When most people think about early February they probably think of the Super Bowl. Believe me, I love the Super Bowl; and I am happy the Seahawks lost. However, something much more important happened the day after the Super Bowl. On the first Monday in February, the president submits to Congress his budget proposal. This kicks off the long process of crafting a budget. I know that the budget process often goes unnoticed by many, despite its importance. The budget is not only the fiscal blueprint for the federal government, but in recent years it has even been used for seemingly unrelated policy change (Obamacare and the Bush Tax Cuts are prime examples).
I won’t dive into the nuts and bolts, but the process has often resulted as of late with a grand bargain between the Democrats and the Republicans. More importantly, for the first time in his presidency, Mr. Obama will not have supportive majorities in either chamber. This is not stopping Mr. Obama from proposing an ambitious budget for the next fiscal year.
However ambitious the president’s budget may be, William Galston, a former adviser to President Clinton, points out that Mr. Obama’s budget fails to curb any of the looming fiscal catastrophes that lay ahead. Most notable is the rapid increase in mandatory spending on Medicare and Medicaid. Mr. Obama also proposes significant tax increases, especially for those who make over $250,000. In addition, Mr. Obama proposes ending sequestration, the automatic budget cuts that have caused the deficit reduction that he loves to brag so much about. And finally, the president also has included a scheme to pay for his not-so-free “free” community college plan.
On the issue of entitlements, the fault does not completely rest with the president. Entitlement spending is a massive problem that will get very bad in the near future as more and more baby-boomers claim the benefits that were promised to them. The fact of the matter is that there are quickly going to be drastically fewer people paying into the system than taking out of the system, which will cause huge fiscal problems if not addressed. Politically speaking, however, it is very unpopular to address those issues, and very few members of Congress or the President are willing to do it. However, that doesn’t stop Mr. Obama from trying to claim some credit as a “cost-cutter”. His brilliant scheme, as part of the Affordable Care Act, (a.k.a Obamacare,) is to simply pay doctors less for seeing Medicare and Medicaid patients, as well as increasing taxes $1 trillion over ten years. In addition, Mr. Obama has in place the meat cleaver approach of mandatory cost reductions on all medical services, a tactic which actuaries and other experts have called “unsustainable”. Even these cuts are a “drop in the bucket” as far as solving the problem of entitlement reform. Not to mention the unintended consequences of incentivizing doctors to not serve Medicaid and Medicare patients.
Mr. Obama’s tax increases on the “one percent” is pure politics. In a just world, the one percent, who have about 20 percent of the total income, would pay closer to 20 percent of total taxes. Well, in reality they pay almost 40 percent of income taxes under President Obama. In addition, revenues from income taxes under Mr. Obama’s proposed budget would exceed historical highs, reaching 19.9% of GDP in revenues according to the CBO. Mr. Obama can’t honestly think that these proposed increases on just the rich can ward off the fiscal calamity we face down the road. That is why I think these tax increases are pure politics. They may rally the base, but they won’t win him any support on the Hill.
The final point of the President’s plan that I want to touch on is his not-so-free community college scheme. On its face, it sounds intriguing. Free community college for everybody. Period. Well, Mr. President, I hate to tell you, but any economics student can tell you that there is no such thing as a free lunch, and the way Mr. Obama prepares this lunch will make you sick. Mr. Obama proposes to end the tax free status on 529 college savings accounts. This has been a major financial tool for families to plan ahead and pay for college. Taking away this provision will make four-year college less accessible to many middle class families and force them into a broken community college system. I would tell the waiter to send that free lunch back to the kitchen.
The bottom line is that Republicans in Congress will not let this budget go unaltered. In fact, much like the tax increases, this budget’s main purpose is to save face with the progressives who are gaining more and more say in Democratic politics. Republicans in Congress should muster up their own version of “middle class economics” and fight this budget — starting with increasing deficit reduction, with a long-term goal of a surplus in 20 years.
On a more bipartisan front, Mr. Galston notes that Representative Paul Ryan (R-WI) and the president may have some common ground on revenue neutral corporate tax reform as well as expanding the Earned Income Tax Credit (EITC). I would hope that these two issues could serve as quasi-olive branches in a larger compromise focused on deficit reduction. The bottom line is that Mr. Obama has drastically outspent his predecessors, and it’s getting to the point where it is time to make a decision; as Reagan said over 50 years ago, “this is a time for choosing.” We, the younger generations, must address these issues, especially out of control spending. That choice starts by opposing President Obama’s harmful budget.
