By Judd Gregg - 04/15/13 09:00 AM EDT
President Obama has now disclosed his budget approximately two months after the law calls for him to present it. It also comes forward after both the House and the Senate have debated and passed budget resolutions.
This means, as practical matter, that his budget is substantively irrelevant since neither house will even consider it. It is therefore a purely political document. As such, it makes some fairly significant political statements.
It will of course not have a major impact in the next few years, but the savings from this change will compound dramatically in the second and third decade of its use. It will literally add years to the solvency of the Social Security system without any noticeable effect on present recipients. It is a good and appropriate change, but more importantly it is an opening to other changes in entitlements, especially Medicare, that will allow the future costs of these programs to be more affordable.
Then there is the bad. The president’s budget is a spending juggernaut. He is, of course, a very liberal president so it should be expected that he would propose spending a lot more money on programs that are beloved of his base. But could they have not found some places to cut out duplication, waste, excess and even fraud? Or require some sort of cost benefit analysis for all their new regulations and expansions?
The ground is fertile here. Instead his budget says, “Let’s start with what we have, deem it all to be good and add to it.” The view of this administration as expressed in this budget is that government is good and we just need more of it. This is bad.
Then, there is the ugly. This nation really needs tax reform. We have a tax code that is undermining our ability to compete as a nation and is incomprehensible to most Americans. It creates an incentive to invest not for the purpose of getting the most efficient use of capital but in many cases for the sole purpose of avoiding taxes. This is debilitating to our economy and hurts job creation.
Chairmen Dave Camp (R-Mich.) and Max Baucus (D-Mont.) have said they are committed to changing this and moving forward with serious and dramatic tax reform along the lines of what was done in 1986 under President Reagan and Chairman Dan Rostenkowski.
They need the president’s leadership and help in this effort. Unfortunately, his budget proposal pushes in the opposite direction. This budget is not about reform, it is about raising taxes, again. The revenues that are produced from the tax deductions and exemptions the president proposes ending or limiting do not go to reduce rates; they go to expanding government. The result is that they are totally counterproductive.
High income people , who under the fiscal-cliff tax increase of less than six months ago saw the top tax rate go up to 39.6 percent and were hit with the new ObamaCare Medicare tax of 3.8 percent, now have an effective federal tax rate of 43.4 percent, which is higher than under President Clinton. Under the budget proposed by Obama, this effective tax rate will easily exceed 45 percent due to the changes in deductions proposed depending on the nature of a person’s income.
Couple this with the state and local taxes if a person lives and runs a small business in a place like New York, Illinois or California ,and the effective tax rate would likely hit 60 percent. This is not tax reform; it is tax expansion for the purpose of penalizing a segment of the society, especially small-business owners, who are the drivers of the economic expansion and job creation.
Where tax expansion has been tried, in France and by other expansive governments, it has lead to a drop in revenues and deterioration of competitiveness and economic growth. It is a really ugly idea whose time came and went in the last century.
There was a time when budgets meant something. There was a time when the president sent his budget to Capitol Hill in the first week of February as required. There was a time when the House and Senate passed their budgets and a final budget was passed that gave direction to the spending of the federal government or at least some transparency to it.
Those times appear to have gone. Government is on autopilot and Congress and the president engage in political budget proposals that have no expectation of passing, and the appropriation process moves forward with continuing resolutions or omnibus bills. It is a regrettable state of affairs and is not improved much by this late-arriving addition.
Judd Gregg is a former governor and three-term senator from New Hampshire who served as chairman and ranking member of the Senate Budget Committee and as ranking member of the Senate Appropriations subcommittee on Foreign Operations. He also is an international adviser to Goldman Sachs.