State and local governments depend on many different types of taxes, one of which is known as an excise tax. Like general sales taxes, excise taxes are paid on the purchase of an item. But unlike sales taxes, excise...
- The Tax Policy Blog
- The Shortcomings of President Obama's Deficit-Reduct...
The Shortcomings of President Obama's Deficit-Reduction Proposal
Today, President Obama outlined his deficit reduction plan, claiming it would reduce the deficit by $3 trillion.
- $1.5 trillion in tax increases
- $1 trillion in "cuts" that are anticipated savings from the already underway draw-down of troops in Iraq and Afghanistan
- $430 billion in "savings" from lower interest rates (not contingent on bill)
- $250 billion from reductions of payments to Medicare service providers (who are expected to provide the same services at a further reduced rate)
- $72 billion in cuts to state grants for Medicaid.
The most salient points of the speech were:
- Social Security should be reformed separately from budget and tax reform.
- $1 in revenue increases should accompany every $2 in spending cuts.
- Taxes on those making over $200,000 (singles) and $250,000 (joint) will revert to the Clinton-era rate of 39.6%.
- Health care payments (Medicare & Medicaid) will depend on success of treatment.
- Millionaires and the "largest corporations" will be required to pay at least the same rate paid by the "average" family.
Some specific effects which will arise from these proposals include:
- Creating perverse incentives for healthcare providers
- Decreasing the long-term solvency of Social Security by claiming to veto any bill affecting Social Security without nebulously defined revenue increases
- Handicapping lawmakers with the 2:1 spending-cut-to-revenue-increase ratio
- Relying on static economic conditions rather than the more realistic dynamic conditions which affect the source of capital gains taxes (one of the most volatile sources of revenue), as large part of the "Buffett Rule."
The dire nature of the country's fiscal situation, which Obama's proposal is meant to address, will be exacerbated, not helped, by most of the proposals he put forth.
Follow David Logan on Twitter @Loganomix
Get Email Updates from the Tax Foundation
We will never sell or share your information with third parties.
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official blog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.