Daily Austerity Watch: Do Obama’s Budget Numbers Add Up?

President Obama’s budget numbers don’t add up.

At least, that’s the conclusion of the Tax Policy Center, which is run by the Urban Institute and Brookings Institution,  which took issue with his claim that he could realize “about $1 trillion in tax expenditures” under his spending plan for FY 2012.

Sure, Obama has again vowed to end the Bush Tax Cuts for wealthy taxpayers.  He’s also dusted off his proposal to cap the value of itemized deductions at 28% for wealthy taxpayers.  As for the rest, well as the Tax Policy Center’s Howard Gleckman points out, is a huge secret.  The President’s recent speech outlining the spending plan may have only added to the confusion because he spoke of savings over the next 10 and 12 years.

“This obfuscation is no accident and makes it nearly impossible to compare Obama’s plan with the House Republican fiscal plan proposed by Budget Committee Chairman Paul Ryan (R-WI),” he writes.

Obama’s plan is counting on $700 billion in savings from ending the Bush Tax cuts while another $320 billion would be generated over the next decade from the deduction part of the plan.     Though the numbers seem to add up to a $1 trillion,  that is fiscal sleight of hand because ending the Bush Tax Cuts is already factored into the Obama 2012 budget plan, so letting them die would not generate any new revenue at all, Gleckman says.  Let’s not forget that extending the Bush Tax Cuts, which Obama did only after being forced to by Congressional Republicans, is adding $2.4 trillion to the deficit over the next decade.

As f0r capping the ability of the rich to claim tax deductions, there is no evidence that will be effective either.  As Gleckman notes, the more these deductions are scaled back, the less revenue they will generate.  That again raises the issue of the $700 billion.

” The Tax Policy Center figures the top five percent of earners receive more than 40 percent of the benefits of the $1 trillion in annual tax expenditures, or about $400 billion-a-year,”  Gleckman writes. “Thus, for Obama to grab $70 billion annually, he’d have to cut those tax benefits by nearly 20 percent. The math works, although I’m not so sure about the politics, the economics, our even how such a scheme would work.”

Some fiscal conservatives are not so sure about Obama’s math either.

Alan Reynolds, a senior fellow at the LIbertarian Cato Institute ,recently wrote in The Wall Street Journal, that soaking the rich will not lead to increased tax revenue.  He noted that revenue to the IRS from 400 wealthiest Americans rose after the capital gains tax dropped.

“Even if the president could persuade Congress to enact all of his proposed tax increases, in addition to surtaxes already included in ObamaCare, the CBO finds we would still face endless budget deficits averaging 4.8% of GDP,” he writes.

Obama’s supporters will argue that Ryan’s plan has plenty of unanswered questions.  While that may be true,  asking the American people to back a budget based which has the fewest vague or misleading statements is kind of sad.

–Jonathan Berr