Budget Background

More than 800 days since passing a budget as required by law—and still refusing to even make one public this year—Senate Democrats recently shared a copy of their phantom budget proposal with the Washington Post. Stunningly, they asserted a fifty-fifty split between tax hikes and spending cuts. They claimed a meager $2 trillion spending reduction and a burdensome $2 trillion tax hike. (By contrast, the House GOP budget cuts $6 trillion in excess spending without increasing taxes). But, properly viewed, the phantom Senate budget is even more shocking than that: it may call for nearly twice the amount of tax increases to real spending cuts. 

Based on information leaked to the Washington Post, real spending cuts in Democrats’ phantom budget are 30% below the advertised amounts.

  • The $2 trillion in spending reductions includes $600 billion in lower interest spending on a lower amount of federal government debt. While reducing the deficit does reduce interest payments, those savings should not be counted as spending reductions, and do not reduce the size and scope of the federal government. Counting interest savings as spending cuts is simply a gimmick that makes it look like the actual cuts are greater than they are (particularly when the reduced interest payments are the result of increased taxes).
  • At best, Senator Conrad’s budget should only be credited with reducing spending by $1.4 trillion—an amount that is only about 4 percent of projected non-interest outlays over the next ten years.

At the same time, tax hikes in the Democrat Senate budget may be 40% above the advertised amounts.

  • We don’t know what tax base is used as the measure for the net $2 trillion in tax increases. Recent deficit reduction schemes, like the president’s February budget and the president’s Fiscal Commission, have assumed the expiration of the 2001 and 2003 tax cuts for individuals and small businesses earning more than $250,000 per year and the reversion of estate taxes to 2009 rates and exemption levels. These hidden tax increases add some $800 billion to the revenue base and may well be omitted from the advertised net $2 trillion tax hike.
  • Senator Conrad’s budget may raise taxes relative to current policy by some $2.8 trillion over ten years—tax hikes would thus be twice the spending cuts.
  • The top marginal tax rate for individuals would approach 50% when the effects of PEP/Pease, health care “reform” payroll and investment tax increases, and the proposed phaseout of itemized deductions are taken into account.

Further, the spending cuts are not focused on the areas of greatest waste or growth:

  • Approximately $900 billion of the $1.4 trillion (64%) of the spending cuts come from the Pentagon.
  • Only $80 billion of the $1.4 trillion (6%) of the spending cuts come from the federal government’s enormous health care programs, which are projected to take up increasing shares of the nation’s output in coming decades.

Note: When presented at a meeting of the Democrat caucus, the draft budget plan received broad support.