President Obama Disguises Tax-and-Spend as 'Tax Reform'

By Gordon Gray

(Photo of President Barack Obama via the White House Flickr feed)

This week we witnessed an event that had not been seen since 2001 – the release of a Congressional Budget Office budget baseline that mattered. For the first time in a long time, the official current-law baseline that lawmakers use to make policy is a fairly reasonable projection of the nation’s fiscal course.

That’s because assumptions about expiring tax provisions and the Alternative Minimum Tax that have rendered previous iterations of the baseline useless have been dealt with permanently. That’s not to say that Congress isn’t free to change the code, it just means that current law now has more than a nodding acquaintance with current policy.

CBO’s release unofficially kicks off budget season – unofficially because Section 300 of the Congressional Budget Act of 1974 specifies that the first milestone of the budget process is the as-yet-unreleased President’s Budget. Tax policy will necessarily figure prominently in any discussion on matters fiscal. Just this Tuesday, President Obama argued that “savings from tax reform should be used to pay down the deficit.” But what exactly does that mean?

The updated baseline offers a good yardstick against which to measure the president’s call for tax-reform as deficit-reduction. Under current tax law (replete with the end-of-year tax increases) spending policies in statute, the federal government will raise $40.4 trillion in revenue and disburse $48.4 trillion in outlays, according to the CBO. In President Obama’s most recent budget, both tax revenue and spending levels would be higher – $42.2 trillion and $49.8 trillion, respectively, over the same period (see table 1).

In other words, the president would like to (as expressed in his budget) raise an additional $1.8 trillion in taxes, and spend an additional $1.5 trillion, compared to CBO’s projection of current law (see table 2).

Two observations are worth making in reconciling the president’s call for tax reform paired with deficit reduction. First, the deficit reduction that results from the president’s relatively higher tax revenue are to a significant degree driven by a trailing off in spending in future years. This is consistent with past deficit reduction promises – lower spending is promised in the future but never materializes. Second, the claimed deficit “reduction” that presumably animates the president’s call for tax reform is merely incidental – and is far outweighed by the higher revenue that the president would devote to higher spending – $1.5 trillion.

So, while the president may signal an inclination towards high-minded “deficit-reduction” achieved through tax reform, the numbers tell a different, but altogether well understood story – higher taxes chasing higher spending. And there’s no indication that his next budget (past-due) will rectify this imbalance.

Gordon Gray is the Director of Fiscal Policy for the American Action Forum.

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