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The Sequester from a business prespective

wall street do not enter

With the Dow Jones hitting all-time highs, I thought that it would be instructive to see what Wall Street thought about the sequester.

A few thoughts from Goldman Sachs:

In 2011, Congress passed and the President signed the Budget Control Act, which raised the debt limit by $2.1 trillion and cut $2.1 trillion from projected spending over the following ten years. Caps on discretionary spending levels were estimated to reduce spending by $900bn compared with baseline projections that assumed spending would growth with inflation. The remainder of the savings was to be achieved by the congressional “super committee.” To motivate the super committee, and to ensure deficit reduction even if it failed, the legislation established $1.2 trillion in automatic cuts through 2021 by means of sequestration if the super committee could not agree on at least that much in deficit reduction. The super committee failed to agree on a deficit reduction package, leaving sequestration to take effect….

The cuts are not that large in the context of the $3.5 trillion federal budget, but sequestration will nevertheless cause real disruptions because the law to implement the cuts is very prescriptive and because they must be phased in relatively quickly once triggered …


By |2013-03-09T12:33:22-04:00March 6th, 2013|Economy, Obama administration|Comments Off on The Sequester from a business prespective

Fiscal Cliff – We got a parachute

Fiscal Cliff

Once again at the 12th hour a deal is reached. Over the next several days we will get more details on this deal. Here’s what I think that we have:

Bush tax cuts: The deal would extend all of the Bush tax cuts for incomes below $400,000 for individuals and $450,000 for families, while reinstating the Clinton-era 39.6 percent tax rate for income above those thresholds. It will also push the capital gains rate on investment income back to 20 percent for income above $400,000 for individuals and $450,000 for families. President Obama had asked for an extension of rates only for incomes below $250,000.

Stimulus tax credits: Three tax credits expanded as part of the stimulus will be extended for one year as part of the compromise. The America’s Opportunity Tax Credit, Child Tax Credit, and Earned Income Tax Credit collectively benefitnearly 20 million Americans each year, and extending them was a priority for Obama and Democrats. Republicans allowed all three to expire in tax legislation earlier this year. (more…)

By |2013-01-01T12:19:12-04:00January 1st, 2013|Budget, Economy, Party Politics|Comments Off on Fiscal Cliff – We got a parachute

Fixing the Budget (Part Two)

Again, I’d like to point all of my readers to a nice interactive graphic on New York Yesterday, I focused on domestic programs, foreign aid and the military. Today, I’m going to look at taxes and healthcare.


Enact Medical Malpractice Reform – according to the Congressional Budget Office this would save $8 billion in the short term and $13 billion in the long term. I could talk about malpractice reform for hours. I think it needs to be done. I also think that patients who are harmed should have some restitution. We can talk about this another day. Right now, let’s enact malpractice reform.
Reduce the tax break for employer-provided health insurance – this would reduce the tax rate for employer-based health insurance by slowly adjusting the tax rate. That, in theory, increases the rate of economic growth. This should save $41 billion in the short term and $157 billion in the long term.
I would not increase Medicare eligibility to 68 or to 70.
I would not artificially try to control the growth of Medicare.
In my opinion, the way to control Medicare costs is to allow the government to negotiate drug prices and change the way we pay doctors and hospitals.

Social Security

Raising the Social Security retirement age to 68 would save $13 billion in the short term and $71 billion in the long term. I don’t support this.
Reduce Social Security benefits for those with higher incomes – basically, this would set up three categories based on lifetime earnings. This would save $6 billion in the short term and $54 billion in the long term. I like this.
Tighten eligibility for disability – although this could save $9 billion in the short term and $70 billion in the long term, I don’t support it.
Use an alternative measure for inflation – this would save $21 billion in the short term and $82 billion in long term. I don’t support this. I think that seniors who need Social Security should get Social Security.

Existing Taxes

The Lincoln – Kyl proposal – this is basically rewriting the estate tax. The first $5 million would be exempt. I don’t support it.
President Obama’s proposal – this is also a derivation of the estate tax. The first $3.5 million would be exempt. Everything above $3.5 million would be taxed at 45%. I don’t support this.
Return to the Estate Tax during the Clinton Era – as they were back in the ’90s, estates less than $1 million would be exempt. There’s a variable rate between 18% to 55% up to $3 million. Everything is taxed at 55% over $3 million. This saves us $50 billion in the short term and $104 billion in the long term. I do support this.
Investment taxes – return to Clinton-era tax levels – 10% capital gains taxes for low-income households and 20% capital gains taxes for everyone else. Dividends would be taxed at the same rate as ordinary income. This would increase short-term revenue by $32 billion and long-term revenue by $46 billion.
Let the Bush-era tax cuts expire for incomes above $250,000 – this would raise $54 billion in the short term and $115 billion in the long term. I do support this. Although there’s been talk about allowing the Bush-era tax cuts to expire on those Americans making less than $250,000 a year I don’t think that that is wise.
Increase the payroll taxes on incomes above $106,000 – I think we can talk about this at a later date. I think it probably does need to be done but I don’t think it needs to be done right now.

New Taxes and Tax Reform

Millionaire tax on income above $1 million – currently the top tax bracket ends at $375,000. This would add a top tax bracket on top of that. This would increase the tax rate by 5.4% for those households making over $1 million a year. This would raise $50 billion in the short term and $95 billion in the long term. I support this.
Eliminate loopholes and keep taxes slightly higher – the Cat Food Commission (also known as the Simpson-Bowles Deficit Commission) suggested that we could close loopholes and then lower the tax rate since we would collect taxes more efficiently. I suggest we close the loopholes and once we’re rolling in money and have paid down our debt, let’s give rebates to Americans who need it. So, this would save $136 billion in the short term and $315 billion in the long term.
Reduce mortgage deduction and others for high income households – I don’t support this.
National sales tax – I don’t support this either.
Carbon tax – this would tax carbon emissions. I think this has to be done. This would raise $40 billion in the short term and $71 billion in the long term.
Bank tax – this would tax banks based on the size of their holdings and the perceived riskiness of their holdings. Larger and riskier banks would pay more tax. Then, the next time they try to drive us off a cliff, at least they’ve paid for the riskiness. This would save $73 billion the short term and $103 billion the long term. I support this tax.

By using the sensible cuts and tax increases that I’ve laid out in these last two posts, I have fixed our short-term deficit problem and I have fixed our long-term deficit problem. In the short term, I have saved $697 billion. In the long term, I’ve saved $1.362 trillion. To me, the bottom line is no one has to go hungry. No one has to do without Medicare or Social Security in order for us, Americans, to balance our budget. If we ask those who make a good living to give a little bit more, we’re golden. It is that simple.

What are your thoughts?

By |2011-08-12T17:43:51-04:00August 12th, 2011|Economy|Comments Off on Fixing the Budget (Part Two)
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