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Thursday, January 28, 2010

State of the Union Speech Includes Tax and Budget Deception

President Obama's State of the Union address included some conflicting statements which I think he can easily get away with because most people don't think of tax credits and special tax deductions as being the equivalent of government spending. For example, the new tax credit he mentioned for creating jobs - any company that claims this will have a reduced tax liability. It is the same effect as if the government had issued a check to this employer.

So, when President Obama says he wants to freeze some spending categories starting in 2011 while at the same time adding new tax credits and tax deductions (although it sounded like he wanted to do this starting in 2010), spending is not frozen - it is likely going up. More specifically, the spending that is buried in the tax law increases.

Of course, he did also mention some tax reductions, such as for oil companies and companies that shift jobs outside of the US.

But, if you are going to freeze spending, you will not meet your goal if you create some new spending and bury it in the tax law. This would be like Jane saying she us going to cut down on her spending, but then asking her employer to send part of each of her paychecks to a travel agent to cover the cost of a vacation she is planning. While Jane might not be paying any increases in her cable or utility bills (because she is "freezing her spending"), she is spending more by diverting some of her paycheck to pay for a vacation. Even though her employer writes the check to the travel agent, it is Jane's spending. (Even though the government doesn't write a check for hiring the new employee, it has spent money because it collected less tax from that employer.) Let me know if you have a better analogy.

The Tax Foundation blog has a nice list of the tax cuts and increases noted in President Obama's address.

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