I’m sure there are more than a few problems with the President’s budget proposal, depending on one's point of view, but I'd like to comment on three that I think particularly egregious.  What we think of most issues depends, of course, on whose ox is being gored, and I’m not immune to that problem.  However, here are three provisions that I think are pushing our society as a whole in a decidedly wrong direction.

  1. Not indexing Social Security benefits to inflation, but to another index that rises more slowly.  While most people are upset because this would significantly reduce benefits (how else can it significantly help the budget?), and of course this matters to me as well, because we’re reaching the age where we’ll be depending to some degree on those checks.  But that’s not my primary concern, which is that it would reduce the incentive for the government to curb inflation.  We’re already in the precarious position where inflation benefits the government in the short term—as it does most debtors.  This provision would make inflating our currency still more attractive, as the more the money inflates, the less retirees will receive in real income.
  2. Limiting retirement savings.  Most importantly, this discourages saving.  Americans are already very bad at saving money; despite what the advertisers will tell you, this bodes ill for achieving a stable, healthy economy.  IRAs and other tax-deferred savings plans have been a good incentive in the right direction.  Note:  these accounts are not tax-protected or tax-free, as some articles are suggesting.  The tax is merely deferred until the money is withdrawn.  Under the President’s proposal,  "[s]uch accounts would be capped at $3 million in 2013 dollars—which officials say is enough to finance a $205,000-a-year income."  Do you believe that?  I don’t.  As my husband said, "I’d like the person who made that calculation to sell me a 30-year annuity backing up his words.  I dare him to guarantee a 6% return."  I doubt there’s anyone who would take that bet, unless he’s pretty sure we’ll have either a very strong economy or rampant inflation (see #1 above).
  3. Limiting charitable tax deductions.  Capping the charitable deduction at 28%, while increasing the top tax rate to nearly 40%, will without a doubt decrease charitable giving in an age when it is increasingly needed.  Insist all you want that "real philanthropists" will give to charity no matter what, the truth is that the charitable tax deduction is more than just an incentive:  it means we have more money to give.  And as the Forbes article (link above) points out, "the Obama charity tax increase implicitly assumes, under cover of 'fairness,' that Washington will do a better job spending the money than private donors will.  But by encouraging philanthropy, we encourage imagination and innovation—in ways the political process, more likely to be constrained by conventional wisdom, will not."  What's more, the charitable tax deduction is a great investment for the government:  At the margin, forgoing $40,000 in tax revenue generates $100,000 in charitable donations.  Perhaps most worrisome of all is that encouraging citizens to turn over their charitable responsibilities to the government hinders the development of a just and caring society.

While it is clear that we need both spending cuts and tax increases to tackle our financial problems, not all cuts, and not all taxes, are equally valuable.  Put another way, some are more harmful than others.  These three proposals are a threat to the long-term health of our country.

Posted by sursumcorda on Saturday, April 13, 2013 at 6:23 am | Edit
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Is that $205,000 in 2013 dollars?

They're all questionable, but #2 bothers me most. The only reason to discourage saving is to give the economy a once-off boost from the extra money spent (just like I think trying to get all women in the paid workforce will only result in a once-off economic growth - and that largely because hitherto unpaid work has been monetized). It's more short-term thinking from folks whose terms aren't short enough...



Posted by Stephan on Saturday, April 13, 2013 at 1:39 pm

I'm beginning to like the Swiss idea of one-year terms. :)



Posted by SursumCorda on Sunday, April 14, 2013 at 7:08 am

My last comment wasn't intended to be a slam against our current president, but applicable to all.



Posted by SursumCorda on Sunday, April 14, 2013 at 8:21 am

There's one disadvantage for shorter terms: it's harder to get anything done in just one term, but especially something simultaneously necessary and unpopular.



Posted by Stephan on Sunday, April 14, 2013 at 9:53 am

Amen about the one-time economic benefits of nearly doubling the work force. It was a good boost, briefly, then salaries dropped because the labor supply supply increased; surprise, surprise.

Another one-off benefit to economic growth was credit cards. Okay, there is some ongoing benefit in terms of the "velocity of money," but mostly we fueled economic growth by stealing from our future.



Posted by SursumCorda on Sunday, April 14, 2013 at 2:45 pm
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