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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25 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
2

3 days ago

Khazanah throws MAS RM6b lifeline

Aug 29 2014 5:01pm CDT | Source: Business Times Singapore

August 30, 2014 1:15 AMKHAZANAH Nasional will inject RM6 billion (SS$2.4 billion) over three years to resuscitate loss-making Malaysia Airlines (MAS) under a recovery plan that includes even an Act of Parliament. Other key moves are migrating its operations, assets and liabilities to a new company (NewCo) and slashing the workforce of 20,000 b ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 
Update
1

4 days ago

MAS posts loss of RM307m for Q2

Aug 28 2014 5:00pm CDT | Source: Business Times Singapore

August 29, 2014 1:13 AMMALAYSIA Airlines (MAS) registered a loss of RM307 million (S$122 million) for the second quarter to end-June, but warned of worse to come in the second half when the "full financial impact of the double tragedies of MH370 and MH17" hits hom ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 

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