President Obama’s Budget
Clive Crook of the Financial Times has written today’s must read article. In his article, he articulates why President Obama’s budget is a scary thing:
While Barack Obama was in Europe last week, Congress was voting on his budget. Because of the administration’s surpassing ambitions, and because of the colossal demands its budget will place on domestic and international capital markets, the outcome of this debate will matter more in the end for the US economy, and even for the world economy, than all of London’s pleasant if ineffectual global summitry.
Both houses of Congress passed versions of the budget that are close to what Mr Obama proposed. Yet what comes next is still unclear. This will be decided in the House-Senate conference to reconcile the two versions, and in the tax and spending measures that follow. At this stage only one thing is sure: the permanent excess of spending over revenue in the long-term fiscal outlook.
Approximately a month ago, people criticized President Obama’s budget projections. I ridiculed him for his liberal use of fuzzy math:
A report I heard on TV last night said that the Obama administration is using the rosiest of rosy scenarios for FY2011-13. They’re projecting GDP growth in 2011 at 5.5 percent and 6 percent annual growth in FY2012 and FY 2013. Those numbers aren’t just optimistic. They’re delirious. The highest growth rate for a quarter in the last 20 years came in 2003 when it hit 8.1 percent. The best years of the Clinton administration didn’t average 5 percent.
President Obama insists that FDR spent lots of money in his attempt to get us out of the Great Depression, then pulled his punches and didn’t spend enough. That’s wrongheaded thinking. Each time government takes money out of the economy, ecnonomic growth is limited.
President Obama’s budget doesn’t represent him taking a little bit of money out of the economy. President Obama’s budget represents him taking one huge bite out of the private sector economy after another. I haven’t seen visible proof that President Obama’s budgets won’t keep taking one huge bite out of the private sector economy after another.
One of the most expensive commitments in the budget is healthcare reform. Towards the full cost of this initiative, estimated at $1,200bn (€890bn, £810bn) or higher over 10 years, the budget merely calls for a 10-year “downpayment” of $600bn. So even that 3 per cent full employment deficit (4 per cent, according to the CBO) was a deliberate underestimate.
And still it gets worse. Congress’s new versions of the budget tweak here and there, paying lip service to the need for fiscal control, but taken together point in the direction you might expect, towards even bigger long-term deficits. Both chambers have agreed to scale back spending on future financial bail-outs, and to trim relief for the alternative minimum tax (a parallel tax code originally aimed at the very rich, which is starting to affect middle-class households). These are delusional economies. More will have to be spent on bail-outs before this crisis is over, and it is the closest thing to a political certainty that the ever-encroaching AMT will continue to be pushed back, at the cost of forgone revenue, year by year.
In short, President Obama’s budget is irresponsible in the extreme. Forget about whether we can afford it. Forget about whether the generations after that can afford it. The big question isn’t whether the Obama administration-inflicted debt won’t be a major drag on our economy for the next generation. The question is this: How big of a drag the Obama-inflicted deficits will be on the economy for the next generation.
In short, whether it intends to or not, Congress is leaning towards making the long-term deficit even bigger. It is preparing to underwrite a large and permanent expansion of the government’s spending obligations while failing to provide for a corresponding expansion of the tax base. A crucial question is therefore whether, and for how long, Mr Obama will continue to be bound by his pledge to raise income taxes “by not one cent” for almost all Americans.
The crucial question isn’t whether President Obama will keep his promise of not raising income taxes for middle class Americans. It’s more about when he’ll break that promise. It’s obvious that President Obama can’t get enough money from “soaking the rich” to get us even remotely close to balancing the budget. If President Obama wants to get us close to an acceptable debt-as-percentage-of-GDP level, he’ll need to increase taxes on the middle class.
BTW, that’s one of the reasons why Wall Street doesn’t trust President Obama and why they haven’t supported President Obama’s economic plans.
That’s why it’s critical that conservatives join their voices with those of Paul Ryan, Mike Pence and other fiscal hawks. If we can impress on people that we’ve gotten the message and that we can be trusted to solve the banking crisis and right our economic ship, we’ll win over the independents that we lost so badly the last two election cycles.
Winning lots of elections, starting in 2010, is the best way to stop President Obama’s race to insolvency.
Technorati Tags: Economy, Obamanomics, Deficits, Recession, Health Care, GDP Stagnation, CBO Projections, Liberals, Insolvency, Election 2010
Cross-posted at LetFreedomRingBlog