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Obama’s Unfinished Budget Portrait Still Leaves Taxpayers Wondering, Worrying, Research Group’s Analysis Shows
For Immediate Release March 5, 2014
Pete Sepp, (703) 683-5700
(Alexandria, VA) – Incomplete, inconclusive, and indecipherable – those three adjectives describe many parts of President Obama’s Fiscal Year 2015 budget proposal and the credibility of the picture it paints for the nation’s finances, according to an analysis from the National Taxpayers Union Foundation (NTUF). Because the White House failed to provide some of the customary details surrounding its budget proposals, many of the so-called “topline” numbers the Administration released are difficult to reconcile or verify. Nonetheless, given the available data on elements of the plan – many of which were rehashed from past budgets – NTUF calculates that Obama’s 10-year “deficit reduction” blueprint would, on average, raise five dollars in revenue for every dollar it cuts in expenditures from the baseline.
“The President’s latest budget, once again behind schedule and this time missing key analytical documents, puts some familiar brushstrokes on the fiscal policy canvas,” said NTUF Director of Research Demian Brady. “Unfortunately, the lack of detail only adds doubt to the final policy portrait, one whose facial features were already looking highly disturbing to taxpayers concerned about overspending."
As Brady noted, two helpful volumes that can better evaluate the underlying assumptions in a White House budget – the Analytical Perspectives and the Historical Tables – were missing from this year’s documents. This means, for example, that projections of beneficiary populations for changes in entitlements, or the number of federal employees affected by various changes in compensation and appropriations, are unavailable to researchers. Furthermore, there are no detailed agency-by-agency breakdowns as to how the $55.4 billion “Opportunity, Growth, and Security Initiative” would be spent. “Taxpayers are left to conclude either that the Administration wants to hide the reasoning behind its latest proposals, or it has no reasoning to offer,” Brady quipped. “For what was supposed to be the most transparent Administration ever, this is basic managerial negligence.”
Highlights of the NTUF analysis, providing little-known facts about the President’s Fiscal Year 2015 budget, include:
Yet, the budget persists in making unrealistic assumptions about its plan to hike the cigarette tax by more than a dollar per pack and index the increase to inflation. Revenues from tobacco have been highly unreliable and unstable and will continue to be that way, especially as smokers quit or consumers turn to other purchasing options. If the 10-year, $78 billion pot of revenue from this proposal (which could also be affected by state tax hikes) fails to materialize, the recycled “pre-K” initiative from the President would have to be underwritten by other taxpayers.
The Summary Tables of the budget document contain at least 17 new or expanded fees.
Expenditures are still on track to blow past $4 trillion in 2016 and $5 trillion in 2021. By comparison, it took nearly 200 years of the nation’s history for outlays to reach the $1 trillion mark (1987). The figure first exceeded $2 trillion in 2002 and topped $3 trillion in 2009.
Familiar spending hikes from past budgets included in the FY 2015 document are a national infrastructure bank ($7.7 billion over 10 years) and a veterans’ job corps ($1 billion).
Finally, the budget enumerates 14 “mandatory” (i.e., affecting entitlements and receipts) “cuts and savings,” each one of which was also included in the past FY 2014 document. Just three would reduce mandatory outlays, including a commendable realignment of the taxpayer-subsidized crop insurance program (for a savings of $14.3 billion over 10 years). Yet the remaining 11 would achieve “savings” by taking money away from the private sector. Overall (including discretionary and mandatory categories), 66.8 percent of all proposed savings would come from revenue-raising policies rather than outlay cuts.
Other smart deficit-reduction proposals – among them greater means-testing in Medicare – are clouded by schemes such as drug “rebates” (see below).
One huge windfall that is simply assumed in the President’s plan would come from immigration reform, which would supposedly result in $456 billion of revenues over a decade (for a net of $158 billion in deficit reduction after increased expenditures are taken into account). Although analysts have noted major economic and fiscal impacts from comprehensive changes to immigration laws, those effects would be highly dependent upon the exact nature of the reforms that Congress would send to the President.
As they have in the past, a potential shift on rules regarding “carried interest” income, especially with no prospect of rate reductions elsewhere in the tax system, will generate a great deal of controversy over how it would impact risk-taking fund managers and their investors.
The current budget also expresses the White House’s dissatisfaction with early 2013’s “fiscal cliff” agreement, which reimposed the personal exemption phaseout and the “Pease limit” on itemized deductions. The Administration would once again limit the value of itemization to what it would provide for filers in the 28 percent tax bracket. This policy, on top of recent curbs on deductions and exemptions, could have especially negative consequences for charitable giving.
The single largest “savings” item for the Department of Health and Human Services budget, accounting for nearly one-third of all savings from policies toward Medicare provider, is actually an increase in forced payments from pharmaceutical manufacturers to the Part D program. The planned $125 billion in provisions to “align Medicare drug payment policies with Medicaid policies” and “accelerate manufacturer discounts” are classified as offsetting receipts. The impact of these misnamed "rebates," which have the same effect as taxes, is to raise costs on other consumers as well as starve companies of resources they need to develop new drugs.
One bright spot for consumers, among these added burdens: a proposal to repeal the telephone excise tax.
Meanwhile, the Administration’s discriminatory attack on the oil and gas industry would continue with renewed fervor, going well beyond the moves in the Ways & Means blueprint, which takes aim at percentage depletion allowances and the “Last In, First Out” (LIFO) method of asset accounting. The Obama budget would pile on these additional tax hikes: zeroing out the already-reduced manufacturers’ deduction while other industries could still take it, repealing the intangible drilling costs deduction (which has parallels to provisions available to other sectors), and modifying the “dual capacity” credit for firms that write off tax payments made to foreign governments on their U.S. returns. Several other punitive schemes are designed to raise the tax burden on the coal industry, which, as with the harsh treatment of oil and gas, endanger jobs, portend higher energy prices, and ironically cost governments revenue in the long run due to reduced economic activity.
Another counterproductive provision would strip away the deduction for certain reinsurance premiums paid to foreign affiliates, which many experts believe will have the perverse effect of reducing the capacity of private insurers to cover losses from large disasters (thereby putting taxpayers on the hook instead).
“A recent Washington Post headline proclaimed that President Obama’s budget is signaling an end to the era of austerity,” Brady concluded. “Many taxpayers are wondering how two years of relatively modest spending restraint constitutes an ‘era’ or ‘austerity,’ but now they have to worry as well as wonder: will the nation ever experience a true era of economic prosperity without a serious overhaul of the tax system, fundamental entitlement reform, and restoration of limits on discretionary programs? Unfortunately, this budget provides answers that are at best unclear and, at worst, totally unconvincing.”
NTUF is the research affiliate of the 362,000-member National Taxpayers Union, a non-profit taxpayer advocacy group founded in 1969. Note: For additional analyses of past Presidential budget proposals and State of the Union speeches, visit www.ntu.org.