With Obamacare flailing and hurting millions more folks than it’s actually helping, and the economy in the doldrums, it seems that President Obama has little to bank on in terms of creating some momentum for vulnerable Democrats going into the 2014 midterm elections. Enter the 2015 Fiscal Year budget plan proposed by the President:
With the 2015 budget request, Obama will call for an end to the era of austerity that has dogged much of his presidency and to his efforts to find common ground with Republicans. Instead, the president will focus on pumping new cash into job training, early-childhood education and other programs aimed at bolstering the middle class, providing Democrats with a policy blueprint heading into the midterm elections.
The end of an era of austerity? The author of this piece or the President (or both) must live in an alternate universe where the federal government hasn’t spend trillions more than it has taken in since Obama took office. In case you forgot, here is a list of the deficits under President Obama:
Fiscal Year 2009: $1.4 trillion;
Fiscal Year 2010: $1.3 trillion;
Fiscal Year 2011: $1.3 trillion;
Fiscal Year 2012: $1.1 trillion.
The 2013 fiscal year deficit, the lowest of Obama’s presidency, was $680 billion. That means that the federal government spent $680 billion more than it took in. The difference is made up by the issuance of Treasury bonds (debt), with the Federal Reserve buying a good portion of them (called “Quantitative Easing“).
To call for increased spending (by means of incurring more debt) because $680 billion is “austerity” is simply ludicrous.
Of course, Obama’s true plan here is to further demonize the rich–not to really try to help anyone. As many of you know, taxing the “rich” at 100% would not come close to closing the trillion dollar deficits of Obama’s presidency. The goal is to paint the GOP as the party who wants to help the rich at the expense of “the middle class” or the poor.
In reality, who would be hurt with Obama’s proposals?
Obama wants to hurt retirement savers, who save by 401(k) or IRAs and folks who have pensions.
Well, to start — Obama wants to limit retirement savings deductions for families who earn $225,000 a year:
Like his 2014 budget, Mr. Obama’s 2015 version is likely to limit the value of all tax deductions, defined contribution exclusions and IRA deductions to 28% of income — and include an overall cap on all retirement accounts, including pensions, that could bring in $1 billion per year in new tax revenue.
Based on current tax brackets, the 28% limit would reduce the tax advantages of retirement savings for people earning more than $183,000 or couples earning more than $225,000. The overall cap for all tax-preferred retirement accounts would limit them to providing an annual retirement income of $205,000, which would currently cap tax-preferred accounts at $3.4 million, but could go lower as interest rates rise.
First of all, Obama has broken his promise that families making $250,000 or less won’t see their taxes go up a dime. An elimination of tax advantages for retirement savings for couples earning $225,000 does just that. This is not the first time that Obama has broken one of the most sacred promises of his campaigns in 2008 and 2012.
Despite the retirement savings problems in our country, Obama wants to cap deductions to create a further dis-incentive to save. Weeks after pushing the “myRA” as a way to encourage lower income folks to
support the national debt save for retirement, Obama has [again] decided to attack folks who earn a certain amount of money and want to be frugal enough to save and benefit under the tax code.
The gut punch here is that all of these elaborate moves will bring in $1 billion of revenue per year. Considering that the government spends about $9.5 billion a day ($3.45 trillion in FY 2013/365 days), we know where Obama’s motivations lie.
Obama wants to hurt American corporations that are fleeing the restrictive regulatory state for which Obama is partially responsible.
Another way that the proposed 2015 fiscal year budget looks to harm American companies is to punish them for “offshoring” operations:
A senior administration official said the budget would also propose new corporate tax rules aimed at preventing companies from moving profits overseas to avoid U.S. taxes. For instance, the rules will seek to limit a company’s ability to borrow domestically — and take large tax deductions on the interest — and then invest the money overseas.
I’m all for incentivizing investment here in the USA. The problem is that these knuckleheads in the Obama Administration propose high minimum wage laws, rigorous and costly regulations for conducting business, and then act stunned when businesses go overseas. Newsflash, D.C.: money goes to where it is treated best. If things get expensive to do business at home, corporations will cut their costs. Rather than punish companies for offshoring, incentivize them to stay at home. This would require cutting taxes and regulations, which are things that are antithetical to Democrats these days.
Although the 2015 fiscal year budget proposal from the President is not finalized yet, these are two of the numerous issues likely to be included in it. I see this as an attempt to paint the GOP as the party of the rich going into the 2014 midterm elections. The notion that spending more than half a trillion dollars more than we have is “austerity” is nonsense. However, I think that a savvy GOP will propose alternates to Obama’s proposed programs and show that they can be done with cutting spending in areas where it will not hurt and without raising taxes.
In fact, now would be a great time to propose a corporate tax reduction or holiday on offshore money. Proposing that corporations have a year to bring money to the United States currently held offshore at a 0% tax rate (or a low tax rate) could be the non-governmental stimulus that we need and would certainly place the administration on the defensive. Even if the proposal contained a restriction for the use of the funds (such as a 0% tax rate if the money is used to build factories or otherwise create jobs, etc.), it would be a step in the right direction.
We’re stuck with the current tax code for now. It’s better to create incentives for commerce and retirement savings, rather than to punish companies and people for the same. Obama’s budget plan (thus far) looks like it will be the latter.
As always, free markets are better markets.
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This week, we have a lot of economic data coming out, including manufacturing surveys and indexes, new home sales, consumer confidence, home price indexes, earnings reports, initial jobless claims and the quarterly GDP report. Of all of these, the GDP report (to me) is likely to be the most “market moving.” The consensus is that 4th quarter 2013 GDP increased by 2.5%. We’ll see if we beat that number or not.
Have a great week!