01 Feb 2010

Obama’s Budget

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Barack Obama promised earlier to cut the deficit in half. His new budget slightly reduces last year’s deficit, largely as an artifact of an end to Bush-era tax cuts. The new budget also includes the abandonment of plans to return to the Moon and possibly go on to Mars.

ABC News:

President Obama will send a $3.834 trillion budget to Congress today for Fiscal Year 2011.

By way of comparison, the FY2010 budget was $3.721 trillion; the FY2009 budget, presented by President George W. Bush, was $3.518 trillion.

The 2011 budget includes $1.415 trillion in discretionary spending and a $1.267 trillion budget deficit representing 8.3 percent of the gross domestic product.

A daunting number, the deficit represents a slight improvement from the FY 2010 budget when it was $1.556 trillion, representing 10.6 percent of GDP.

One reason for the slightly smaller projected deficit include the decision to let the Bush tax cuts of 2001 and 2003 expire for individuals making more than $200,000 a year and families making more than $250,000 a year. This tax increase, which will occur automatically, will bring in a projected $678 billion over the next decade, the administration says. The tax cuts are due to expire at the end of the 2010 calendar year.

The Obama administration will ask for the Bush 2001 and 2003 tax cuts to made permanent for individuals who make under $200,000 and families who make under $250,000. …

Goodnight Moon: NASA will also experience some cuts, including a cancellation of the NASA Constellation program to develop spacecraft to replace the Space Shuttle with the goal of sending astronauts to the Moon and perhaps even Mars.

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SDD

“This tax increase, which will occur automatically, will bring in a projected $678 billion over the next decade, the administration says.”

This number assumes that the people who are taxed make no changes in their behavior as a result of the tax rate increase. Since this has never happened before in history, I wouldn’t count on it this time.

What might help them a bit is the incentive for people to convert their IRAs to Roths in 2010-2011. This would, in effect, advance taxes that the government would not have otherwise received for many years. Of course, those who convert are betting that the congress will not renege on the tax-free withdrawals status of Roths. not a safe bet.



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