

Baselines Which Make Your Head Explode

Let’s start with the topline numbers.  The budget proposes total tax revenues over the next decade of $43.8 trillion (see Table S-1).  That is higher than CBO’s baseline assumption of $40.6 trillion (see Table 1.2 of CBO’s February 2013 Budget and Economic Outlook).  It’s also higher than the Obama budget’s “adjusted baseline” of $42 trillion.  So right off the bat, you have a mystery: are tax revenues $3.2 trillion higher than CBO’s baseline, or $1.8 trillion higher than the administration’s fabricated baseline?

You might be asking yourself, “I thought a baseline was supposed to be a neutral starting point reflecting current law.  How is it adjusted?”  The administration seeks here to adjust the baseline for what it considers to be likely Congressional action.  Strangely, this likely Congressional action does not include extending the four dozen business and personal tax breaks which expired at the end of 2013, and which expire every year before Congress inevitably extends them.  It does, however, include permanently extending some refundable tax credit extenders which expire in a few years.  That’s totally arbitrary and does not, in fact, reflect likely reality.  The most likely scenario is that Congress extends both the “normal” extenders and the new “refundable” extenders.

The CBO baseline doesn’t make these policy changes to current law either, so the difference between the two baselines largely comes from a rosier economic scenario on the part of the White House.  Better economic growth results in higher baseline tax revenues than CBO assumes in their budget ($42 trillion vs. $40.6 trillion).

Living just within the administration’s budgetary construct, it’s clear that the budget is proposing $1.8 trillion in higher taxes over the upcoming decade (from $42 trillion to $43.8 trillion in revenues from adjusted baseline to budget proposal).


Hiding the Ball on Tax Proposals/>

In a repeat from prior budgets, the latest Obama budget hides tax policies all throughout the summary tables.

Table S-9 has the “mandatory and receipt proposals.”  Right away, you can see that this budget commingles changes to entitlement spending with changes to tax policy.  This has been a staple of Obama budgets since the very beginning.

Further separating the wheat from the chaff is the challenge that, even within the tax proposals, it’s not clear what portion of each proposal is actual tax reduction, and which portion is spending on non-taxpayers (“refundable outlay effects”).  To do that, you have to match up the line item with a footnote line item, and it’s not always clear that you’re comparing apples and apples.

Finally, there are “fees” and “payments” described in here which may be taxes, may be legitimate user fees, or may be something entirely different.  It’s simply not clear.  My personal favorite is the “duck stamp fee,” whatever that is.

The tax proposals are scattered in sub-categories and gradations of those sub-categories.  There’s a tobacco tax hike hidden (strangely) in the “Early Childhood Investments” section.  A 401(k) cap is stuffed into an Orwellian section entitled “Opportunity, Growth, and Security Initiative.”  A surface transportation section has a “magic asterisk” pay-for of $150 billion in unspecified business tax hikes.  An expansion in the Earned Income Tax Credit (which is mostly refundable spending) has the bizarre offsets of taxing carried interest capital gains as ordinary income, and closing the “John Edwards loophole” by exposing all S-corporation profits to self-employment tax.  The whole thing could have been more rationally constructed by my three year old daughter.

Plowing your way through, you get to “Other Tax Proposals” (other than what, exactly, is unclear).  Here you will find: a cap on itemized deductions for those with tax brackets higher than 28 percent; a “Buffett Rule” minimum tax to pair with the existing AMT; a hike in the death tax rate to 45 percent from today’s 40 percent (and a cut in death tax standard deduction from as high as $10.6 million to $3.5 million), a “just because” financial industry tax, and dozens more.

But Wait–There’s More

In case you thought the fun was over, there’s even more.  After the dozens and dozens of new tax increases that the budget is really proposing, it has an addendum of tax increases it might have proposed, but did not.  Here you will find dozens more tax increases, deemed not worthy of consideration in actual budget tables.  These tax increases total an additional $248 billion over the 10-year budget window, separate and apart from the $1.8 trillion of net tax increases the “real” budget contains.

These tax increases are more of the classic hits we’ve come to expect from dead-on-arrival Obama budgets.  The main targets are energy companies, multinational corporations, and (of course) Wall Street financial firms./>/>

A Better Way

Mercifully, that’s the long and short of the Obama budget on taxes.  It clearly is not a serious document on the revenue side.  It has the feeling of being a grab bag of ideas, without any central logic or coherence.  Heck, the budget can’t even be bothered to put all the tax proposals in one place, or deem them all “live,” or make it perfectly clear what the outlay effects are for each discreet proposal.

Here’s an idea for the future: why not write a budget that can actually be read?  One which starts from current law, and makes policy recommendations in a clear and transparent way from there?  What a novel concept.

Source: Forbes Business

 
Update
10

7 weeks ago

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Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the Dewan Rakyat was told to ...
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Update
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7 weeks ago

Gold shop lost almost RM1mil

Jun 9 2014 3:50am CDT | Source: Business Times Malaysia

KANGAR: A gold shop owner lost almost RM1 million after after the safe on in his shop was broken into by robb ...
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Update
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7 weeks ago

Motion to debate MAS losses in Dewan Rakyat rejected

Jun 9 2014 3:39am CDT | Source: Business Times Malaysia

KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was rejected by the Dew ...
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Update
7

7 weeks ago

MH370 Tragedy: Hisham: RM27.6 mil spent on 1st phase of SAR

Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Minister, Dat ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

7 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Selatan’ in the southern state ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

8 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over RM2.78 m ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
4

8 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Industry Minist ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
3

8 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year involving an allo ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
2

8 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramadan Bazaar Sche ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
1

8 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billion Kinrara Damansara ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

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