Gains, Pains in Federal Budget Proposals

Published March 19, 2013

Taxpayers have cause for celebration or consternation, depending on which of two recent Congressional Budget Resolutions they read – and, what parts of each they read.

“If Budget Resolutions are supposed to provide direction to the nation’s finances, the House’s bill charts a prudent course, but with some disappointing detours,” said Pete Sepp, executive director of the National Taxpayers Union.

“The Senate’s bill, on the other hand, offers only a glimpse or two of fiscal discipline on the way to a dead-end destination: one that is piled high with punitive taxes and bloated budget deficits.”

Good, Bad in Both

Among the highlights of NTU’s brief assessment of the House and Senate plans:

  • House Resolution – Pros: The Budget Committee’s plan admirably envisions achieving budget balance within 10 years, while calling for no additional, legislated increases in tax burdens. Medicare, a primary drive of future debts, would be put on a much sounder financial footing through a plan that preserves choices for future beneficiaries, strengthens the doctor-patient relationship, and allows market forces to better control costs. Many wasteful or duplicative spending programs in areas such as job training would be consolidated and made more efficient. Systemic tax reform, in the form of a two-rate structure for individuals and a simplified corporate tax, would dramatically reduce deadweight losses to the economy and boost U.S. competitiveness. The spending contained in the unsustainable 2010 health care law would be repealed.
  • House Resolution – Cons: The legislation assumes that the revenues resulting from both the 2013 fiscal cliff tax hike, and the tax increases in the 2010 health law, remain in effect. Revenues would stabilize at a less-than-ideal rate of just over 19 percent of Gross Domestic Product. Rather than replace the “sequester” slowdowns in Pentagon spending with smart program reductions, the legislation restores billions in additional military funding each year. “The post-Iraq and Afghanistan drawdowns in forces are an opportunity to restructure the Pentagon budget into a leaner, more effective tool for our national and fiscal security,” Sepp noted. “The House bill largely bypasses this chance to take a hard look at costly, unnecessary systems and strategies designed for bygone eras.”
  • Senate Resolution – Pros: The Senate’s bill also avoids many beneficial opportunities to reassess Pentagon spending, but takes more steps in the right direction than the House would. A few genuine spending reductions might offer the opportunity for bipartisan support in a better-crafted legislative vehicle.
  • Senate Resolution – Cons: The legislation relies on more punitive tax increases on job creators and politically convenient targets such as the oil and gas industry. The result will be a slower (or even reversed) economic recovery, and, in the long run, fewer revenues than expected. No reforms would be made to ensure the entitlement safety net for the neediest Americans is sustainable. Gimmicks include “savings” from cutting payments to health care providers, which has been a political non-starter for many lawmakers in both parties. Ultimately, the plan would never produce a balanced federal budget. Indeed, because the resolution “turns off” the sequester mechanism, what little spending slowdowns the legislation would provide would result in little or no net spending reduction compared to the Congressional Budget Office’s current policy baseline.

House Bill Better

“Although both bills suffer from gimmicks, the House legislation would achieve far better outcomes for taxpayers than the Senate’s flawed scheme,” Sepp said.

“In coming weeks, Americans seeking a brighter fiscal and economic future will be hoping that Congress embraces and even improves the House’s plan by emphasizing more spending restraint as well as additional entitlement and tax reforms.”

Doug Kellogg ([email protected]) is communications manager for the National Taxpayers Union in Alexandria, Va.