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Federal budget battle sequel

By Kay Bell · Bankrate.com
Tuesday, March 4, 2014
Posted: 2 pm ET

Remember the relief we felt when Congress passed a two-year budget back in January? Buckle up. They're at it again in Washington, D.C.

President Barack Obama today released his fiscal year 2015 budget, officially setting off the next round of financial and political fights. As previewed in the president's State of the Union speech, Obama's formal financial wish list includes several tax proposals to help low- and middle-income families.

The Republicans actually got a small head start in this latest money fight. Rep. Paul Ryan, R-Wis., on March 3 released a critique of traditional Democratic spending programs designed to combat poverty.

Ryan redux

Ryan, chair of the House Budget Committee, argues in his 205-page report that federal programs are "in some significant respects" making poverty worse.

Ryan's report is not new. He's been his party's leader in developing spending goals through much of his tenure in the House and he has issued detailed GOP budget plans for several years.

This time, Ryan takes advantage of the 50th anniversary of the launching by President Lyndon B. Johnson of the War on Poverty to point out what he and the Republican Party see as wasteful federal failures.

Ryan cites overlapping food assistance, housing and education programs and points to a drop of only 2.3 percentage points, from 17.3 percent to 15 percent, in the national poverty rate since 1965.

But missing from Ryan's document are specific alternatives to current programs. Instead, it offers general outlines for possible changes. House GOP leaders say they expect Ryan and his committee to produce a more detailed budget later this year.

Say, perhaps, after the November elections?

Expanding the EITC

Obama, meanwhile, is proposing some specifics, such as increasing the Earned Income Tax Credit, or EITC, for some childless workers to $1,000.

The president's proposal more than doubles current benefits. A lower-paid worker with no kids now can get at most a $487 EITC payout on his or her 2013 tax filing; for 2014, the maximum for these workers will be $496.

Obama also wants to make the expanded credit available to young adult workers ages 21 to 24. This, says the president, will provide added support when young people are just starting their careers.

At the other end of the EITC spectrum, Obama's budget proposal would make the childless credit available to older workers by increasing the upper age limit from 64 to 66.

These changes will be paid for by closing tax loopholes that let some high-income professionals pay lower taxes. These include taxing carried interest as ordinary income instead of at capital gains rates and changing the way professional services businesses pay self-employment taxes.

Political tools

The reality, though, is that both Obama's budget and Ryan's report are more political than practical.

Each man has laid out his party's approaches to major problems facing America. And while both eventually want to solve the problems, right now their proposals are more useful as campaign tools in the midterm elections.

Check back on Nov. 5 to see what Democrats and Republicans are saying about Uncle Sam's money and how to spend it.

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Veteran contributing editor Kay Bell is the author of the book "The Truth About Paying Fewer Taxes" and co-author of the e-book "Future Millionaires' Guidebook."

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