The Freak Show: The Start Of The Budget War

President Obama last week unveiled his budget proposal for the 2013 fiscal year, which starts October 1. As you might expect, it was met with a thud by the Republicans, but it’s a good starting point for negotiations to work out some sort of compromise. That is, if the Washington elite see fit to compromise at all; lately they seem like they’d rather bring the country down than give in to the opposing party even the slightest bit.

The proposal actually does some of what the Republicans desire, in that most federal agencies would see their budgets cut, or at least frozen. Even the Pentagon, once considered untouchable, would see its budget cut by $5 billion. The Environment Protection Agency would be cut by two percent; the Department of Housing and Urban Development would fall by 7.5 percent, and the Department Of Agriculture would lose three percent of its funding.

On the other side of the coin, the President sets his priorities very clearly. Standing by the fallacy that spending more money on education will improve it, he calls for a 3.5 percent increase. The administration’s “Race to the Top” program, which sends grant monies to the states, would receive a whopping 55 percent increase. And funds for college work-study programs would increase by 15 percent.

Veterans Affairs, more important these days due to the return of servicemen from the Iraq and Afghanistan wars, gets a four percent increase, mainly necessary because of the increasing cost of medical care, which is something neither party has shown any willingness to tackle.

But the big showdown will come on what has become the long running feud, rivaling the Hatfields and the McCoys in acrimony and senseless bickering. And in this instance, the President is on the right side of the argument. In fact, he calls for making an overhaul of the tax code a priority in his second term, should he get one. And it’s certainly long overdue, as the tax code is grossly unfair and confusing.

The administration actually calls for lowering the 35 percent tax rate on corporations, at the same time as it gets rid of the numerous tax breaks given to specific corporations and circumstances, especially to oil and gas companies, who are making record profits but getting massive tax breaks. They even call for it to be revenue neutral, meaning it won’t raise more money, just make it fairer. Republicans, of course, like the lowering of rates, but condemn any attempt to get rid of tax loopholes as ”raising taxes,” so they will fight that tooth and nail.

One interesting, and needed, revision to the tax code would be to tax dividends as ordinary income for taxpayers who make more than $250,000. That would go a long way toward making sure that the wealthy don’t pay lower tax rates than lower income people, as it often happens now because dividends are taxed at 15 percent. Republicans, again, are going to go to the wall for their rich friends, and probably not let that happen. To them, fairness equates to the rich getting to keep as much of their money as possible, while the “regular” people pay the higher rates.

And then there’s the coup de grâce… the President is calling for what has become known as the “Buffett Rule.” No, not how many margaritas a Jimmy Buffett fan can drink, but what Warren Buffett decries as a travesty in our country, where millionaires pay lower tax rates than their secretaries. Obama proposes to set a minimum tax of 30 percent on income above $1 million, to insure that that won’t happen.

That will be the usual non-starter with the Republicans, but hopefully the budget will be seen as the “opening move” in a long process that will end up in a final version that takes into account both sides concerns. At least that’s how it’s supposed to work. The system is broken, so it may end up being a big mess, with one side (guess which one?) not willing to compromise, causing a government shutdown, which has been the norm in recent years.

An interesting time to watch will be in January, should the President win reelection, when automatic spending cuts in the amount of $1.2 trillion kick in, the result of the “super committee” not coming to an agreement on spending cuts last year. The only thing that can stop it is an agreement on an alternative plan. Neither side seems to want those automatic cuts to kick in, so hopefully it will force some serious discussions instead of the usual political posturing.

The President projects that the deficit in 2017 will reach three percent of GDP, which is the level most economists find acceptable. But those projections assume a growth rate of four percent, something we haven’t had in quite a while. It’s nothing new for Presidents to use optimistic projections to make their proposals look better, but from the President who was going to “change the way Washington works,” it’s still a disappointment. He’s doing just what George Bush did the whole time he was in office—playing games with the facts. While not technically falsifying anything, they are definitely not realistic.

But the Republican responses are over the top as well. Candidate Mitt Romney, he of the 13.9 percent tax rate on $20 million in income, says the budget proposal is “an insult to the taxpayers.” And Mitch McConnell, the Republican Senate leader, called it “election year propaganda.”

So we’re off and running in the name-calling and accusations department. How about we hope for a miracle that the Democrats and the Republicans actually sit down and work something out that is best for the American people. Something fair and yet productive in working toward lowering the deficit and growing the economy, while being fair to hard working, middle class taxpayers. Possible? Not a chance!