Obama Budget’s Tax Cut Mirage Can’t Hide Tax and Spend Mess

(Alexandria, VA) - National Taxpayers Union Foundation’s (NTUF’s) new analysis of President Obama’s Fiscal Year 2016 Budget reveals a fiscal blueprint that only exacerbates America’s deficit and debt problems while also proposing to hit taxpayers with a plethora of new taxes and fee hikes.

In fact, many of the President’s “middle class” tax cuts would actually require billions of dollars in new spending, making his budget one that offers almost no relief for taxpayers and instead suggests they will be continuously burdened in a futile effort to keep up with record government spending.

Deficits and the debt would continue to grow under the President’s plan, which would bust the Budget Control Act’s and the Ryan-Murray budget’s limits on spending.

“The President’s budget proposal is a mess of tax hikes and spending increases that projects to put government on an unprecedented and continuous trajectory of growth,” said NTUF Director of Research Demian Brady. “Under Obama’s plan taxpayers and businesses would see trillions of dollars in tax hikes, perpetual deficits, and a debt that would rise to $20 trillion over the next decade.”

NTUF’s budget analysis lead findings:

President Obama’s middle class “tax cut” mirage: The budget includes $276.8 billion worth of tax breaks for middle class families, but nearly $122.3 billion* of that amount would be realized as new spending through expanded “refundable” credit programs.

  • This includes a massive $60 billion expansion of the Earned Income Tax Credit for childless workers of which just $7 billion would occur as tax reduction with the remaining $53 billion as increased spending.
  • Only 2 percent ($768 million) of the President’s $45.6 billion plan to “simplify and better target tax benefits for education” would be seen as tax reduction.

Revenues rising: The President’s budget features a broad slate of new and increased taxes and fees, which could reportedly increase revenues to 19.7 percent of GDP by 2025.

  • By 2025, revenues will have risen 72 percent over FY 2015 levels, from $3.2 trillion to $5.5 trillion.
  • On average, the budget would see revenues increase by $230 billion a year over the next ten years.
  • Revenues would steadily increase as a percentage of GDP. Since World War II, there have been only two periods of multi-year growth in revenue as a percentage of GDP (between 1978-1981 and 1993-1998).

A punitive new tax hike on family-owned businesses: The FY 2016 budget increases reliance on the Death Tax to finance federal spending, with a $214.4 billion tax hike over ten years.

  • Estate and Gift taxes will account for 12 percent of revenue increases (more than any other tax category, including income taxes).

If you like your low gas prices, you may not be able to keep them thanks to the Obama budget’s $49.8 billion tax hike on the energy industry. 

  • Oil and natural gas producers would be hit with a $45.509 billion tax increase.
  • The coal industry would pay $4.252 billion in new taxes under the President’s budget.
  • The President is also proposing new multi-faceted regulations on energy producers to be overseen by the Environmental Protection Agency as well as the Departments of Energy, the Interior, and Transportation.

A $95.14 billion excise tax hike on tobacco.

$268 billion over five years from a “one-time” minimum tax on corporations’ overseas earnings.

  • Even though the budget would reduce the tax rate on corporations’ domestic earnings to 28 percent, that is still well above the 22.6 percent world average.

18 new fees or increases amounting to more than $122.7 billion over ten years, including:

  • A new $111.8 billion fee on financial firms with more than $50 billion in assets.
  • Increasing the passenger security user fee for air travel, $5.4 billion.
  • A $4.83 billion Spectrum License User Fee to allow the FCC to auction predominantly domestic satellite services.

Record spending: All those new taxes and fees would fail to keep up with the President’s record-high spending projections, which would see outlays increase each year over a ten year period between 2015 (20.9 percent of GDP) and 2025 (22.2 percent of GDP).

  • Spending would grow at an average rate of $241 billion - $10 billion more per year than projected growth in revenues.
  • Expenditures will be around $4 trillion in 2016, over $5 trillion in 2021 and top $6 trillion in 2025 (64 percent higher than in 2015). By comparison, it took nearly 200 years of federal spending for outlays to reach the $1 trillion mark (1987).
  • Entitlement programs like Social Security, Medicare, and Medicaid will grow at faster rates (5-6 percent) than other budget categories.
  • Net interest payments on the debt would more than triple from $229 billion in 2015 to $785 billion in 2025, when the federal debt held by the public will exceed $20 trillion.

In 2016, federal health care outlays will rise to $1.2 trillion, or nearly one-third of all government spending or about 6.5 percent of GDP.

  • By comparison, in 2008, total federal health care spending stood at $752 billion, one-quarter of all outlays and 5 percent of GDP.

The President’s budget abandons balance, and foresees perpetual deficits. The first five years of his plan all result in an average $498 billion annual deficit, and the last five an average $637 billion annual deficit. The long-range blueprint based on the President’s 2016 policies would see annual deficits through 2040, the last year in the projection.

Taxpayers will be paying for TARP (Troubled Asset Relief Program) until at least 2025.

  • “Outlays for the TARP Housing Programs are estimated at $5 billion in 2015… are estimated to decline gradually through 2023.”
  • Administrative costs will continue through 2025, as well as costs for the Special Inspector General for TARP.

The budget’s “Cuts, Consolidations, and Saving” document proposes just $3.6 billion in discretionary spending cuts over 59 programs, 34 of which were also listed in last year’s document.

The budget’s 10-year “deficit reduction” data shows nearly $1.9 trillion in new tax revenues (much of which would be directed into new spending on transportation and education). On the spending side, the budget would specify $402 billion in savings on health care entitlement programs and, unbelievably, is still counting $557 billion in savings over ten years from military operations in Iraq and Afghanistan. All told, for each 1 dollar in tangible spending reductions, there are nearly 5 in new taxes.

“The President’s budget is loaded with punitive tax hikes on investments and job creation that would actually hurt those in the middle class that he professes to help,” Demian Brady concluded. “Taxpayers who would like to see a discussion about balancing the budget or controlling the tax burden will have to hope that this is the President’s opening negotiation position with Congress and that his Administration will work earnestly with legislators on real tax and spending reform.”

National Taxpayers Union Foundation (NTUF) is the research and education arm of National Taxpayers Union, "The Voice of America's Taxpayers." Visit ntu.org/foundation for more NTUF research and analysis.

* Originally, NTUF reported that the refundable outlay portion of Obama's "middle class" tax cuts was $77.4 billion over ten years. This number was incorrect. It is actually $122.3 billion over ten years. The correction has been updated in the text above.