The budget recently released by President Obama proposes a balanced path toward more fiscal responsibility, containing both spending cuts and tax increases. Although the president has proposed smaller changes than in previous budgets (even after adjusting for the recent tax act), his proposals do offer several helpful ways to move forward, most particularly the proposal to cap individual income tax expenditures at 28 percent.
However, I would have liked to have seen more ambition in his proposals. Given low interest rates and a listless economy, this is an opportune time for the government to borrow money and invest in the economy in the short-term. It should also do more to restructure its debt toward longer-term obligations to protect it from sharply increasing net interest payments when interest rates do start rising. Moreover, now is the time to implement reforms that can improve long-run growth and are consistent with the long-term revenue needs of the government, such as reforming the income tax code, implementing a VAT, and introducing a carbon tax. All of ideas, both short- and long-term, should be considered in order to put our economy on the optimal growth path going forward.
The Tax Policy Center has more on the president’s budget.