Don't Mess With Taxes

What better way to spend a Saturday than considering budgets?

I know you've been thinking about Uncle Sam's bottom line, what with all the Congressional and Presidential campaign ads already hitting the airwaves in many parts of the country.

The House was doing some budget analysis last week, too. Representatives voted on Friday to spare their office expense accounts, officially known as the "members' representational allowance," from added cuts in the 2013 Congressional operations budget.

To be fair, House members have cut their operational budgets a by a total of 13 percent since the 2010 fiscal year.

Still, the lawmakers' decision to pare no more shows that eventually everyone reaches a point where there's no more spending to reduce. Or so think Representatives about their own funds right now.

We'll have to see what their point of view is when it comes to other federal funding.

Overall outlook: The Congressional Budget Office (CBO) also has been doing its thing, crunching numbers based on various budget scenarios.

Last week, the CBO released its 2012 long-term budget outlook.

"Over the past few years, the federal government has been recording budget deficits that are the largest as a share of the economy since 1945," said CBO numbers crunchers in their analysis. "Consequently, the amount of federal debt held by the public has surged. By the end of this year, CBO projects that the federal debt will reach roughly 70 percent of gross domestic product (GDP), the highest percentage since shortly after World War II."

In conjunction with the report, the CBO created an infographic of federal debt held by the public, historically and projected under two policy scenarios, an extended baseline (EB) scenario and an extended alternative fiscal (EAF) scenario.

Click the image for a larger view and click here for the full infographic.

The EB numbers assume current laws will continue, meaning that tax rates with go up and spending cuts will be made in January 2013. The EAF presumes that Congress and the President will agree to extend most tax cuts now in place and find a way to prevent the impending automatic spending cuts.

As for which choice Washington will make, the CBO notes:

"Policymakers face difficult trade-offs in deciding how quickly to implement policies to reduce budget deficits. On the one hand, cutting spending or increasing taxes slowly would lead to a greater accumulation of government debt and might raise doubts about whether longer-term deficit reduction would ultimately take effect. On the other hand, abruptly implementing spending cuts or tax increases would give families, businesses, and state and local governments little time to plan and adjust, and would require more sacrifices sooner from current older workers and retirees for the benefit of younger workers and future generations. In addition, immediate spending cuts or tax increases would represent an added drag on the weak economic expansion."

Based on previous Capitol Hill actions, I'm betting the House, Senate and President will find a way to take the alternative budget route.

Your personal budget: Finally, let's take today's budget review to the micro, personal level.

In today's Your Money column in the New York Times, Ron Lieber looks at what's involved in a financial tuneup.

The article includes an interactive checklist of 31 suggestions of things you can consider, from investments and retirement to loans and credit to insurance and overall planning moves, to get your personal accounts in better order.

Have a fun weekend with your money!

You also might find these items of interest:

• The $1 million tax rate threshold's possible fiscal and political costs
• 'Fiscal Cliff,' the biggest economic and tax disaster of all time!
• Economic and political perils of Congressional gridlock