Experts, lawmakers react to budget proposal


February 17, 2012

Financial experts say President Barack Obama's proposed budget suggests a degree of optimism, adopting more beneficial economic assumptions about the nation's gross domestic product and unemployment rate.

Part of the proposed $3.8 trillion in spending for 2013 was based on a projected 3.6 percent increase in GDP this year and another 4.4 percent next year. The plan also suggests unemployment will drop to 7.5 percent in 2013, and these improving fundamentals will allow strong growth to take place in 2014.

President Obama did speak with some caution when presenting his proposal to lawmakers, MSNBC notes. Despite that tone, however, the projections and assumptions used to derive the budget were more positive than either the Blue Chip survey of private economists or the Congressional Budget Office's projections, which the White House stated is due in part to the analysis assuming the President's budget proposal is adopted unchanged, which is unlikely.

The budget calls for a total of about $4 trillion in deficit cuts over the next decade, shrinking the deficit to $901 billion in 2013 and $575 billion in 2018 as steps are taken to address the nation's financial difficulties. Critics of the budget stated that it does not offer major tax and spending changes and warned that failure to cut spending could prolong or extend the federal government's fiscal woes.

The administration, however, suggested that cutting too much too quickly could stunt economic recovery, defending plans to add spending on transportation expenses of $476 billion, as well as $30 billion each for modernizing 35,000 schools and helping states hire firefighters, teachers, police officers and rescue workers. Politicians and experts are debating the macroeconomics of increased spending on education and transportation, though economist Jared Bernstein noted most individual Americans are more concerned with jobs and economic growth than the deficit.

Meanwhile, financial retirement planning and managing personal finances may be impacted more directly by other parts of the budget. According to Plan Sponsor, it would restrict the ability of high-income taxpayers to reduce their tax liability, so that married taxpayers filing a joint return with incomes above $250,000 and single taxpayers with incomes higher than $200,000 can reduce their tax liability to a maximum of 28 percent.

This change takes into account employer-sponsored health insurance, retirement contributions, tax-exempt interest, foreign excluded income and all itemized deductions, presenting a challenge to financial advisors. Executive director and CEO Brian Graff of The American Society of Pension Professionals & Actuaries states the plan could discourage employers from offering retirement savings plans to workers by removing tax incentives, in addition to the direct impact on many taxpayers.

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Budget Proposal
This is a very mild explanation of an outrageous budget proposal - nothing more than campaign hogwash. With many of this turkey's proposals, the investment world will be heavily impacted, and to treat them lightly will be a serious error.
By Ed Higginbotham @ 2012-02-17 20:53:40