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Wednesday, April 22, 2015

THE BUDGET BATTLE

BRYCE ON POLITICS

- Just how badly do we want to manage the budget?

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We are finally coming down to one of the pivotal differences between Democrats and the Republicans, namely the federal budget. This is something the GOP has wanted to address for a long time, and now that they control both chambers of Congress, a confrontation is finally at hand. Most voters understand the overwhelming amount of debt we have incurred over the last seven years, that deficits and government spending is out of control, and to fix the problem certain cuts have to be made, like it or not. We certainly do not want this to be a legacy for our grandchildren to address. Now is the time to clean it up, but we face the problem of a divided nation over ideological differences.

President Obama, the Senate and the House have assembled three different budgets. Of the three, the Senate's and the House's are similar and represent the Republican's proposal to straighten out our financial mess and work towards a balanced budget. The president's represents the Democrat's point of view and is not concerned with a balanced budget.

According to a recent analysis by the Associated Press (AP), there are significant differences between the three:

In terms of REVENUE:

President - "Would increase taxes on wealthy people, corporations and smokers."

Congress - "Tax hikes do not figure in either GOP budget, though both Republican blueprints call for a tax code overhaul — with details to be worked out later. Curiously, the Republicans make repeal of the Affordable Care Act a key provision of their blueprints, but they still assume the tax revenues created by the law will still flow to the Treasury."

In terms of SPENDING:

President - "Increases spending on public works, education and defense, and would eliminate the automatic cuts imposed under a 2011 budget deal."

Congress - "Boosts defense spending but makes cuts to domestic social programs like Medicaid and food stamps. The House plan would convert Medicare to a voucher-like program, and both GOP budgets would repeal the Affordable Care Act, Obama’s signature domestic achievement."

In terms of THE DEFICIT:

President - "Sees deficits stabilize at about 2.5 percent of GDP."

Congress - "Seek $5 trillion in reductions over the next decade.
Both Republican plans bring the budget into balance in 2025 - a modest $3 billion surplus for the Senate plan, a $33 billion surplus in the House plan. Democrats accuse the GOP of using shady accounting practices."

In terms of THE PUBLIC DEBT:

President - "Debt held by the public does not fall appreciably, declining from 75 percent to 73 percent by 2025."

Congress - "Both GOP budgets project a debt below 60 percent of GDP by 2025.
Public debt is still expected to exceed $20 trillion in 2025, with interest reaching $857 billion. Under the GOP plans, interest be less than $625 billion in 2025."

 
In a nutshell, to reduce the debt without raising taxes is good news for both the wealthy and the middle class (not to mention smokers). Not surprising, the GOP plan is an open attack on the Affordable Health Care Act, Obamacare, a plan that Americans still do not embrace (see Gallup). All three budgets make use of the GDP (Gross Domestic Product) which, frankly, is limping along (currently 2.2%) and reflects a sluggish economy. If we had a robust GDP, the country would feel its effect through more money from taxes. Finally, the president's plan openly does not support a balanced budget, but raises spending instead. As another AP report contends, "While his (Mr. Obama's budget) leaves a projected deficit exceeding $600 billion 10 years from now, the Senate plan claims a surplus of $3 billion.

So, the question comes down to: Do we compromise again or do we really want to address our economic problems? If we want the latter, we must surely move beyond the status quo and take corrective action. However, the battle lines have already been drawn. According to a statement by the White House press secretary, Josh Earnest, the Senate-passed budget "relies on top-down economics and gimmicks," and "refuses to ask the wealthy to contribute a single dollar to deficit reduction." He goes on to say, the Senate bill would lock in severe spending cuts "to investments in the middle class like education, job training and manufacturing," and it fails to "responsibly fund our national security." As to national security, this is simply not so, as the GOP proposes more money for defense as opposed to the president's plan. Further, we would generate more money for education, job training, and manufacturing by simply lessening the regulations and taxes on corporate America, thereby allowing them to thrive.

The next step is to have the two chambers of Congress negotiate a compromise budget in mid-April. Interestingly, the legislation is non-binding, meaning that it will not require the president's signature, but will inevitably lead to veto fights with Mr. Obama in future bills.

It will be interesting to see if we truly have the fortitude to manage our finances responsibly. If we do not, God help our grandchildren.

Keep the Faith!

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Tim Bryce is a writer and the Managing Director of M&JB Investment Company (M&JB) of Palm Harbor, Florida and has over 30 years of experience in the management consulting field. He can be reached at timb001@phmainstreet.com

For Tim's columns, see:   timbryce.com

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