Let’s be clear: for an administration that has had to deal with the worst economy in decades, the Obama Administration has proven an uncanny ability to live in La-la Land when it comes time to make a budget. Each year it submits a dreamily out of reality budget, and each year, both Democrats and Republicans in Congress vote it down.
I don’t say this to attack the Obama Administration on its handling of the economy…at least not directly. Rather, I point it out because the federal budget is how the executive branch sets its priorities for the coming year. As yet, over the course of his tenure in the White House, the President has not had a budget survive Congress, even when his party controlled both the Senate and House. This is unprecedented in American history.
It is widely accepted by economists that once national debt exceeds 90% of GDP (gross domestic product or the value of everything a country produces in a year), “annual economic growth tends to be about one percentage point lower.” As of this writing, the current GDP for the US is about $14.58 Trillion. Our national debt? $15.087 Trillion, or about 103.45% of GDP.
That’s right. We’re in the territory where the debt starts to slow economic growth.
Just how much money is $15 Trillion, anyway? That’s the equivalent of one person spending almost $20 Million a day since Jesus was born.
Where has all that money even gone to? How did we get so deep in the hole without building every American a palatial home complete with a Rolls Royce and driver?
But I digress. The budget.
So, without having yet passed a budget during his Presidential career, a weak economy, national debt higher than the market value of everything Americans will create this year, and his reelection campaign all on the docket for 2012, what does the President propose in his 2012 budget?
Does he tact to the right to find a middle place where the Republicans can compromise? Does he propose solutions that can strengthen the economy?
Although it claims to include $4 trillion in deficit reduction, the president’s budget actually contains virtually no credible deficit reduction at all. Under his plan, the government is projected to borrow $11.2 trillion over the next 10 years. This is roughly the same amount of debt we are expected to incur under realistic projections of current policy. The budget does not change our debt trajectory.
In other words, the President is doing a lot of talking, but not a lot of walking. He’s promising a fiscally responsible budget from the the lectern, but hoping no one will notice that the budget he submitted to Congress actually adds to the national debt.
But Senator Sessions and Congressman Ryan are just Republicans doing what Republicans do when the guy in the White House is a Democrat, right? They’re just the party in opposition.
They aren’t alone in their analysis.
Enter the Wall Street Journal which said that the President’s budgeting skills earned him a “fiscal record [that] is the worst in modern American history” and that he is pointing to a “mirage” when setting projections for growth. Want more gory details?
- One CATO analysis says that the budget proposed only gives savings of “$24 billion in a $3.8 trillion budget.” That’s 1/158.333333th of the budget. Kind of like going to buy a $2.99 value meal at Wendy’s with a coupon for about $.02 off of your meal. Actually, even less than that.
- According to the WSJ, “[f]our years of spending of more than 24% of GDP, the four highest spending years since 1946. In the current fiscal year of 2012, despite talk of austerity, Mr. Obama predicts spending will increase by $193 billion to $3.8 trillion, or 24.3% of GDP.”
- And “[a]nother deficit of $1.327 trillion in 2012, also an increase from 2011, and making four years in a row above $1.29 trillion. The last time that happened? Never.” Ouch.
- Tax “[r]evenues at historic lows because of the mediocre recovery and temporary tax cuts that are deadweight revenue losses because they do so little for economic growth. The White House budget office estimates that for the fourth year in a row revenues won’t reach 16% of GDP. The last time they were below 16% for any year was 1950.”
PS. None of that debt includes what current tax payers will have to pay out to current and future retirees for Social Security.
Easy. Raise taxes on anyone making more than $200,000 (see my analysis of the so-called “Buffett Rule” here) and economic growth at 17.8% of GDP. Tax rates will increase, in some cases very dramatically. “[C]apital gains to 30% from 15% today; dividends to 30% from 15%; the estate tax to 45% from 35%.” Even the payroll tax cut, which is probably the only thing going for employers, is only slated to last another 10 months, at which point President Obama wants it to end.
According to Michael Tanner at CATO, that’s not going to help the economy, not by a long shot:
Instead, what the budget does contain is a renewed call for tax increases on people and small businesses making as little as $200,000 per year. In addition, there’s the usual panoply of tax hikes on energy products, businesses, investment, and pretty much anything else the president can think of. The budget also helpfully points out that 2013 is the year in which most of the new taxes under Obamacare will take effect. Overall, the president would increase tax revenue to 20.1 percent of GDP. That’s a huge increase from the current 15.4 percent, and higher than the post–World War II average of 18.0 percent. Tax increases of that magnitude cannot help but slow economic growth and job creation.
Furthermore, “even if the President were to get every penny of the tax hikes he wants, his budget would never balance. The closest he would ever come would be in 2018, when the deficit would be only $575 billion. After that, deficits begin rising again, reaching $704 billion by 2022.” (Deficits are the difference between what we raise in tax revenues and what we spend beyond that. Think of it like credit card debt you incur when you spend more in a given month than you earn. Pretty much, we’ve spent more than we earn for so long that we owe more than we are will earn in any given year…and that’s not taking account that we need to pay it all back).
Democrats denounced George W. Bush for allowing so much red ink, but his deficits averaged only 3.5% of GDP if you don’t count 2001 but do include the 10.1% of 2009. Mr. Obama’s deficits have averaged 9.1% of GDP if you count 2009, as you should because his $800 billion stimulus passed that February.
Let me sum it up: budget = President’s plans, and President’s plans = status quo. Because, as one friend put it, “why pass a budget that causes you to compromise when you can pass a bunch of continuing resolutions that keep the Republican controlled House out of the picture?”
That’s playing politics, not good policy, and its bad government policy, bad for our economy, and bad for America. With the national debt proving to be a giant drag on the economy, the Obama Administration is living in a dream where taxes are high and the economy grows at rates it hasn’t seen–ever.
APROPOS: Did I say that the President was planning on paying for his budget increase with taxes on the rich through the Buffett Rule? Oops. My mistake. Just kidding. Turns out, according to this guy, he doesn’t even put the Buffett Rule into the budget, despite devoting substantial space to it in his State of the Union speech. Grandstanding, much?
- Obama’s new budget adds $8 trillion to the debt over the next 10 years (winteryknight.wordpress.com)
- 5 budget assumptions that won’t happen (finance.fortune.cnn.com)
- Shifting the Center of the Political Debate (economistsview.typepad.com)
- Obama Revises CBO Deficit Forecast, Predicts 110% Debt-To-GDP By End Of 2013, Worse Deficit In 2012 Than 2011 (zerohedge.com)
- National debt now exceeds GDP – debt ceiling set to increase another $1.2 trillion (bellalu0.wordpress.com)