President Obama announced his 2013 budget proposal on Monday. Even though his plan is not expected to pass Congress, it is seen as a strategy for the November election. According to the budget plan, revenue through taxes would increase by $1.5 trillion until 2023. A key aspect of the plan is a tax reform that targets at increasing taxes for wealthy Americans, while providing subsidies to various other groups, including students. A finalized version of Obama’s tax reform is expected at the end of the month.
Even though the president’s budget plans include a deficit reduction, the deficit is projected to grow substantially in the coming years. The US federal debt is already at more than $15 trillion and is projected to grow in the future. – and these numbers are provided by the government, meaning the projections on growth are rather exaggerated. Also, the reductions mentioned concern only the deficit. – the debt is still rising.
Furthermore, the assumption that a tax increase for the rich would not have any impact at all on productivity and growth is simply wrong. Rich individuals might choose to work less if they can keep less of the money they earned. In addition, some might move to other countries where taxation is lower (e.g. Singapore).
In general, it is right to address deficit reduction. However, instead of increasing revenue through tax increases, the government should focus on cutting spending first before any tax increases might be considered.
Politicians have to address debt reduction more aggressively – a constitutional amendment limiting the deficit is absolutely crucial!
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