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Tax-and-Spend Remains the Trend
in Obama’s Latest Budget

(Alexandria, VA) – Even though it proposes a dip in spending for defense and domestic appropriated programs, the budget President Obama unveiled yesterday continues to lean on new revenues, avoid entitlement reforms, and rely on rosy economic assumptions to a greater extent than many taxpayers might believe, according to National Taxpayers Union Foundation’s (NTUF’s) analysis.

“As both the stimulus and our overseas military operations wind down, taxpayers would expect federal expenditures linked to these activities to wind down too,” said NTUF Senior Policy Analyst Demian Brady. “Yet, the President’s budget only provides a short breather from these costs before resuming with new ‘investments,’ while benefit programs continue a relentless rise. It is therefore no wonder that plans for hundreds of billions in new revenues are littered throughout the thousands of pages in new documents the Administration has offered.”

Highlights of the NTUF analysis, providing little-known facts about the President’s Fiscal Year 2013 budget, include:

• Unusually Sunny Revenues Are in the Forecast. Receipts are projected to rise steadily every single year as a percentage of Gross Domestic Product (GDP), reaching 20.1 percent of GDP in 2022. Revenues have only exceeded 20 percent of GDP once since World War II, and have only grown as a share of the economy over multiple years in two postwar periods (1978-1981 and 1993-1998). The White House also assumes a sharp upward spike in corporate income tax receipts of 81 percent within two years (Fiscal Years 2012-2014). The last time a jump in corporate receipts approaching this amount occurred was between 2003 and 2005 – ironically, when the Bush Administration was reducing tax rates, largely for individuals but also on items like dividends.

• Some Spending Slows, but Overall Outlays Still Grow. Discretionary (i.e., regularly appropriated) spending in both the military and the non-security areas will fall in absolute terms (rather than grow less quickly) between FY 2012 and FY 2015, by roughly 14 percent for each component. Spending on these programs will then begin to climb slowly again. Yet, mandatory expenditures (Social Security, Medicare, Medicaid, etc.) would rise consistently. Thus, total federal spending in all categories would jump from $3.8 trillion this year, pass $4 trillion in 2015, exceed $5 trillion in 2019, and begin closing in on $6 trillion by 2022. After two years of modest growth, outlays would increase by a yearly average of 5.2 percent between FY 2014 and FY 2022.

• Budget Reductions: Old, New, and Borrowed. This year, the President renamed the traditional “Terminations, Reductions, and Savings” document within the budget, calling it “Cuts, Consolidations, and Savings.” The title may be different, but many of the contents look familiar. Of the 140 proposals NTUF identified that pertain to discretionary (defense and domestic) spending, 42 were included in last year’s “Terminations, Reductions, and Savings.” The phenomenon is even more pronounced with the savings proposals pertaining to mandatory programs. Of these 28 items, 21 are retreads. Almost three out of every five dollars in reductions offered in this area of the budget would come from payment cuts to Medicare providers – a controversial issue.

• Mixed Message on Tax Reform. On one hand, the President’s latest budget calls on Congress to “immediately begin work on corporate tax reform that will close loopholes, lower the overall rate, encourage investment here at home, and not add a dime to the deficit.” Yet, elsewhere in the document, the Administration would punish successful, job-creating industries, such as oil and gas, with higher taxes. Many of these proposals move in the opposite direction of tax simplification and neutrality. One proposal would repeal the Section 199 domestic production activities deduction, which is available to a wide variety of businesses, but would do so only for certain oil and gas firms. Boosting these firms’ tax liabilities could have many negative effects, including higher energy prices, fewer employment opportunities, and, ironically, lower tax receipts of other types due to reduced economic activity.

• Hidden Taxes. One of the most deceptive revenue-related portions of the budget aims to replace the current Passenger Security Fee of $2.50 per enplanement ($5.00 maximum per one-way trip) with a new structure establishing a minimum one-way fee of $5.00 ($7.50 by the year 2018). While the Administration labels this proposal a “user charge,” about 70 percent of the $25.5 billion collected from this change over the next decade would be counted as “mandatory savings” for deficit reduction. Even without this tax hike, an airline ticket can carry a government tax and fee load of over 20 percent.

• Hidden Spending. Many of the Administration’s tax credit proposals are refundable, meaning that an individual or company can get more money back than they originally paid in tax. The Treasury counts this refundable portion as an outlay rather than foregone revenue. According to NTUF, the 12 refundable credit proposals in the budget would boost federal spending by $157.1 billion over 10 years.

• Hidden Cost Shifts. In a quest to “align Medicare drug payment policies with Medicaid policies for low-income beneficiaries,” the budget would extract $155.6 billion (over 10 years) in “rebates” from pharmaceutical makers, which would be deposited into the Treasury, not into Medicare beneficiaries’ pockets. Such a policy amounts to a levy that establishes federally-mandated price controls on another share of the prescription drug market. This cost shift means that something else – such as patients in private plans or the ability of companies to develop new lifesaving drugs – will suffer.

• Debt Service Costs Are Poised to Soar. Between FY 2012 and FY 2022, net interest paid by the federal government (which includes debt service) will have skyrocketed from $225 billion to $850 billion – nearly quadrupling. In just five years, (2012-2016), net interest is projected to more than double.

“Many taxpayers may be wondering whether the President’s latest fiscal blueprint marks the beginning of a new budget season or the beginning of a new phase in the campaign season,” Brady concluded. “While Congress is certainly not immune to similar charges over its own budget votes, one thing is becoming clearer: with only a brief respite from some spending increases in sight, looming tax increases, continued deterioration of entitlement programs, and the ever-present threat of another sovereign credit downgrade, more than a few Americans likely want answers from both ends of Pennsylvania Avenue on fiscal policy before rather than after the election.”

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.