Obama's Budget: Tax Hikes for the Rich, Tax Hikes for the Poor, Defense Cuts for Everyone

Posted: Apr 10, 2013 12:22 PM

President Obama belatedly sent his 2014 budget proposal up to Capitol Hill today, containing $3.77 trillion in spending for next year and tax hikes that will affect both rich and poor alike. All told, deficits would still total over $700 billion next year under President Obama's budget proposal.

In his press conference, President Obama claimed that his spending increases will be "targeted investments in areas that will create jobs right now." The President rejected the choice between jobs investment and falling deficits, saying that "our deficits are already falling" and that "my budget will reduce deficits by another $2 trillion... in a balanced and responsible way."

Before Obama is proclaimed a deficit-cutter, it's important to remember that standard Keynesian economics - that the President subscribes to - would prescribe falling deficits as an economy comes out of a recession. Keynesians like President Obama would be expected to advocate shrinking deficits in an economic recovery. What's important is to examine how President Obama treats the federal ledger in out years.

It doesn't look good, either. President Obama's budget would see deficits shrink from 2014-2018 before starting to grow again. But of course, the next decade is going to be pivotal for deficit reduction. Entitlement reform that focuses on shrinking mandatory spending in the out years is of paramount importance, and President Obama's response to that is basically to fiddle around the edges, then wait and see how Obamacare works. What's more, the Office of Management and Budget - the office that calculates some of the projections - is historically kinder to the President than the more highly-regarded Congressional Budget Office. THe CBO will have their own score out on the President's budget in the next few weeks.

Beyond that, here are a few of the highlights from President Obama's budget:

Tax hikes for the rich: President Obama wants to use two different measures to increase taxes paid by upper income-earners. The first would be to instate the "Buffett Rule," which would force taxpayers in upper brackets to pay a mandatory minimum perecentage of their income, no matter what deductions they might have. The second would be to cap total deductions at 28 percent of income. Both these would be ways of raising the effective federal tax rate paid by high income-earners.

Tax hikes for the poor: President Obama also has two ways to hike taxes on the poor. He's proposing a cigarette tax that would fund more federal spending "investments" on what he calls universal pre-K. Cigarette taxes are obviously paid by everyone, but they constitute a much larger percentage of income for the poor - and, by the numbers, the poor tend to be heavier smokers. President Obama is also proposing to move federal inflation measurements to "chained CPI," which would be a more accurate measure of inflation and constitute a fair amount of deficit reduction - but is also an across-the-board tax hike that would affect the poor as well as the rich.

Overall spending increase: Next year, the Obama budget will spend $3.77 trillion. This is even more than the left-wing dream that is the Senate Democratic budget - which spends $3.71 trillion. Over the next ten years, President Obama will spend less than the Senate Democrats' proposal, but in the short-term, he's asking for more money than Patty Murray.

Corporate tax reform: Here we'll offer tentative praise. President Obama wants to close loopholes and lower the top overall corporate tax rate. He wants to make it revenue-neutral, which shouldn't be the goal, but even a revenue-neutral reform would be a mild improvement over the status quo.

Decreased funding for defense: Nearly every federal executive agency is receiving increased funding, but notable exceptions are the Department of Defense and the Department of Homeland Security. Combined, those departments will receive over $4 billion less than they did in 2012. That's in addition to cost-cutting at the State Department, which is receiving less funding mainly due to the wind-downs of wars in Afghanistan and Iraq. The Departments of Commerce, Education, Energy, Health and Human Services, Housing and Urban Development and Labor are all receiving substantial increases.

Surprising spending cuts: The Obama Administration proposes to cut almost $300 million dollars from the Environmental Protection Agency's budget and cuts $200 million from the Treasury Department.

Those are the top takeaways from the President's budget. On the whole, it's less radical than the Senate's budget and at least head-fakes towards deficit reduction in the next few years. This, however, is a status quo budget at exactly the time that fighting for the status quo is the wrong thing to do.