“It was the best of times, it was the worst of times . . . . .”
Best of times: the CBO is projecting federal revenue for 2013 will set a record for the most money the government has ever taken in.
Worst of times: It’s not enough revenue to satisfy President Obama and the Democrat party who continue to insist we don’t have a spending problem but rather a deficit problem. (I know, I don’t quite understand that either.)
To be fair, as pointed out by fact checkers and other watchdogs, nominal dollars (just the raw numbers) do not account for population growth, inflation, or the growth of the American economy compared to past years. When you factor in growth and inflation, we’re still roughly $300 billion below pre-recession 2007 revenues. But although 2013 revenues will not set an inflation adjusted record, CBO expects tax revenues to be above the 40-year average in 2015, which means plenty of tax revenue is coming in while too much spending is going out!
Congress now has to look at these projections and begin allocating revenue. Since it has been four years since the Senate submitted a budget, it might be good to review the process. First off . . . it’s supposed to begin with the president. According to the Budget and Accounting Act of 1921, the president is required to submit a budget between the 1st Monday in January and the 1st Monday in February. Last year, Obama submitted his budget February 13, two weeks late. This year, the president is expected to send his fiscal 2014 budget to Congress the week of April 8, more than two months late. (Maybe Congress needs to include the president in the “No Budget, No Pay” bill.)
Typically, the House and Senate budget committees would begin evaluating the president’s proposal in February and March. A resolution would be submitted around April 1st and then passage is expected around April 15th. In the absence of a budget submission from the president, both parties produced budget proposals earlier this week. As expected, the budgets reflect the sharp contract in fiscal ideology.
Republican Plan (Rep. Paul Ryan, chairman of the House Budget Committee)
- Cut spending by $5.7 trillion
- Cut top tax rate from 39.5% to 25%
- Balance the budget in ten years
Democrat Plan (Sen. Patty Murray, chairwoman of the Senate Budget Committee)
- Raise taxes by $1 trillion
- Add new stimulus spending
- No projected date to balance the budget
Wow. That’s quite a difference.
A key feature of the Democrat plan is to close tax loopholes (i.e. reducing the number and types of deductions allowed on a tax return) as a way of generating additional revenue. Typically when discussing tax reform, closing loopholes is combined with lowering top tax rates. This is what is considered revenue neutral – the total amount of tax being withdrawn from the private sector remains basically the same, but how the revenue is generated is altered. The current Democrat recommendation leaves current tax rates in place and adds the limitations on deductions, thereby increasing the total amount of tax revenue being withdrawn from the economy.
A controversial aspect of the Ryan plan is that it allows future Medicare retirees the option of using government payments for private health care plans.
Neither of these budgets will remain intact after the resolution process between the House and Senate, but at least we know how they are starting. Personally . . . I like the plan that balances the budget and doesn’t raise my taxes.