Green Room

A reality check on taxes and spending

posted at 4:55 pm on May 31, 2012 by

In a recent report picked up by the Washington Post’s Wonk Blog, the liberal Center for Budget & Policy Priorities (CPBB) cited the following:

House Minority Leader Nancy Pelosi’s proposal to extend President Bush’s income tax cuts for households making up to $1 million a year would lose nearly half of the revenue that President Obama’s proposal to extend the tax cuts only for households making up to $250,000 would raise, according to new estimates from Congress’ Joint Committee on Taxation (JCT).  The higher threshold would raise 44 percent — or $366 billion — less in revenue over the coming decade than the lower threshold.  Citizens for Tax Justice has released estimates showing a virtually identical percentage revenue loss.

I commented on Pelosi’s proposal last week, but think this report adds further clarity to the mess that are Congress’ tax and budget priorities. Two points in particular:

First, the Center says that if Congress wants to “stabilize” our debt, we need to cut $3 trillion over the next ten years from expected deficits, in addition to what was initiated in the Budget Control Act. However, this is not likely to come from the politically risky 50-plus percent of the budget. From the report:

Achieving this $3 trillion in additional savings solely on the spending side of the budget would require enormous cuts.  The impact would be particularly severe given that they would largely have to come from just half of the budget.  Consider the following:

  • Both parties have signaled that they will make no changes to Social Security that affect current retirees or those nearing retirement (with the possible exception of modifying the inflation index that is used to make annual cost-of-living adjustments, which would yield relatively small savings in the initial decade).
  • Big additional near-term Medicare savings, beyond those enacted as part of health reform, are unlikely.[6]   Even the radical Medicare changes that some have proposed, such as House Budget Committee Chairman Paul Ryan’s “premium support” proposal, would not take effect until 2023.[7]
  • Policymakers are highly unlikely to cut defense spending below the levels set by the BCA caps, particularly since many policymakers are calling for increases above those cap levels.

Personally, I think $4 trillion in deficit reduction over ten years is less than half of what we need in deficit reduction efforts, and the Center is wrong to assume cost savings in the PPACA. However, those are debates for another day. The fact is that Medicare, Social Security and defense spending are approximately 54% of the budget, and when you add in interest payments on the debt this takes over two-thirds of the budget off the table for cuts. We could literally cut every dollar except for this two-thirds and perhaps barely balance our budget. Perhaps. If we were to be lucky.

Second, for all the talk about cutting the deficit by raising taxes, $463 billion and $829 billion are somewhat small numbers compared to our future spending. The Congressional Budget Office expects over $44 trillion in spending over the next ten years in its baseline budgeting calculations, and this assumes relatively significant Medicare, defense and other spending reductions that Congress is unlikely to allow to go into effect. I would guess that without Doc Fix, Budget Control Act, PPACA and other deficit reduction measures actually being enacted, our spending will actually be closer to $47 to $50 trillion.

Either way, $829 billion is a tiny fraction of what we are going to spend – 1.88% of $44 trillion, to be exact. $463 billion is 1.05% of $44 trillion. Yet the CBPP’s report pretends the difference is critical to America’s financial future. The math would be laughable, if it wasn’t a harbinger of our nation’s coming fiscal collapse.

If we want to talk about real, substantive tax reform, why don’t conservatives just hold the line and demand the elimination of a few hundred billion in annual loopholes and lower rates equivalently? Or compromise and lower rates a bit while putting the extra revenue from eliminated loopholes directly to deficit reduction? Either plan would combine economic fairness with a faster-growing economy, and therefore yield higher tax revenues for the federal government. Liberals would get more money from the taxpayers for deficit reduction, conservatives would get a faster-growing economy for deficit reduction and taxpayers would be making more income instead of watching savings whittle away as unemployment stays above eight percent.

Or we can just keep watching Congress play games with the nation’s future.

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Comments

Any rational person understands there are countless ways to reform the tax code and increase revenue. Our side sees a simplified tax system as a desirable end in itself.

Problem is there is not a single rational person on the other side. They lie and cheat and any spending cuts they agree to never make it into the final bill. It’s time to stop playing the same old sucker’s game, until serious spending cuts are signed into law, don’t even negotiate anything else.

And on a different aspect; we have to stop talking about 10 year budgets, the constitution doesn’t mention 10 year budgets …it requires a budget every year.
We allow the lying class to take credit for savings and efficiencies that they write into projected budgets years down the road, knowing they will vote them away after the next election.

halfbaked on May 31, 2012 at 5:27 PM

Or compromise and lower rates a bit while putting the extra revenue from eliminated loopholes directly to deficit reduction?

Because in the real world this will never happen. Any extra revenue generated will get spent just as it has been for the last 40+ years with the Social Security Surpluses.

Johnnyreb on May 31, 2012 at 5:55 PM

I have a question about SS. How is it that the feds can spend that money each year without it being voted on? Or is it voted on each year? What authorizes that spending each year?

happi on May 31, 2012 at 5:56 PM

If all goes well on my venture, then in a couple years I will have no income to speak of. Assets, yes, but income? Nope.

I will finally “Go Galt.”

I have a goal. It is achievable. And will definitely be what I’ll do should Obama be re-elected by a bunch of O-zombies.

That, and invest in more ammo.

ProfShadow on May 31, 2012 at 8:00 PM

That’s the beauty of Doc Fix. As long as they don’t let the cut in payments take effect, but also don’t make the current rates permanent, they can continue to claim savings in Medicare and/or (mostly “and”) in the general budget, and then just keep putting the money back in later via reconciliation or continuing resolutions.

A perpetual $300b hole in the budget; plugging it wouldn’t solve our problem but it would end the shell game and be ten times as effective as the Buffett Rule.

The Schaef on June 1, 2012 at 1:32 AM

I have a question about SS. How is it that the feds can spend that money each year without it being voted on? Or is it voted on each year? What authorizes that spending each year?

happi on May 31, 2012 at 5:56 PM

SS is kind of a special case in that it has a trust fund program in place; it’s not accurate to say it’s entirely self-sustaining, but it’s easier to float than the general budget.

Now the general budget, that’s real genius at work. Previous spending bills have automatic increases built in over the life of the budget (typically ten years), ostensibly to account for inflation. But what they do is make that higher amount the new baseline, and then add 4% on top of it anyway. So spending goes up like 8% a year because it gets double-boosted.

In years like we’ve had, where Congress refuses even to pass a budget, they just pass continuing resolutions, which mean things keep going the way they have been, the automatic spending increases take effect by law, and the government monster continues to feed itself in the short term.

The Schaef on June 1, 2012 at 1:36 AM