Category Archives: Federal Budget

Tax Cuts vs. Tax Reform

The Republicans have set themselves the goal of passing tax legislation by the end of the year.  They took a major step by passing a budget resolution this past week which authorized tax legislation as long as that legislation had a net cost of less than 1.5 TRILLION over the next decade.  As such, as long as the CBO scores any legislation as complying with that cap, it is exempt from a filibuster.

That cap reflects a significant part of the current debate inside the Republican party — do they want a tax cut (reducing the overall tax burden) or tax reform (a revenue-neutral rewrite of the tax law).  This debate will be significant because the Republican approach is that those who make the most money pay the most taxes and therefore should get the most relief.  Thus, their proposals will be very top heavy on who gets the relief and the deductions most at risk will be those that benefit the middle class.

First, some Taxes 101 to set the background.  Both at the corporate level and at the personal level, calculating taxes begins with defining income.  Then there are certain authorized deductions from income that lead to a smaller income that qualifies as “taxable income.”  There are then income brackets in which you pay x% for the first $Y amount of income, than pay a slightly higher rate on the additional income above that amount (and just that additional income).  (E.g., If the top tax bracket is 40% and kicks it at $500,000, the taxpayer is only paying 40% on the income above $500,000 — so on an income of $700,000 that 40% only applies to the last $200,000 of income and the first $500,000 is taxed at a lower rate. )  After taxes are computed, the taxes can be reduced by tax credits. Continue Reading...

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Budget 101

On Tuesday, Congress returns from their August “District Work Period” — a/k/a Summer Vacation.    Normally, September in Congress is about appropriations bills, but this year September is going to be even more hectic due to the U.S. nearing its debt ceiling and other budget issues.  To explain this year’s mess, a little budget 101.

Like the typical household budget, the government’s budget consists of revenue/income and expenditures/spending.  However, the government’s revenue consists mostly of taxes.  While a handful of taxes have sunset provisions (i.e. they expire at a certain point in time unless Congress passes a new law extending them), most taxes are permanent (i.e. it takes a new law to change the tax).  But how much revenue is raised by a given tax in a given year depends upon multiple circumstances (how many people with large estates die, how the economy is doing, how much of certain goods are imported).  So for budgeting purposes, revenue is always an estimate.

Similar, on the expenditure side, there are “mandatory” expenses (think the equivalent of mortgage and car payments) and “discretionary” expenditure (think groceries, you have to spend something but you can decide whether to go store brands or name brands depending upon how your finances are).   On the mandatory side, for the government are interest payments and what is commonly called entitlements.  Entitlements have gotten a bad name from conservative spinmeisters, but the term is a legal term reflecting that, if somebody meets the legal criteria for a particular program, they have a legally enforceable right to receive the payments from that program whether that program is Social Security, unemployment compensation, or Medicaid.  The discretionary side on the hand is most federal agencies.  Representing about 25-33% of total spending, Congress has to annually appropriate the money for these agencies (ranging from the military to the national endowment for the arts). Continue Reading...

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Deciphering the Federal Budget

Tonight 45 will speak about the budget plan his folks leaked out yesterday.  He’ll likely speak about other things, also, but that budget is all over the news and he’ll capitalize on that.  However, it’s rare that Congress actually passes a budget (the last time was in 2015, and that was the first time in six years) and rarer still that the presidential framework made it through the process.

So, let’s take a look at what was proposed, where it falls apart, and then what the process actually involves. Go get a cup of coffee, you’re going to need it.

First, the good news. Appropriations come from Congress, not from the Executive branch.  Per the Origination clause in the Constitution, all appropriations bills must start in the House, although the Senate may concur and/or offer amendments. In real life, normally this leads to negotiations between the Chambers prior to anything being enacted. Thus, nothing is happening quickly. That means there is time to lobby your reps for things that matter to you. Continue Reading...

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