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The Intentionally Unrealistic FY2015 Budget

Anthony Randazzo
March 4, 2014, 5:00pm

This morning the White House released its FY2015 budget, which was swiftly and predictably pronounced dead on arrival.

But over the past several years the President's budget proposal hasn't really been intended to be a budget proposal. It has morphed into a policy document that will guide various legislative priorities for the Democratic Party, and create a single source to unify the message of Democrats campaigning in the midterms (or at least that's what the White House hopes the party's nominees do).

The budget will ironically also likely unify the message of Republicans, who will be justified in pointing out that the Obama 2015 budget crazily proposes:

The budget also includes raising the federal minimum wage to $10.10 per hour-even though the President already signed an executive order imposing the tacit federal spending program in February.

It should be noted that the budget completely ignores the already weak Budget Control Act that Congress agreed to as a means of political cover for raising the debt ceiling. The President's budget proposes roughly $1.2 trillion in discretionary spending even though Congress has already agreed to appropriate $1.014 trillion in FY2015.

What is most interesting about the budget document is the framing of its tax proposals, all of which are some of the same things the White House has pushed for unsuccessfully in its previous six years.

For example, the "Fair Share Tax," more commonly known as the "Buffet Rule" would fix effective tax rates at certain levels for high earners. There are some standard arguments against the government taking more money from individuals, but this particular tax proposal creates the opportunity for us to all have fun defining the word "fair" how we want. Just shooting from the hip here, but I think it would be fair if the top 1% paid 35% of all taxes. And, let's see, maybe the top 5% could cover 60% of all the tax revenue the government collects. And, hell, how about if half of the country pays 97% of all taxes. That sounds fair in my random definition. Or, at least, it sounds like it is pretty much the reality of the most recent tax data.

Meanwhile, the bottom 50% of America get hit with regressive monetary policy, regressive sin taxes, and zoning restrictions that drive up housing and rent prices. That Buffet Rule would really be helping fix income inequality, no? 

Another example: The budget would cut "$4 billion in taxpayers subsidies" to the oil and gas industries, which is good. But it would just turn around and waste that responsible "no market distortion" idea and spend money creating a "permanent tax credit" for renewable energy production. Cue the yet to be written Remy rap about government picking winners and losers here.

Moving on to entitlements: Republicans will complain that the budget does nothing of substance on Social Security or Medicare/Medicaid-and they will be right. But they will also complain that their idea of using chained-CPI was ignored and that this could be part of a grand bargain to fix entitlements-and they would be wrong if they think the change would have a substantive affect on entitlements. The President called for entitlement reform in his state of the union, but predictably decided a midterm election year would be bad idea to propose a substantive idea (though he also failed to suggest any serious entitlement reform in non-midterm years so perhaps that has nothing to do with the no walking-the-talk).

Departments that would see an increase in spending: Education, Veterans Affairs, Energy, Transportation, Social Security Administration, Commerce, and the National Science Foundation. The bulk of the increase in spending will come from a $68.6 billion boost for Education and a $65 billion boost for the VA. Virtually every other department would see some level of cuts from FY2014 to FY 2015, even with the increase in spending levels. 

Lest my cynicism suggest that everything in the President's budget is bad, I will point out that there is a proposal to lower corporate tax rates and eliminate deductions, which is scored to increase revenues from corporations. Here, I think might be something that Congress could consider, as long as the increased revenues went to pay down the deficit. In this case, they are not and that creates a problem. Some of my libertarian colleagues might further press that cutting rates and eliminating loopholes created by regulatory capture is a good thing, but that the tax change should be made revenue-neutral.

Additionally, the Defense Department is proposing cuts to troop levels and equipment expenses, which is the right approach for the bloated DoD budget in principle. The Defense budget would fall $495.6 billion from FY2014 levels, more than all other department cuts combined.

There is also a proposal to expand the Earned Income Tax Credit. Here, Congress could do something crazy, but conceivable: help the poor and make the tax code more responsible at the same time. Simply expanding the EITC by itself is a bad idea, but using it as a means of reducing welfare expenditures is not. There are lots of ideas amongst libertarians on the value of having a basic income as part of fiscal policy, and if Congress chooses to pursue changes to the EITC there might be an opportunity to think about a truly bipartisan fiscal fix for the country. Not that the plan would actually get passed or anything, but there might be an opportunity to talk about it. (That's what passes for optimism when it comes to this budget analysis.) 


Anthony Randazzo is Director of Economic Research


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