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Don’t pay attention to presidential budget proposals

And never use them to make investment decisions.

Are you concerned about the president’s budget plans? Don’t be. Relying on presidential budgets to make investment decisions really makes no sense at all. Why? Because the president isn’t in charge of making a budget. Congress is.1

Early every year, the president of the United States, amid much fanfare, submits a series of telephone book-sized documents that are referred to as the President’s Budget Proposal for the upcoming fiscal year. As soon as this proposal hits the street, pundits have a field day predicting what the budget will do to the economy.

What happens next? The financial press is full of stories about how you should invest your money to take advantage of the changes that are coming soon. Then brokers start calling you with “hot tips” on how you can make a quick buck buying or selling this, that or the other investment. What should you do? Turn off the TV and block the caller.

Here is what you need to know about presidential budgets:

  • The Constitution gives Congress the power to dole out the money, not the president. Congress controls the purse strings.
  • The president’s budget is not presented as a bill, and thus is never voted on.
  • The president’s budget is merely advisory. It has no binding authority.

In short, it is just a political show. The president proposes and Congress disposes. That is because the vast majority of presidential budgets have been described as DOA – Dead on Arrival:

  • Jan. 13, 1985 – Reagan’s Budget: ‘Dead on Arrival’ in Congress? – Associated Press2
  • Aug. 18, 1988 – “Read my lips: no new taxes” – George H.W. Bush – TIME3
  • Nov. 18, 1995 – Clinton: Budget proposal ‘dead on arrival’ – CNN4
  • April 10, 2001 – Democrats: Bush budget ‘dead before arrival’ – CNN5
  • Feb. 1, 2015 – Obama budget likely ‘dead on arrival’ – USA TODAY6
  • May 27, 2017 – Trump’s Budget: “Dead on Arrival” – Barron’s7
  • April 28, 2021 – Senate Democrats resist Biden’s $1.8 trillion pay-for plan: “Even if the White House ultimately tries to force the bill through via the budget reconciliation process, it will still need every single Senate Democrat to come aboard. Right now, it’s unclear if they will.” – Axios8

So, let’s say that a presidential budget comes out proposing that capital gains should be taxed at ordinary income rates. Should you sell your stock now before rates go up? No! And you shouldn’t listen to anyone who is telling you what to do with your money based on any presidential budget.

The moral of the story? You should follow Congress’s lead. Never ever make financial decisions based on a presidential budget.

 

Sources –

1 American Council on Education. A Brief Guide to the Federal Budget and Appropriations Process. https://www.acenet.edu/Policy-Advocacy/Pages/Budget-Appropriations/Brief-Guide-to-Budget-Appropriations.aspx

2 Haas, C. (1985, January 13). Reagan’s Budget: ‘Dead on Arrival’ in Congress? Associated Press. https://apnews.com/article/61648e6ddf5f043e03de279a3cddea9f

3 Rothman, L. (2018, December 1). The Story Behind George H.W. Bush’s Famous ‘Read My Lips, No New Taxes’ Promise. TIME. https://time.com/3649511/george-hw-bush-quote-read-my-lips/

4 CNN (1995, November 18). Clinton: Budget proposal ‘dead on arrival.’ http://www.cnn.com/US/9511/debt_limit/11-18/index.html

5 CNN (2001, April 10). Democrats: Bush budget ‘dead before arrival.’ http://www.cnn.com/2001/ALLPOLITICS/04/10/bush.budget.01/

6 Jackson, D. (2015, February 1). Obama budget likely ‘dead on arrival.’ USA TODAY. https://www.usatoday.com/story/news/politics/2015/02/01/obama-federal-budget-josh-earnest-stan-collender-/22687889/

7 Donlan, T. (2017, May 27). Trump’s Budget: “Dead on Arrival.” Barron’s. https://www.barrons.com/articles/trumps-budget-dead-on-arrival-1495858694

8 Treene, A. (2021, April 28). Senate Democrats resist Biden’s $1.8 trillion pay-for plan. Axios. https://www.axios.com/senate-democrats-biden-family-plan-2f8212cf-31aa-4971-a60f-8c1c9bac072a.html

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