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Politics : American Presidential Politics and foreign affairs -- Ignore unavailable to you. Want to Upgrade?

To: Wayners who wrote (63978)	4/8/2013 7:44:30 PM
From: Peter Dierks	1 Recommendation Read Replies (1) \| Respond to of 71588

A Primer for Understanding Obama's Budget Congress and the White House routinely hide the impact on the deficit of their proposals and laws. April 8, 2013, 7:16 p.m. ET By WILLIAM POOLE President Obama will release his overdue budget on Wednesday. It will doubtless project a reduction in the federal budget deficit—a projection that journalists, commentators and policy makers should ignore. To do otherwise is to be complicit in fraud. Strong statement? Not really. For 50 years or so the federal government has deliberately and to an increasing extent misstated probable future budget deficits. Democrats and Republicans are guilty. The White House is guilty. And so is Congress. Private firms that deliberately misrepresent their financial statements in this fashion would be guilty of a crime. The magnitude of the misrepresentation is breathtaking. For one example, the bitterly contested "fiscal cliff" legislation (the American Taxpayer Relief Act of 2012) raised the top income tax rate to 39.6%. However, the Congressional Budget Office's latest (early February) deficit projection for 2013-22 is now $4.6 trillion higher than the baseline deficit it projected in mid-2012. After the tax increase, how can that be? Easy. Congress requires the CBO to present its baseline budget projections on the basis of "current law." Congress then manipulates current law to understate probable future outlays beyond the present year, and to overstate probable future revenues. These manipulations change CBO baseline budget projections based on current law. Voilà, actual deficits exceed projections, and the previous budget projections are rendered meaningless. Congress can misrepresent the effects of any given piece of legislation in complex ways. It does not do so by entering, say, $800 million when the correct number is $900 million. Instead, Congress enacts certain tax and spending measures as "temporary" when it has no intention of allowing the provision to lapse; or it assumes legislative provisions in current law that would cut spending will be made, when Congress knows they never will. Fortunately, some years ago the CBO began to present "alternative scenario" budget projections, in which differences from current-law projections are explained in detail. In its early February update, one example is that the 25% cut in physician Medicare reimbursements scheduled for next Jan. 1 will not occur. That adjustment increases the projected deficit in 2023 by $16 billion, and cumulatively by $138 billion from 2014-23. Congress has overridden the scheduled cut in physician reimbursements every year since 2003, in a legislative provision known as the "doc fix." Another item in CBO's February "alternative" budget projection notes the effect on the deficit of extending certain expiring tax provisions in current law; that adjustment raises the projected 2014-23 deficit by $954 billion. In a footnote, the CBO says that "[t]hese estimates reflect the impact of extending about 75 provisions. Nearly all of those provisions have been extended previously; some, such as the research and experimentation tax credit, multiple times." Keep in mind that these provisions may be extended piecemeal, and for differing periods, in various pieces of legislation over the course of the year. The American Taxpayer Relief Act of 2012 had about 30 of these so-called extenders. What are traders, portfolio managers, journalists and citizens to do in the face of such practices? My recommendation is to ignore the official current-law scoring estimates of the federal budget, unless you have sufficient analytical resources to sort through the legislative details, line by line, and figure out what is really going on. Some Republican commentators are too harsh on the CBO, saying or implying that it is complicit in the misleading projections. Federal law requires that CBO present current-law budget projections. To make that point clear, in its most recent budget update—a document 77 pages long—a search turns up 61 occurrences of "current law," "current laws," and "current-law." The CBO goes out of its way to emphasize the problems with the budget projections it presents. Its "alternative scenario" projections are featured prominently. You may not like these alternative projections, because you would specify the alternative differently, but they are the only truly honest and useful effort in town. The House and Senate budget committees could assist us by requesting that the CBO score all proposed legislation according to its alternative scenario as well as according to current law. If the committees won't do so, the ranking minority member of each committee could do so by sending a letter to the CBO. U.S. fiscal policy is in a chaotic state. Policy decisions are wrapped around the convoluted budget accounting that Congress and the White House use to obfuscate, dissemble and hide what is really being done. That is a tragedy, and our democracy is worse for it. Mr. Poole is a senior fellow at the Cato Institute and a former president of the Federal Reserve Bank of St. Louis. online.wsj.com

To: Wayners who wrote (63978)	4/11/2013 9:14:06 AM
From: Peter Dierks	Read Replies (1) \| Respond to of 71588

Obama's Priorities Debt in 2014 will hit 78.2% of the economy.. April 10, 2013, 6:56 p.m. ET Obama is pitching his new budget proposal as a fiscal peace offering to Republicans, but the details suggest everyone should expect more conflict. The fiscal 2014 plan he released Wednesday is a very slightly modified version of his previous budgets that reduces the deficit by raising taxes and trading defense cuts for more domestic spending. The real news is that his budget ratifies much of the spending increase of the first term and tries to lock it in. He wants the feds to spend $3.78 trillion next year ($11,944 per American), which would still be 22.2% of national output nearly four years into an economic recovery. Before the financial panic in 2008, the government was spending about $1 trillion less, or closer to $2.7 trillion a year and an average of 20% of GDP—and President Bush was no slouch as a spender himself. Mr. Obama wants federal spending to grow to $4.45 trillion by 2018 fueled mostly by the exploding costs of his Affordable Care Act (ObamaNoCare). This spending surge appears smaller than it is only because the government will bank large reductions in military spending as the Iraq and Afghanistan wars wind down. But unlike in the 1990s, this peace dividend will be spent. The budget's supposed bow to Republicans is Mr. Obama's proposal for a modest change in annual cost of living adjustments for Social Security. "Chain CPI," as the change is called, would cut spending by about $130 billion and raises taxes by about $100 billion over the next year. We support the concept, but the White House also slips a mickey into that proposal (see below). Even with this inflation change, federal spending would grow by more than if Mr. Obama simply let current law continue. This is because the President wants to eliminate the current caps on discretionary spending under the budget sequester that are set to save close to $1 trillion over the next decade. He wants to repeal the sequester that is providing the only spending cuts in at least a decade. His new spending ambitions include $50 billion for public works, more college aid, high-speed rail (the fiscal version of "The Walking Dead"), green energy giveways, $2 billion more for battery-operated cars even as the companies fail, manufacturing subsidies, full funding of ObamaCare, job training (on top of the current 47 federal programs), and more. In return for the Social Security savings, Mr. Obama is still insisting that Republicans accept most of his tax increases totalling $1.1 trillion over 10 years. This budget is said to be a "balanced approach" with $2 of spending cuts for every $1 of new taxes, but over the next five years federal spending would actually rise by $680 billion. So he is really referring to imaginary "cuts" off of anticipated future spending increases. He also isn't counting the estimated $1 trillion in tax increases over the next decade that are already part of ObamaCare. So nearly all the deficit reduction would come by raising taxes on the oil and gas industry, hedge-fund managers, smokers, millionaires—and savers with his new tax on the buildup of wealth inside 401(k) plans and IRAs above $3 million. His new preschool entitlement would be funded by raising the cigarette tax to $1.95 a pack from $1.01 now and from 39 cents when he entered office. Someone should inform the White House that tax hikes on a shrinking group of smokers to finance payments to a growing number of beneficiaries is not a healthy fiscal strategy, as the states have found out by spending the proceeds of the Medicaid tobacco settlement. Mr. Obama is reproposing the "Buffett tax" on millionaires that would raise the levy on capital gains, dividends and other investment income to 30%. When Mr. Obama entered office the investment tax rate was 15% on capital gains and dividends. This year he raised the rate to 23.8% with the ObamaCare investment surtax. Now he wants 30%. This would raise the effective combined tax on corporate profits to close to 54%, one of the highest in the world. The one piece of good news is that the overall fiscal picture has improved of late because of record-low borrowing costs, the sequester, and a surge in revenues over the past six months due to higher tax rates (and their anticipation last year). The deficit could fall to about $500 billion next year, which counts as progress given the last five years. On the other hand, debt held by the public as a share of the economy will continue to climb—to what the White House predicts will be a peak of 78.2% of GDP in 2014. As recently as 2008, U.S. debt was 40.5% of the economy. Mr. Obama has nearly doubled it. (See the nearby chart.) With a modicum of spending restraint and faster growth, the debt burden will start to decline. The danger is that there's no room to avoid Southern European debt levels if we have another recession or an interest-rate spike. The Obama years have turned much about U.S. politics on its head, such as the fact that Presidents usually restrain Congress on spending. Since 2010, the House has restrained a President who wants to keep spending like it's 2009. The U.S. needs a federal budget that would promote faster growth, but gridlock may be the best we can get. online.wsj.com