Wednesday, April 13, 2011

Baseline Budgeting and Taxes

For those of us political geeks, we are very familiar with the term “baseline budgeting”.   To put it plainly, you set a financial goal for spending as your baseline.  Increases or decreases are then determined on the baseline and not previous spending.  Suppose I spent 10 dollars on bubble gum last year and I planned on spending 12 dollars on bubble gum the next year.   Now suppose I then actually spend 11 dollars on bubble gum, that means I had a spending cut of 1 dollar on bubble gum.  Doesn’t make sense at all since I actually spent an additional dollar on bubble gum than I did the previous year?  The federal government has been using this technique for decades, primarily as a means of demonizing those that would reign in spending.  I remember back in the 90’s when the Republicans fell prey to this tactic when they put forward a budget that while increasing spending, it didn’t increase it as much as the baseline, which meant that they were “cutting” entitlements. 
Unfortunately, we now see this tactic transferring over to taxes.  At the end of 2010, the tax rates passed under George W. Bush were set to expire.  The vote to keep the tax rate as is was advertised by the left as an effort to cut taxes.   Basically, the used the projected tax rates as their baseline.  Anything short of those rates equaled a tax cut.  Call me a stickler, but if we are to cut taxes, they must be at a rate lower than the existing rate.   Unfortunately, the message to the masses is still mostly controlled by the left, and such messaging is effective.   So, now in 2011, Obama will get by with saying he cut the deficit by decreasing the amount of projected increases he himself put forward.   He will also use the tax cut tactic to demonize republicans.  Let’s say I use this same tactic with my pay.  Around annual review time, I project a 30% increase in pay, but instead I just get a 15% increase in pay.   I would then come home and tell my wife that the company slashed my pay.  Do you think anyone would have sympathy for me?

1 comment:

Kansas Bob said...

I would not have sympathy for anyone who gets a 15% increase in pay. It is why I do not sympathize with the fat cat super rich. :)