Analysts at the Tax Policy Center have now released their analysis of President Obama's Fiscal Year 2014 Budget. Here are the salient points in chart form:
Notice that the deficit reduction proposals are over a 10 year period from 2014 to 2023.
Let's look at more detailed highlights and their impact on overall revenues.
a.) Increasing taxes to reduce the deficit:
Implementing the Buffett Rule which will raise taxes for those making $1 million or more will reduce the deficit by $53 billion
Reducing the value of tax expenditures for high-income taxpayers will reduce the deficit by $529 billion.
Restoring the 2009 parameters for estate and gift taxes will reduce the deficit by $72 billion.
Increasing and indexing tobacco taxes will reduce the deficit by $78 billion.
Expanding the unemployment insurance tax base will reduce the deficit by $51 billion.
b.) Reducing taxes to increase the deficit:
Permanently extending certain provisions in the American Taxpayer Relief Act will increase the deficit by a net $161 billion.
Providing small businesses with a 10 percent tax credit for new jobs and wage increases will increase the deficit by a net $26 billion.
Increasing the tax enforcement program integrity cap will reduce the deficit by $47 billion.
Reducing the tax gap, simplifying the system and strengthening compliance will reduce the deficit by $28 billion.
The net result of the 32 key revenue measures in the budget is a net decrease in the deficit of $881 billion over the 10 year period.
Here is a chart showing how changes to individual federal taxes in the Obama 2014 Budget will impact different cash income levels in 2015:
Americans earning cash income of less than $100,000 annually will see their average Federal taxes increase by between $18 and $74 in 2015. Those earning cash incomes of over $1,000,000 will see their average Federal taxes rise by $82,604. On average, these individuals will see their average Federal tax rate rise by 2.3 percentage points to 41.1 percent. Those making just under $1,000,000 will see their Federal tax rate rise by 1.3 percentage points to 33.6 percent. The remainder of Americans will see their average Federal tax rate rise by between 0.1 and 0.8 percentage points, ranging between 2.1 percent and 27.2 percent.
The 2014 President's Budget claims that it will achieve additional deficit reduction of $1.8 trillion over 10 years through reductions in spending and increases in revenue as noted above, bringing total deficit reduction to $4.3 trillion and reducing the deficit to 2.8 percent of GDP by 2016 and 1.7 percent by 2023.
How likely is it that these deficit goals will be achieved? Here is a graph from FRED showing a history of the deficit as a percentage of GDP since the Great Depression:
In 2009, the deficit hit 10.1 percent of GDP, the fifth worst on record. Between 2010 and 2012, the deficit ranged from 6.9 percent to 8.9 percent of GDP, the sixth, seventh, eighth and ninth worst years on record. The only years with greater deficits as a percentage of GDP were from 1942 to 1945 when America was ramping up spending for the war effort.
To put things into perspective, here's a bar graph showing the unceasing climb in the Federal debt since 1940:
Now, with these two graphs in mind, what do you think the odds are that historical trends will suddenly reverse and that the rather meagre spending cuts and revenue increases in the President's budget for fiscal 2014 will do anything to improve America's indebtedness over the next decade?