What Plan?
Today, the Senate will hold votes on 5 budgets that have two key features in common: they will not pass, and none have the support of Senate Democrats. It has now been over three years since the ruling party in Washington has passed a budget, so the commonalities shared by the budget measures to be voted on today should not surprise. Nor should the near-certain unanimous defeat of the president’s budget, as was the case in the House of Representatives earlier this spring.
It didn’t pass last year. It won’t pass this year.
Senate Democrats and the president, it would seem, are content to merely hurtle towards the fiscal cliff coming next year with no credible plan place to address expiring tax policies and a blunt across-the-board scheduled spending cut.
Instead they argue told that the Budget Control Act will serve as a budget for the coming fiscal year, so Congress need not bother with the public debate and those pesky votes that go along with legislating a budget plan. But this is just convenient politics.
The Budget Control Act itself is responsible for the looming January 2013 sequester, the fallback mechanism in the wake of the so-called Super Committee’s failure that is universally viewed as poor policy. In fact, the House passed a replacement package just last week. And the Act is functionally silent on a way forward on next year’s expiry of tax policies last extended in 2010. Moreover, the Budget Control Act even has specific language that allows for a budget agreement to establish superseding spending levels (section 106(e)(2)) which should silence anyone still arguing that the Act is itself a budget.
The historical record also undercuts Democrats’ insistence that the Budget Control Act gives license to a failure to budget. This is not the first time the Congress has had spending caps in place. Three successive laws imposed spending limits in the 90s and early 2000s just like we now have under the Budget Control Act. Yet, despite what Democrats are arguing, this did not somehow supplant the budget-writing process in Congress. Indeed, for the 12 fiscal years covered by the statutory spending limits, FYs 1991-2002, Congress agreed to a budget 11 times. This is precisely the “belt and suspenders” approach that used to animate the administration’s rhetoric on fiscal matters.
American families must operate within a budget, and make difficult trade-offs. And no doubt everyone can remember how such trade-offs can spark disagreement among family members. But that’s what it means to budget, and families can’t just pretend to have had those discussions without actually having them. But that’s exactly how Senate Democrats would run federal budget policy.
If today’s votes are to be any indication, it will be that Senate Democrats, aided and abetted by the White House, will remain contentedly at odds with both the letter and spirit of the law they will invoke to excuse their abdication of responsibility.
More broadly, we will hear that Democrats do want to “get serious” about deficit reduction, and have proposed a “balanced approach.” Well, the administration’s “balanced approach” budget garnered no support in the House of Representatives and will go down again in the Senate. And Senate Democrats can’t be bothered to offer one. A plan that can’t get any Congressional support and a plan that doesn’t exist do not a “balanced approach” make. Rather, it represents the very complacency that will predictably lead to yet another downgrade of the nation’s credit worthiness.
But that seems to be the only plan embraced by Washington’s majority party.
Out of the Mouths of….Nominees
Erskine Bowles called the inevitable outcome of Obama fiscal policies “the most predictable crisis in history.”
The Bowles-Simpson commission outlined fundamental entitlement reforms. President Obama kicked his commissions’ recommendations in the gutter.
But through it all, the president claimed he supported tax reform. He even claimed to have put out a plan for corporate tax reform – even though it looked awfully thin to the experts’ eyes.
Now we know the truth. There is no plan. And there is no plan to have a plan.
According to Reuters, the the administration is not working on plans to reform the tax code: "We'd be negligent if we weren't doing foundational work ... But at this point there is no plan that has been developed," Mark Mazur, Obama's nominee for Treasury's top tax job, said at a Senate panel hearing on his confirmation. "We'll see how this plays out."
Even more depressing: “Baucus asked whether Obama, if he were re-elected, would have a comprehensive tax overhaul plan. Mazur said, "I can't promise that.”
I can promise you he won’t. In 2008, there were questions about Barack Obama’s ability to lead this nation. After 4 years of watching the President observe events out the rear window from the back seat while both sides of the aisle waited for him to take the nation’s steering wheel, there is no more doubt.
No leadership. No plan. No surprise.
Social Security Still Going Broke
Today, the Trustees of America’s largest entitlement programs issued their annual reports on the financial fitness of Medicare and Social Security. The reports paint a bleak picture of the core of the nation’s safety net for the elderly. As my colleagues demonstrate in an assessment of Medicare’s financial position based on today’s report, the principal health program for America’s seniors is collapsing under its own weight. Social Security faces a similar, and worsening, fate.
The Social Security Trust Funds will exhaust in 2033, 3 years earlier than last year’s projection. More daunting, the 21 years until Fund exhaustion is the shortest since 1982, when the programs were facing immediate solvency challenges. The 2012 report reflects the second largest 1-year deterioration in the program’s actuarial balance since major reforms were undertaken in 1983. With that decline, the program now faces the largest actuarial imbalance since the 1983 reforms.
As noted in today’s report, “Annual OASDI cost exceeded non-interest income in 2010 for the first time since 1983. The Trustees project that cost will continue to exceed non-interest income throughout the 75-year valuation period.” In short, the program has been contributing directly to the deficit since 2010, and will continue to do so absent significant reforms.
White House Whiteboard Whitewash
The Buffett tax went down in the U.S. Senate on Monday night. But it wasn’t for a lack of sales effort by the White House. President Obama seemingly cannot get through a public appearance without invoking it. As part of the effort the White House rolled out another “whiteboard” by National Economic Council deputy Brian Deese. It turns out this was more whitewash than whiteboard.
Evidently, the White House assumed nobody would check their claim that the income tax isn’t progressive. We did. Their mistake: it is progressive and they need some help doing taxes.
In the video, Deese describes three families and what he calls the “uber rich,” and then displays their incomes and effective tax rates. Since America prides herself on a progressive federal tax code, and every serious study confirms that effective income tax rates rise with income, we were dubious of the White House claim that tax rates collapsed for the super rich.
In the table below, we duplicate the White House’s claims. Then we attempted to replicate the calculations that produced them, to the point of asking the White House for the data, to no avail.
Since the White House has kept the underlying data under lock and key, I decided to inflict on the staff both a throbbing headache and a miserable weekend. I don’t know which is worse: not finding the answer, or having to watch that video 45 times.
Still, we made reasonable assumptions about filing status (single, head of household, married), numbers of dependents, exemptions, and deductions in a good faith effort to get to the same bottom line.
It can’t be done.
In the table, taxable income is income minus various deductions and exemptions. To get in the ballpark, we took the average for each income bracket in 2009. In the next row is the actual tax for that income level. We presumed that the single mother executive assistant only had one child, and applied the appropriate child tax credit, lowering her tax liability to $3,430. We made similar guesses at the families of he others. Of course, we can’t be sure these are right because the White House won’t tell.
You’ll see in the last row that we’ve calculated the effective tax rates using this data and came up with 7, 10, 16, and 18 percent respectively. That’s right: 7, 10, 16, and 18. As Americans make more money, they pay a higher tax rate. This progressivity has been a defining feature of the U.S. tax code and the characteristic of every serious tax study.
|
Executive |
Teacher & |
Doctor |
UBER |
|
|
Income |
$49,480/YR |
$105,000/YR |
173,900/YR |
$110,000,000/YR |
|
White House |
16% |
19% |
23% |
18% |
|
Taxable Income* |
$33,580 |
$71,945 |
$136,489 |
$109,598,723 |
|
Income Tax |
$4,430 |
$10,236 |
$28,401 |
$19,727,770 |
|
Tax Credits |
$1,000 |
NA |
NA |
NA |
|
Net Income Tax |
$3,430 |
$10,236 |
$28,401 |
$19,727,770 |
|
Actual Effective |
7% |
10% |
16% |
18% |
|
*Assumes exemptions and deductions equal to average for income bracket in 2009. |
||||
So, how did the White House come up with its numbers? They added the payroll tax to the income tax… even though the payroll tax is mentioned exactly zero times in the not-exactly-pristine-white board.
|
Executive Assistant |
Teacher & Cop |
Doctor |
UBER 400 |
|
|
Income |
$49,480/YR |
$105,000/YR |
173,900/YR |
$110,000,000/YR |
|
Net Income Tax |
$3,430 |
$10,236 |
$28,401 |
$19,727,770 |
|
Payroll Taxes |
$4,503 |
$9,555 |
$11,615 |
$3,196,572 |
|
Total Effective Tax Rate |
16% |
19% |
23% |
21% |
|
*Assumes exemptions and deductions equal to average for income bracket in 2009. |
||||
What do we learn from this? First, we got the effective income tax rates right because the payroll tax rates calculation is not subject to any mystery.
Second, the White House should brush up on tax policy. The Buffett rule is about income taxes. Income taxes that fund core government services. The more money you make, the more you pay into these services like national security and education.
The payroll tax on the other hand, is not about paying for core federal government services. It’s about contributing to old-age programs from which taxpayers will also get back direct benefits. Take for example our single mother. If she turned 65 in 2030, she’d have, on average, put in $485,000 over her lifetime. But she will also receive up to $638,000 in benefits – a negative effective tax rate.
Mixing income and payroll taxes without accounting for benefits received is fundamentally incomplete and misleading. Effective tax rates done in this way and true effective tax rates are united only by a common ancestry in the integers.
Obama’s Trojan Horse
Beware presidents bemoaning Greeks. According to news reports, President Obama will attack the recently-passed House budget resolution in a speech today:
This Congressional Republican budget, however, is something different altogether. It’s a Trojan Horse. Disguised as deficit-reduction plan, it’s really an attempt to impose a radical vision on our country.
Really.
Let’s begin with the merits. The “Ryan budget” is just that: a budget — something the president’s party cannot find time to do. And just what is that “radical vision?” Under the Ryan budget, spending, or the government’s size as a share of GDP is a little above 20 percent over ten years. Guess what the 50-year average of spending as a size of GDP is? A bit over 20 percent. Radical visions indeed.
The Ryan budget contains fundamental tax reform — something the president talks about while actually littering the code with temporary, targeted, special-interest tax breaks and crony-capitalism subsidies.
The Ryan budget takes on fundamental reforms of broken entitlement programs, thereby ensuring that they survive for the next generation of seniors and low-income Americans and stems the flow of red ink that threatens another downgrade of U.S. finances. The president has run four years of trillion-dollar deficits and has yet to produce a budget that contains an iota of these needed reforms — even after being handed a blueprint by his personally appointed fiscal-reform commission.
Despite this, the president goes on to assert, “And by gutting the very things we need to grow an economy that’s built to last — education and training; research and development — it’s a prescription for decline.” The president’s beloved big-government programs have produced pathetic growth thus far and will protect no American when the furies of international capital markets descend on a debt-ridden United States. Perhaps he should look at, uh, Greece.
But at least the president has a sense of irony.
After all, Obamacare remains the greatest Trojan Horse in modern memory.
During the 13-month legislative Odyssey that forced Obamacare into law, the president related one admittedly sad tale after another of that small minority of Americans with pre-existing conditions struggling to find insurance coverage. There was bipartisan agreement that this was an area in need of attention.
So what do we get instead?
We get a 2,700-page bill that required arcane parliamentary tactics to pass through the nation’s gates. And hidden within was over $2.6 trillion in new federal expenditures, new burdens on employers, an unconstitutional mandate, hundreds of billions in new taxes, and a massive expansion of Medicaid.
So what was cleverly disguised as a way to deal with a tiny minority of Americans with pre-existing conditions, ultimately just explodes the federal budget, damages economic growth, tramples religious freedoms, and circumvents the Constitution. The Greeks had nothing on Obamacare.
This originally appeared in National Review Online on 4/3/2012
