Forecasts and Trends
Obama’s 2013 Budget Targets the Rich
By Gary D. Halbert
Some weeks there is so much to write about, it is difficult to know where to start. Today, for example, it is so tempting to write about President Obama’s attempt to require the Catholic Church and all of its hospitals and universities to provide free birth control, abortion and sterilization for women, only to walk it back a few days later.
While many Americans viewed Obama’s reversal as a victory, it was not. Unwilling to accept defeat, Obama merely shifted this healthcare burden to the health insurance companies. Does anyone believe the insurance companies are going to provide all these extra services for free? Not! I could write for hours on this topic, but I will leave that to others.
Instead, we’ll focus on President Obama’s new federal budget proposal for fiscal 2013 which was announced on Monday. ‘s an annual ritual for me to criticize presidents’ budgets that increase spending every single year. For newer readers, please note in advance that I criticized every one of President George W. Bush’s budgets for eight years, so I’m not breaking new ground today.
Obama’s 2013 Budget Targets the Rich
The Obama Administration has unveiled its federal budget request for FY2013 which begins on October 1. As expected, the budget request was record-large at $3.8 trillion, up from $3.73 trillion in the request for FY2012. The latest budget forecasts a federal deficit of $1.3 trillion for FY2012. That will make a record four consecutive annual budget deficits over $1 trillion under Obama. The budget deficit estimate for FY2013 is $901 billion. We’ll see.
The latest budget was seen by many as a re-election campaign document in that it frames Obama’s economic pitch to voters and seeks to shift the focus from deficits to economic growth. The myriad of tax increases embrace his recent theme of fairness” and shared responsibilities.
The president’s annual budget request is only that – a request. Congress is under no obligation to accept the president’s annual budget request. However, Congress is required to at least give it an up or down vote. Typically, the vote is down since members of Congress prefer to craft their own budgets for federal spending each year – at least until the last few years, that is. The Democrat-controlled Senate, for example, has not been able to produce a federal budget in almost three years, which is an embarrassment.
Last year, Obama’s record-large budget request of $3.73 trillion for FY2012 was roundly rejected in the Senate by a vote of 97-0! The budget request the Obama administration recently released which is even bigger and more complex, is likely to face a similar fate. Even if it is voted down, Congress will come up with something similar, sadly.
As the new budget was rolled out, President Obama called for aggressive spending to boost economic growth and for higher taxes on the rich “ those individuals making over $200,000 a year and families making over $250,000 a year. For them, the Bush tax cuts will disappear at the end of this year (unless Congress votes to extend them).
Never mind that those making $200K/$250K a year make up just 3% of all taxpayers, and this 3% pays more in taxes than the other 97% combined!!
The president’s new budget would also change the tax code such that dividend income, now taxed at 15%, would be taxed as ordinary income. Currently, dividends are taxed at the corporate level at a maximum rate of 35% and then taxed again at 15% at the individual level. That’s a 50% combined tax rate.
Under Obama’s budget and the already-passed Obamacare law, the effective maximum tax rate on dividends would soar to 78.4%, of which 35% is corporate tax rate, 39.6% is personal tax rate and the upcoming 3.8% Obamacare rate for couples with investment income over $250K.
Popular tax deductions such as mortgage interest and charitable giving would be capped for those making over$200K/$250K a year. These changes, Obama promises, would increase government revenues by $1.5 trillion over a decade.
Compare the projected savings of $1.5 trillion over 10 years “ which won’t happen by the way “ to the deficit of $1.3 trillion this year alone. Obama knows well that raising taxes on those making $200K/$250K won’t close the budget gap.
Although not officially in the budget, Obama still plans to impose the so-called Buffett Rule which would require any person or household making $1 million or more a year to pay at least 30% of that in income taxes. Obama also wants carried interest taxed as ordinary income rather than at the capital gains rate of 15%, a move aimed at hedge fund managers and other money managers.
The latest budget includes an extra $800 billion in spending for infrastructure, education, manufacturing, job training, etc., with an extra $30 billion for hiring more teachers and first responders. Another $476 billion is in the budget proposal for a six-year plan to improve surface transportation, which is a big increase over current levels and much more than other proposals being considered in Congress.
At the same time, the White House had to comply with the spending caps enshrined in the Budget Control Act last year, which total in the neighborhood of $1 trillion in discretionary spending cuts over a decade. The budget details 210 places where programs will supposedly be cut or eliminated, for savings of $24 billion in 2013 and $520 billion over a decade.
The president’s budget does little to address how to curb the growth in entitlement spending. The budget would cut only about $360 billion from Medicare, Medicaid and other health programs over a decade. That’s a drop in the bucket when compared to the rapid expansion of costs expected for entitlement programs. As a result of the failure to address entitlements, our annual budget deficits will be more than $500 billion a year over the next decade.
A couple of final points about the new budget and 10-year projections:
1) A spending cut is not always a spending cut. Due in large part to baseline budgeting, funding for the various government agencies rises every year, in most cases. If lawmakers merely slow the rate of growth in funding, they can (and do) claim that this is a spending cut. Only in Washington!
2) These budget proposals almost always include economic assumptions that are too optimistic. In Obama’s latest budget, they estimate that GDP will rise to 4% in 2014 and remain at least that level until 2022. And ¦ no recessions between now and then either. Reminder: I criticized George W. Bush for doing the same thing in every one of his budgets as well.
Gary D. Halbert is the president and chairman of Profutures, Inc. Subscription rates for Forecasts & Trends is $197 for 12 issues and may be obtained by visiting his website at www.profutures.com.