SITREP - February 7th, 2015

As promised, we’ve got a brief rundown on the President’s Budget request for you this week.  The challenge this year I’m finding, is that it’s getting harder and harder to find new and exciting ways to explain the exact same budget debate that we’ve seen for the last four years.   If some of this sounds like stuff you’ve heard before, I hope you’ll forgive me… It is.

For starters, as I always do, it’s important to remind everybody about the “request” element of the “President’s Budget Request”.  That’s important.  As any long term readers or students of the federal budget process know, under our system of government, the President’s budget has no force of law at all.  Under our system, the President budget is simply a proposal of what he thinks we should do. It’s up to Congress to decide what we will do.

That second part matters a great deal and it’s why you hear me gripe so much when Congress doesn’t live up to its end of the bargain.  Congress punting on the budget means the whole thing is just on auto-pilot.  That’s not good for anybody – not the President (whose budget has no force), not the institution of Congress (whose power comes from the purse), and certainly not for the taxpayers (who have to pay for all of it).

Honestly though, I think the process is off to a reasonably good start this time.  Both the House and Senate are under the leadership of Republicans who have been frustrated for years by the lack of productive work on the budget process.  Also - this is the first year, at least since I’ve been here, that the President has submitted his budget on time, as defined in law.  That’s a positive and it’ll give us time to sort through the details.  In his request this year, the President has also called for restoring military funding to a safe and sustainable level.  That’s positive too.  Sadly though, that’s about where the positive stops…

It’s where the positive stops and the next round of trillion dollar tax hikes begins. It’s where the immediate 6.7 percent spending increase begins.  It’s where the government-as-a-share-of-the-economy starts growing back to historic levels again.  It’s also where the glossing over problems and fuzzy estimates of savings begin.  And most visibly, it’s where the deficit stops getting better and starts growing unsustainably again.

Medicare and Social Security are still careening toward catastrophe.  And despite having called for reform in a few of his State of the Union speeches, he still hasn’t put forward a specific plan to address the shortfalls.  The annual interest payments on the debt are still set to explode to $800 billion per year within a decade.  And instead of explaining where we’re going to cut back to cover those expenses, the President argues instead for abandoning “mindless austerity” and spending more.  The President’s plan for the deficit includes a new scheme to tax capital gains when property is passed to an heir.  Under current law, if you bought property many years ago for $15,000 and it grows to a $150,000 by the time you pass it onto your children, your kids aren’t expected to pay taxes on the gain in value that occurred during your lifetime. The President believes they should. They’ll need to go back into the records and find what the original cost-basis was as well as any depreciable improvements made over the years, then calculate the cost-basis just like it’s a stock trade. That, the President believes, would help them “pay their fair share”.

You may also recall a proposal in his State of the Union to start taxing college savings accounts. After he suggested it, even Democrats in Congress pushed back and he had to abandon the plan. Unfortunately, it was too late to stop the budget from going to the printers, so that college savings tax is still counted as “savings” in the deficit. Also part of the “paying your fair share” philosophy.

In addition to the tax increases, the President also says he’ll reduce the deficit by an estimated $400 billion through unspecified “healthcare savings” that his yet-to-be-created rationing board will find.  I thank the good Lord that he hasn’t tried to move forward with actually setting up his rationing board, but since he hasn’t, how do you count the savings they were supposed to get from rationing in the first place? And these projected savings come right alongside a cleverly disguised admission that his student loan reforms actually resulted in a $21.8 billion shortfall.  The President didn’t come right out and say that in his budget. The figure was actually hidden in a data table.  But as Politico reported this week, it is “apparently the largest [shortfall] ever recorded for any government credit program”.  The President didn’t call it a loss in his budget, his administration simply refers to it as a “re-estimate”.  That “re-estimate” resulted in a 5% increase to the nation’s deficit.

While a lot of the budget request is fuzzy, the projected deficits are not.  We know very well where the deficit is headed if we don’t stay committed to restraining it.  The President just frankly doesn’t seem to enjoy that part of the job.  I can understand that.  I’m sure telling people they can have more without having to pay more is really easy politics.  I’m sure throwing dollars out to the crowd is fun – just like wearing beads and throwing candy from a Mardi Gras float is probably fun.  But like so many areas in life, fun doesn’t mean it’s the responsible thing to do.  This isn’t a light-hearted festival.  It’s the budget of the United States of America.  And despite the progress we’ve made cutting back (and aided recently by a recovering economy), it doesn’t mean you can go back to growing spending the way he did when he first entered office.  This money isn’t free.  Somebody has to pay for it.  And that somebody, my friends, is you.

In any case, the congressional end of the budget process will commence shortly.  Our committees will be meeting and tossing around new ideas and conducting all the due diligence to come up with the estimates. We expect to put our proposals out for public review early in the spring.  What happens from there, we’ll just have to wait and see.  In the meantime, it’s safe to say that the President’s request can go right back in the drawer with last year’s.  It’s not credible.  And between you and me, I think he probably knows that…    

As always, let me know what you think. And thanks again.