Obama's budget: Why your toddler needs a job
Commentary:
(MoneyWatch) As I watch reactions come in toPresident Obama's budget proposal, I'm reminded that I need to tell my three-year-old niece to get a job. Sure, some think that a cute little toddler like Kara should be able to be care- and job-free for years. But the kid has debt. Lots of debt. And so does her newborn brother.
If they let that debt fester until they are in their teens, when you might think they're old enough to work, the $51,679 that they owe now could easily double and cripple their financial lives, keeping them from going to college or buying a car or a home.
Of course Kara didn't go on some wild shopping spree at Target to rack up a $51,000 credit card bill. Her debt is really my debt -- and yours and the debt from the generation before us. The $16 trillion that we owe amounts to $51,679 for each man, woman, teen and toddler in the country.
But since those of us who are old enough the vote and lobby the government are clearly not going to pay the bill, it's going to have to be shouldered by toddlers like Kara. In fact, she really needs to figure that she'll be paying my $51,679 as well as hers. Every toddler will probably have to carry the weight of several adults' debts.
Why am I so sure that all the debt repayment must shift to Kara? Because, in just the past few hours, as special interest groups scramble to read the budget proposal and understand what's in it, I've received dozens of vigorous arguments about why the incredibly modest budget cuts should not apply to anyone in my generation.
Consider the offense taken by the American Society of Pension Professionals and Actuaries when they discovered that the president's proposal would not allow small business owners to contribute more than $3 million to their retirement plans on a tax-favored basis.
"We think it is grossly unfair that a small business owner will be limited to retirement benefits that are nowhere near as valuable as executives' at large corporations," said Brian Graff, executive director, in a statement. "Small business can't use the non-qualified deferred compensation arrangements that provide millions, even billions of dollars in retirement benefits to big corporate executives. Every time retirement plan limits are cut, the corporate CEOs get more non-qualified retirement benefits. It's the small business owners and their employees who lose out and it just isn't fair."
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It's worth noting that small business owners, like everyone else, can actually save as much money as they want (or can afford). The proposal would simply stop them from receiving additional tax benefits for it. The horror.
And the Charitable Giving Coalition, representing a broad cross-section of non-profits, is up in arms about the White House's proposal to limit the value of charitable contribution deductions for people in tax brackets higher than 28 percent. They sent a letter to Mr. Obama saying the proposal "would spell disaster for the vital programs and services of thousands of charitable organizations and the millions of Americans who rely on them each day."
Would rich people actually stop giving to charity if they couldn't deduct every dime at the highest federal rate? No one really knows. But they might become somewhat more judicious about the charities that they support because, after all, it's a lot easier to throw around little Kara's money than our own.
It's almost difficult to discern who is screaming the loudest amid the cacophony of protest over changing the inflation measure for entitlement programs. Mr. Obama wants to go to a so-called "chained CPI," which accounts for the fact that we, as consumers, don't buy the same products month after month. When something gets wildly expensive, we might substitute chicken for steak or buy oatmeal instead of Cheerios.
Switching to chained CPI, which acknowledges modest substitutions, would incrementally lower inflation adjustments for both Social Security payments and for tax brackets, meaning you'd get slightly lower retirement benefits than you would under the current system and pay slightly more in tax.
"The so-called 'chained CPI' included in the president's budget would cut Social Security benefits significantly over the next 10 years," said AARP official Nancy LeaMond in a statement. "It would start now, taking money from the pockets of current beneficiaries and would grow larger over time, having the greatest impact as Americans grow older and rely more on their Social Security benefits. It would also cut additional benefits for veterans and people with disabilities, and raise taxes on most taxpayers."
Of course what LeaMond says is true. Using a new inflation measure would affect the next CPI adjustments, which means they could be felt as soon as next year. But the difference in payments (and taxes) would likely be so slight, it would be almost imperceptible at first. The difference between what you would receive under the current system versus the "chained CPI" system would grow incrementally over time. Perhaps the cumulative effect would be that your retirement benefit check in 10 or 20 years might be 3 or 5 percent less than it could have been under the current system, for instance. However, those who are not in the habit of spending next year's raise would likely be able to weather the storm by, perhaps, saving a little more now or spending a little less later.
The National Treasury Employees Union, meanwhile, cannot believe that the president would want federal employees to pay a bit more into their defined benefit retirement plan, forcing them to up their contributions by 0.4 percent per year for the next three years. Even more shocking is that the government will not allow new hires to become eligible for subsidies currently available to federal workers who retire too early to qualify for Social Security benefits. "It is outrageous to see the federal workforce targeted once again despite the massive contribution employees already are making to deficit reduction," said president Colleen Kelley of the National Treasury Employees Union in a statement.
The budget doesn't suggest trimming other popular "tax expenditures," such as the mortgage interest deduction or small business "expensing." Previous proposals, which suggested that mortgage interest deductions might be limited for loans over, say, $500,000, generated such ire that they're not even mentioned in today's proposal. Limit write-offs for high-end health plans? Blasphemy!
Never mind that each of these proposals causes relatively minor pain to each individual because the cost would be widely disbursed. Wide dispersion of the cost simply makes it easier to rally the groundswell of outrage needed to kill these proposals. After all, if you tell large numbers of people that the proposal would hurt them -- and don't mention that it might cost them less than what they'd spend on their Starbucks coffee habit -- you can fuel a greater wall of opposition. We adults know that if we scream loud enough, hire enough lobbyists and contribute to enough political campaigns, our voices will be heard and our pocketbooks will be saved.
So, it's clearly up to toddlers like Kara to shoulder our debt. Maybe I'll talk to her about starting a lemonade stand.
