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Obama’s Budget Plan: Raise Taxes on Middle Class, Gut Charities

President's budget to fail$800 billion in tax increases form the center of President Obama’s new budget plan with some $1.2 Billion in cuts to future spending growth. Neither side seems to willing to support the plan.

Democrats say that the tax increases don’t go far enough and point to the liberal plan from the Senate that raises taxes by more than twice what Obama’s budget calls for.

Republicans see no spending cuts at all. The budget doesn’t reduce spending year-over-year, only the rate at which spending will increase each year. In fact, Obama’s budget adds $1 billion for 15 manufacturing innovation institutes, additional funds for high-speed rail, and free pre-school for low-to-moderate income families.

Both sides are concerned about the tax increase on the middle class.

The only entitlement reform, the method most economists agree is the only way to save those programs, is to change the way inflation is calculated. Currently, inflation is calculated based on price increases in a set basket of goods. The president’s plan would switch to chained-CPI which takes into account the behavior of switching to alternative, cheaper products as the price of an item increases. The resulting inflation rate is slower. Inflation calculations are used in determining the cost-of-living adjustment (COLA) for government programs like Social Security and for determining increases in the tax brackets.

Democrats are concerned that using chained-CPI will result in seniors seeing their Social Security checks not keep up with actual cost-of-living. Republicans are concerned that more middle-income earners will be pushed into higher tax brackets or above the Alternative Minimum Tax (AMT) threshold and forced to pay higher taxes.

Senate Democrats are threatening to give Obama yet another zero-support vote and House Republicans have called the plan “dead on arrival” in the people’s chamber. Since this plan closely resembles the failed “grand bargain” from 20011, there is little hope that it will materialize into an actual budget.

There are also concerns over the supposed spending slow-downs in the budget. Much of it depends on cost savings due to Obamacare.

With this year’s delay of implementing the exchanges, skyrocketing implementation costs, quickly rising premiums and the projected shortfalls in available care, rampant cost overruns are the expectation. Even the Department of Health and Human Services was caught off-guard by the complexity and costs of the President’s marquee health care legislation.

The President’s budget plan also removes charitable deductions and home mortgage deductions for higher earners. Non-profit groups that rely on huge donations from wealthy contributors are understandably concerned that the new budget plan, if enacted, could decimate their efforts to help others. Add in middle-earners being hit with higher taxes and the two groups that mainly fund charitable efforts will be far less likely to do so.

Low-income families are often heavily-dependent upon charity groups for food and clothing. The President’s plan will likely do more harm to lower and middle-income earners than anyone else.

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