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All the Presidents Budget Gimmicks
Published on March 16, 2010 by Brian Riedl
President Obama's new budget proposal would raise
taxes by $3 trillion over the decade and stilldouble the national debt.
He inherited unsustainable Social Security, Medicare,Medicaid and net interest costs, but instead of paring
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spending back, decided to pile on trillions of dollarsin new health care, education and energy spending.Even the historic tax increases proposed by the
president would cover only a fraction of these newcosts. By 2020 even assuming peace and
prosperity the budget deficit would still top $1trillion. At that point, more than one-third of allincome taxes would be needed just to pay the intereston this debt.
Yet it could be even worse.
Mr. Obama deserves credit for reversing PresidentBush's budget gimmicks of not budgeting for theAlternative Minimum Tax patch, the global war onterrorism and future unanticipated emergencies. Buthis budget contains numerous large gimmicks of his
own:
Rosy economic scenario: Just like last year, thepresident's new budget assumes a rosy economicscenario. The White House projects a 2011 economicgrowth rate double the rate forecasted by theCongressional Budget Office (CBO). Overall, White
House projects that in 2020 the economy will benearly $1 trillion larger (adjusted forinflation) thanthe CBO estimates. If the economy performs closer tothe CBO projections, it will raise budget deficits evenhigher.
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Excluding cap-and-trade costs: Last year, thepresident simply excluded the cost of his health planfrom his aggregate budget tables. This year, he
budgeted for his health care plan, but removed thecosts of his cap-and-trade plan, even though he hasendorsed the House-passed bill that would raise taxes
by $846 billion, and spending by $822 billion. The $3trillion tax-increase figure above incorporates thiscost.
A $132 billion "magic asterisk": The president'sbudget vaguely claims $132 billion in "programintegrity" savings. The White House says thisincludes cleaning up waste in entitlement programsand increasing Internal Revenue Service enforcementof tax laws.Of course, government waste is easy toidentify and difficult to eliminate. The federalgovernment's track record on rooting out waste isabysmal, and promises to close the "tax gap" ofunpaid taxes have not translated into progress.
$23 billion terminations and cuts?: Mr. Obama alsohypes his $23 billion in proposed spending cuts andterminations (less than 1 percent of all spending). He
doesn't mention that last year, every dollar savedfrom his $7 billion in spending cuts went into newgovernment spending. Not a dollar went towarddeficit reduction. And this year he proposes more of
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the same. Using "low-hanging fruit" budget cuts fornew spending means that more of the higher taxes orspending cuts down the road must come from the
remaining higher-priority policies.
The baseline assumes war spending rises forever:Repeating his much-maligned gimmick from lastyear's budget, the president first creates a fantasy
baseline that assumes the Iraq surge continues forever(which was never U.S. policy), and then "saves" $728
billion against that baseline by ending the surge asscheduled under his policies. It is like a family"saving" $10,000 by first assuming an expensivevacation and then not taking it.
Low-balling discretionary spending: Mr. Obamawisely proposed temporarily freezing a small sliver
of discretionary funding (albeit at an inflated level).However, over the next decade, the presidentassumes that non-war, non-emergency discretionaryspending will expand by 30 percent, just slightlyfaster than inflation. But in reality, discretionaryspending surged by 104 percentduring the pastdecade. The free-spending Democratic Congress
provides no reason to expect sudden austerity. Ifdiscretionary spending instead grows at the same rateas the economy (about 5 percent nominally per year),
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it would add about $400 billion to the 2020budgetdeficit.
PAY-GO: Mr. Obama bases much of his proposedbudget restraint on his new "pay-as-you-go" (PAY-GO) law. While the PAY-GO concept thatCongress must offset the cost of any new initiative sounds promising, its glaring loopholes mean it won'treduce the deficit at all. PAY-GO exempts alldiscretionary spending (which makes up 40 percent
of the budget) from its constraints. It exempts theautomatic annual growth of Social Security,Medicare and Medicaid, which threatensWashington's long-run solvency. It exempts theendless stream of emergency "stimulus" bills. WhenPAY-GO is violated, nearly all spending is exemptfrom being cut to offset the new expansions. PAY-GO is designed to serve more as a talking point thanas a tool for deficit reduction.
Deficit Commission: Rather than take the lead andpropose entitlement reforms that would reduce thedeficit, the president has appointed a commission todevise a plan. While some commissions may be
useful, this one likely will not. The deficitcommission currently plans to write itsrecommendations in a back room without publichearings or public buy-in. These recommendations
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won't be unveiled until afterthe election, where theywould be voted on by a lame-duck Congress ifthey are even voted on at all. (There is no "fast-track"
procedure guaranteeing a vote.) The American peoplewill be unlikely to embrace major tax and spendingchanges thrust upon them with so little transparencyand voted on by an unaccountable lame-duckCongress.
http://www.heritage.org/Research/Commentary/2010/03/All-
the-Presidents-Budget-GimmicksRead More >>
Brian Riedlis Grover M. Hermann
Fellow in Federal Budgetary Affairs at the Heritage Foundation
(www.heritage.org).
First appeared in The Washington Times
__________________________________________________
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Rising Taxes Still Wouldn't Keep Up With New
SpendingPublished on March 12, 2010 by Brian Riedl
In the blizzard of numbers and analyses surroundingPresident Obama's new budget proposal, two itemsstand out.
First, the budget would raise taxes by $3 trillion overthe next decade. Second, the national debt would stilldouble over that period.
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That $3 trillion tax increase includes a $743 billionhealth-care reform tax, and an $843 billion cap-and-trade energy tax that would be passed on to every
household and business. (The president endorsed thistax but inexplicably excluded its cost from his
budget.) President Obama would also raise taxes by$968 billion on small businesses and upper-incomefamilies, and by $468 billion on corporations - justas these businesses are struggling to create jobs.
These tax increases would push Washington's totaltax bite to its highest sustained level in Americanhistory. And yet it still wouldn't keep up with all thenew spending. The Social Security and Medicarecosts of 78 million retiring baby boomers threaten to
bury Washington in an avalanche of debt. PresidentObama's answer? To deepen the avalanche withtrillions of dollars in additional health care, educationand energy spending.
Overall, federal spending which had been $24,000per-household before the recession would top$36,000 per-household by 2020 (adjusted forinflation).
Which leads to the debt problem. Because spendingis rising even faster than the president can raise taxes,the national debt is set to double over the nextdecade. From the American Revolution all the way
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through 2008, Washington ran up $5.8 trillion inpublicly-held debt. This debt jumped to $7.5 trillionlast year, and according to page 146 of the
president's own budget would reach an astonishing$18.6 trillion by 2020.
The economic consequences of this debt are quitepainful. By 2020, more than one-third of all incometaxes would be needed just to pay the interest on thisdebt. That's nearly $1 trillion in annual tax dollars
that won't educate a single child, fund a singleAmerican troop, or provide retirement security to asingle senior citizen. It may also mean steeply higherinterest rates for anyone seeking a mortgage loan, carloan, student loan or business loan.
This debt also brings profound moral consequences.
Washington is preparing to undertake the greatestintergenerational transfer of debt in Americanhistory. This debt burden will saddle youngergenerations, not old enough to vote when most ofthese policies were enacted, with staggering taxincreases, slower economic growth, and lowerincomes.
President Obama has proposed a three-year freeze onsome discretionary spending. Clearly this is betterthan another budget hike. But he doesn't mention thatthis freeze affects only one-eighth of all spending
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a group of programs whose budget jumped 19percent in the past two years, and is still sitting onmore than $200 billion in unspent stimulus dollars.
President Obama also hypes his $23 billion inproposed spending cuts and terminations (less than 1percent of all spending). He doesn't mention that lastyear, every dollar saved from his spending cuts wentinto new government spending. Not a dollar wenttoward deficit reduction. And this year he proposes
more of the same.
Finally, President Obama blames much of the futuredeficits on the 2001 and 2003 "tax cuts for the rich,"and war spending. However, page 164 of his budgetshows that his proposed repeal of these tax policieswould raise less than $70 billion annually. And page
173 shows war spending phasing down to $50 billionannually.
Yet his budget's deficits would still top $1 trillion by2020. Obviously, those items are not driving thedeficit. Instead, the long-term deficit is rising due tosurging entitlement costs and interest on the debt.
Unfortunately, President Obama and Congress haveonce again shown that politicians use tax increases toexpand government, not reduce the deficit. Beforeasking recession-weary Americans to further tighten
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our belts, it's time for President Obama and Congressto tighten their own.
Brian Riedl is the Grover M. Hermann Fellow in FederalBudgetary Affairs at The Heritage Foundation, 214 MassachusettsAvenue NE, Washington, D.C. 20002.
First appeared in the Pioneer Press
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Obama Budget Raises Taxes and
Doubles the National Debt
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Published on March 9, 2010 by Brian Riedl
Abstract:President Obama declared: "I didn't come here to passour problems on to the next president or the next generation--I'm
here to solve them." Yet rather than "solve" the runaway spendingthat is projected to cause historic deficits, the President's budget
doubles down on it with trillions of dollars in new spending and
taxes, culminating in a doubling of the national debt. Heritage
Foundation economic policy expert Brian Riedl lays out how a
$3 trillion tax hike and an additional $74,000 debtburden on every U.S. household will affect the
country--and why Congress should reject PresidentObama's budget proposal.
When he released his new budget proposal on February 1,President Barack Obama asserted that the government "simplycannot continue to spend as if deficits don't have consequences;as if waste doesn't matter; as if the hard-earned tax dollars of the
American people can be treated like Monopoly money; as if wecan ignore this challenge for another generation."[1]
Yet the President's new budget does exactly that--
raising taxes by $3 trillion and federal spending
by $1.6 trillion over the next ten years. If enacted, thisbudget would increase the 2010 deficit to more than
$1.5 trillion, and leave a deficit of more than $1 trillion
even after an assumed return to peace and prosperity.
Overall, the President's budget would double thenational debt over the next decade.[2]
President Obama's Budget
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Would permanently expand the federal
government by 3 percent of gross domestic
product (GDP) over 2007 pre-recession levels;
Would raise taxes onall Americans by nearly$3 trillion over the next decade;
Would raise taxes for 3.2 million small
businesses and upper-income taxpayers by an
average of $300,000 over the next decade;
Would borrow 42 cents for each dollar spent
in 2010;
Would run a $1.6 trillion deficit in 2010--$143
billion higher than the recession-driven 2009
deficit;
Would leave permanent deficits that top $1
trillion as late as 2020;
Would dump an additional $74,000 per
household of debt into the laps of our childrenand grandchildren; and
Would double the publicly held national debt
to over $18 trillion.
Source: Heritage Foundation calculations based on U.S. Office ofManagement and Budget,Budget of the United StatesGovernment, Fiscal Year 2011 (Washington, D.C.: U.S.
Government Printing Office, 2010), pp. 146-179, Tables S-1through S-14. Also includes the cost of House-passed cap-and-trade bill, which President Obama endorsed yet excluded from
his budget tables.
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Before the recession began, annual federal spending totaled$24,000 per household. President Obama would hike that spendingabove $36,000 per household by 2020--an inflation-adjusted$12,000-per-household expansion of government. (See Chart 1.)
But even these steep tax increases would not financeall of this new spending: The President's budgetwould lead to trillions in new debt over the next decade.
In fact, the President's new budget proposal contains even more
spending and debt than last year's proposal. Over the 10 yearsin which both budget projections overlap (fiscal years 2010
through 2019) this year's budget would add an
additional $1.7 trillion in spending and an
additional $2 trillion in budget deficits. (See Table 1.)
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[3] Overall, this year's proposal shows annual budget
deficits as much as 49 percent larger than last
year's proposal--raising the debt by an additional
6 percent of GDP over the same period. It is aspending spree that will drive up both taxes
and deficits.
Yet Another "Stimulus"
In a triumph of hope over experience, the President proposesspending $267 billion on yet another stimulus bill.
Last year's $787 billion stimulus bill (now
estimated to cost $862 billion)[4] was supposed to
create (not just save) 3.3 million net jobs. Since its
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passage one year ago, more than 3 million
additional net jobs have been lost, pushing the
unemployment rate to 10 percent. This failure was
utterly predictable--as the United States during the GreatDepression and Japan in the 1990s have shown that
governments cannot spend their way out of recessions
or depressions.[5]
The proper response from the government would be to repealthe unspent portion of the stimulus and stop piling more debt
onto future generations. Instead, President Obama prefers
to borrow an additional$267 billion from themore productive private sector so that politicians
and bureaucrats can spend those dollars. This
move would only weaken the economic recovery,
increase the debt, and eventually push interest
rates higher by draining funds from global capital
markets as a massive and growing federal
government competes with the private sector for
resources.
Misdiagnosing the Cause of the Deficit
President Obama's misplaced budget priorities may be
the result of his Administration's misdiagnosis of the
cause of the deficit. During his State of the Union speech inJanuary, the President asserted that "by the time I
took office, we had a one-year deficit of over $1
trillion and projected deficits of $8 trillion over
the next decade. Most of this was the result of not
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paying for two wars, two tax cuts, and an
expensive prescription drug program."[6] That
is simply not true. The various policies mentioned byPresident Obama were implemented in the early 2000s. Yet evenwith all those policies in place, the 2007 budget deficit
stood at only $161 billion. The trillion-dollar
deficit did not begin until 2009 (driven by financialbailouts, stimulus, and declining revenues) as the recessionhit its trough.
The wars, tax cuts, and prescription drug program mentioned bythe President certainly could not be responsible for most of thetrillion-dollar deficits projected for the next decade, given that
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most war spending will be phased out by then, and the tax cuts andMedicare benefit are expected to cost a combined 2.4 percent ofGDP by 2020--even as the baseline budget deficit rises past 8
percent of GDP. (See Table 2.)[7] That even ignores whatever
portion of the lost tax cut revenues is replenished by economicgrowth.
By contrast, the rising costs of Social Security, Medicare
(beyond just the drug benefit), Medicaid, and net
interest are responsible for nearly 5 percent in
additional deficits as a share of GDP by 2020. Yet the
President failed to mention this spending as driving
long-term budget deficits.
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There is also some hypocrisy at work in that President Obama doesnot want to "pay for" more than a fraction of these initiatives,
either. Just like President George W. Bush, President Obama has
proposed continued funding of the Medicare drug
entitlement as well as the costs of the wars in Iraq and
Afghanistan without any offsets. He has also proposed
extending more than three-quarters of the 2001 and
2003 tax cuts without offsets. Thus, President Obama hasopened himself up to the same criticism that he heaped onPresident Bush.
Doubling the Debt
President Obama has harshly criticized the $3.3 trillion in
budget deficits accumulated in eight years under
President Bush.[8] Yet President Obama is now
proposing to borrow $7.6 trillion during what would behis own eight years in the White House. (See Chart 2.) In
fact, President Obama would add more to the
national debt than every other President in
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American history from George Washington throughGeorge W. Bush combined.
The President has claimed that his budget deficits are a temporary
result of the recession. Yet his budget would increase thedeficit in 2010 even as the economy moves out of
recession. The Obama budget fails to achieve his
goal of cutting the budget deficit in half by the end
of his first term. Even by 2020--a time of assumed peace
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and prosperity-- the annual budget deficit would still top $1
trillion. By that point, the debt would reach 77 percent ofGDP (nearly double the level before the recession).
Eventually, this unprecedented surge of debt would increaseinterest rates. The United States government would find
itself competing with other big-spending, deficit-ridden
nations and the productive private sector to borrow
massive amounts of money from the pool of global
savings. Although U.S. Treasury bills are a popular investmentfor domestic and international investors in these uncertain
economic times, many investors will shift into higher-returninvestments (such as stocks) when the economy fully recovers,thereby forcing Washington to offer higher interest rates to induce
purchases of its debt. Eventually, this could cause a vicious circle
where rising interest rates push up the cost of servicing
the national debt, forcing the government to borrow
even more money from the private sector--thus raising
interest rates further. Moody's Investors Service has noted
this potential debt-and-interest-rate spiral, and signaledthat it may cost the United States government its prized
AAA bond rating.[9] These high interest rates would
also slow down the economic recovery by making it
more costly for businesses to invest and more difficult
for families to afford home and auto loans.
In the long run, Washington is dumping a colossal amount
of debt into the laps of Americans' children andgrandchildren. Between 2011 and 2020, President
Obama's proposed budget would add $8.5 trillion
($74,000 per U.S. household) in new government
debt. By 2020, 35 cents of every dollar paid in
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individual income taxes would be used to pay
interest on this debt. Moreover, given theunsustainable costs of paying Social Security, Medicare,
and Medicaid benefits to 77 million retiring babyboomers, the federal debt will continue to expand after
2020.[10] Without real reforms, the federal
government will undertake the greatest
intergenerational transfer of debt in American
history. Younger generations, not old enough to vote when mostof these policies were enacted, will be relegated to staggering
tax increases, deep government debt, and slowereconomic growth in order to pay for their parents' and
grandparents' retirement benefits. The President's
budget not only does nothing to prevent this
fundamentally immoral situation--it makes it worse.
Nearly $3 Trillion in Tax Increases
Last year, President Obama promised that "if your familyearns less than $250,000 a year, you will not see your
taxes increased a single dime. I repeat: not one single
dime."[11] Yet even before the budget was released, he signedinto law a 62 cent tobacco-tax increase that has a disproportionate
negative effect on lower-income smokers. He has endorsed the
$846 billion cap-and-trade tax passed by the
House in 2009, which electric utility companies, oilrefiners, natural gas producers, and other energy
producers would immediately pass on to
consumers, including those earning less than $250,000.
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[12]Consequently, President Obama's budget
would raise everyone's taxes. (See Table 3.)
The President has pared back some tax cuts proposed last year (themaking-work-pay tax credit would now expire in 2013). He also
proposes new tax cuts, some of which are helpful (automaticenrollment in Individual Retirement Accounts would help more
people save for retirement) and others that are not (expansion ofthe child and dependent care tax credit is biased toward those whochoose paid child care over staying home with their children).
A nearly $1 trillion tax increase is reserved for couples
earning more than $250,000 and individuals earning
more than $200,000. Beginning in 2011, the President's
budget will increase these Americans' taxes by:
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Raising the top two income tax brackets from
33 percent to 36 percent, and from 35 percent
39.6 percent ($364 billion);
Raising capital gains and dividends tax ratesfrom 15 percent to 20 percent ($105 billion);
Phasing out personal exemptions and limiting
itemized deductions ($208 billion); and
Reducing the value of tax deductions by
approximately one-fourth ($291 billion).
This $1 trillion tax hike would fall on the backs ofonly3.2 million tax filers--an average tax hike of more than
$300,000 per filer over 10 years on a group that is
already shouldering an increasing portion of the income
tax burden.[13]
Moreover, businesses and upper-income individuals
would also pay a substantial burden of the proposed
$743 billion in new taxes to finance the President'shealth care reform. American businesses, trying to
compete globally despite the world's second-highest
corporate tax rate, would also face an additional $468
billion in various new taxes at a time when they are--
according to the White House--supposed to be getting
back on their feet and begin hiring new employees.
Such tax increases would significantly reduce
economic growth by reducing people's incentives
to work, save, and invest. Specifically, higher
investment taxes may prevent the economy from
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receiving the investment capital it needs to
recover. Because most small businesses pay the
individual income tax, they would face new
barriers to expanding, investing, hiring, and evenstaying in business. Wealthier individuals would be morelikely to allocate their wealth to wherever they can avoid these newtaxes, instead of in areas where their wealth would be most
productive for the economy.
While there is never a good time to raise taxes, President Obama'sproposal to raise taxes at the beginning of a tenuous recovery is
especially problematic. Even if the tax increases are notimplemented until 2011, many businesses planning investmentand hiring will likely begin scaling back their plans in
anticipation of the coming tax hikes.
More than $1.6 Trillion in New Spending
One could, ostensibly, defend this $3 trillion tax increase asnecessary to rein in the staggering deficits contained in the
President's budget proposal. But even stipulating that argument,
President Obama would still use more than half of these
tax increases to expand government instead of reducing
the deficit. Nearly $600 billion would go toward a new
health care entitlement. More than $800 billion would
go toward cap-and-trade energy legislation. An
additional $168 billion would be spent on more failed
"stimulus" spending, and $52 billion would createeducational entitlements. While the President would reducethe growth of non-security discretionary spending by nearly $250
billion over 10 years, all the savings would go toward otherdiscretionary spending.
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The rest of the tax increases would be needed just to keep
pace with a portion of the new automatic increases in
Social Security, Medicare, and Medicaid. Once the
President's $3 trillion tax increase reduced the $1.6trillion in new spending, the additional $1.4 trillion in
new revenues will cover just one-fourth of the
additional costs of these three programs.
As a result, the President's budget would raise tax revenues toapproximately 1.8 percent of GDP above the historical average--
yet leave spending more than 3.5 percent of GDP above
the historical average. Simply put,surging spending isdriving the budget deficits.[14]
Too Many Gimmicks
President Obama does deserve credit for reversing PresidentBush's policy of not budgeting for the Alternative Minimum Tax
patch (the annual reform to prevent a large tax increase), the global
war on terrorism, and future unanticipated emergencies. But theObama budget contains numerous large gimmicks, too:
Cap-and-Trade Costs Are Not Included . Last year,
the President simply left the cost of his health plan
out of his aggregate budget tables.[15] This year,
he budgeted for his health care plan, but removed
the costs of his cap-and-trade plan. Given that the
President has endorsed the House-passed bill thatwould raise taxes by $846 billion, and spending by
$822 billion, The Heritage Foundation has
incorporated this government expansion into its
presidential budget estimates.[16]
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The Baseline Assumes War Spending Rises
Forever. Repeating his much-maligned gimmick
from last year's budget, the President first creates
a baseline that assumes the Iraq surge continuesforever (which was never U.S. policy), and then"saves" $728 billion against that baseline by endingthe surge as scheduled under his policies. It is like afamily "saving" $10,000 by first assuming an
expensive vacation and then not taking it. This
paper does not give credit for such savings relative
to a fantasy baseline.
The $132 Billion "Magic Asterisk." The President'sbudget claims $132 billion in savings over 10 years
from "program integrity" reforms. Basically, this
means unspecified reforms to fight waste, fraud, andabuse. The "Budget Process" section in the budget'sAnalytical Perspectives volume contends that suchsavings can be found chiefly from stronger IRS
enforcement of tax laws, with some additionalsavings from the Social Security Administration andfederal health programs.[17]Of course, governmentwaste is easy to identify and difficult to eliminate.The federal government's track record on rooting
out waste is abysmal, and promises to close the
"tax gap" of unpaid taxes have not translated into
progress. While the President should be applauded
for trying to root out waste, it is unrealistic to
assume $132 billion in savings to offset additional
entitlement spending.
The $23 Billion Terminations and Cuts . The White
House is advertising $23 billion in proposed
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spending cuts and terminations. Given the
multitude of outdated and failed programs, many
of these cuts are necessary. Yet if last year is any
indication, they will not save taxpayers a dime.
Last year, Congress and President Obama agreedon $7 billon worth of terminations and spending cuts(mostly in defense)--and then plowed 100 percent ofthe savings into new spending (mostly non-defense).Not a dollar went toward deficitreduction.[18]There is no reason to expect this year will be any
different.
ThePresident's largest savings proposal ($8 billionin 2011), for instance, would come from eliminatingthe subsidized student loan program (run by bankswith federal subsidies), and shepherding all studentsinto direct loans run by the federal government. Yetthe President would use all $43 billion in savings to
help finance a $69 billion expansion of Pell Grants.The deficit would not be reduced at all. Using "lowhanging fruit" budget cuts for new spending meansthat more of the higher taxes or spending cuts downthe road will have to come from the remaininghigher-priority policies.
The Lowballing of Discretionary Spending.
President Obama deserves credit for proposing to
freeze a small sliver of discretionary funding for
the next three years (albeit at an inflated level).[19]
However, the President's budget projection clearly
lowballs discretionary spending over the next
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decade--especially for the seven years following the
freeze. Over the next decade, the President assumes
that discretionary spending (excluding emergencies
like war and "stimulus") will expand by 30 percent,just slightly faster than inflation. But in reality,discretionary spending surged by 104 percent duringthe past decade. Given that the Democraticcongressional majority has increased non-
emergency discretionary spending by 25 percent
over the past three years, there is no reason to
expect sudden austerity. If discretionary spending
instead grows at the same rate as the economy(about 5 percent nominally per year), it would add
about $400 billion to the 2020budget deficit.[20]
PAYGO .Much of the President's budget couplesspecific spending increases with vague, process-based calls for future spending restraint. Oneexample is his endorsement of the newPay-As-You-
Go (PAYGO) law(since signed into law). While thePAYGO concept--that Congress must offset the
cost of any new initiative--sounds promising, its
glaring loopholes will not reduce the deficit at all.
PAYGO exempts all discretionary spending (which
comprises 40 percent of the budget) from its
constraints. It exempts the automatic annualgrowth of Social Security, Medicare, and Medicaid
that threatens Washington's long-run solvency. Itexempts the endless stream of emergency
"stimulus" bills. When PAYGO is violated, nearlyall spending is exempt from being cut to offset the
new expansions.PAYGO is designed to serve
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more as a talking point than as a tool for deficit
reduction.[21] Deficit Commission. Another example of choosing
process over substance is the President's "deficitcommission" that will recommend a set of policies
to reduce the deficit by 2015. Although such
commissions can be useful, the one appointed by
the President suffers from three weaknesses: (1)
The commission's recommendations are not
guaranteed legislative "fast track" protections--or
a congressional vote at all; (2) if Congress does vote
on these recommendations, the most likely time will
be after the November 2010 elections with a lame
duck Congress; and (3) there is no indication that
this commission will include any public hearings
and thus will be more likely to create its
recommendations in a back room without public
input. Putting it all together, this commission will
likely become a partisan exercise that fails to bringdown deficits and merely kicks the can down theroad. The President should lead the national
dialogue by offering a specific set of entitlement
reforms to bring long-term sustainability to the
federal budget. If a commission is to be set up,
Congress should take the responsibility to create
one that solves the three problems listed above. Rosy Economic Scenario. Just like last year, the
President's new budget assumes a rosy economicscenario. For 2011, the White House projects that
the economy will grow by 3.8 percent, twice the 1.9
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percent growth rate forecasted by the
Congressional Budget Office (CBO). Over the next
decade, the President's budget assumes 43 percent
real growth, compared to the CBO estimate of 37percent. The difference is not trivial-- The White
House projects that in 2020 the economy will be
nearly $1 trillion larger (adjusted for inflation)
than the CBO estimates. But if the economy
performs closer to the CBO projections, it will
raise budget deficits even higher.[22]
An Irresponsible Budget
President Obama has offered a budget that does nothing
to address the nation's serious short-term and long-
term fiscal problems--and indeed makes them worse. By
doubling the national debt above pre-recession
levels, America could be heading toward the
tipping point when debt levels will become toolarge for global capital markets to absorb,
potentially triggering a financial crisis, an interest
rate spike, and crippling tax increases.
Countries that finance U.S. debt will note that President
Obama's budget includes no plan for long-term fiscal
sustainability. While he talks of controllingentitlement spending, his budget would do the
opposite. By supporting a trillion-dollar health care
expansion that is partially offset with tax increases
and Medicare cuts, he essentially takes those
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policies off the table for any future deficit
reduction. That means higher taxes and deeper
spending cuts down the road.
The President who declared to the nation that "I didn't come
here to pass our problems on to the next president or
the next generation--I'm here to solve them,"[23]would,
over the next decade, drop an additional$74,000 perhousehold in debt onto the laps of our children and
grandchildren.
A responsible budget must rein in runaway spendingand deficits. It must reject expensive cap-and-trade and
health care proposals, and repeal the remaining
stimulus and Troubled Asset Relief Program (TARP)
funds. A responsible budget must reject devastating tax
increases during a fragile recovery, and instead cap the
growth of government spending at a reasonable rate.
Most important,a responsible budget must proposespecific reforms to address the unaffordable Social
Security, Medicare, and Medicare spending trends.Congress's budget should aim to meet these standards--eventhough the Obama budget fails to do so.
Brian M. Riedlis Grover M. Hermann Fellow in Federal Budgetary Affairs in theThomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.
Show references in this report
[1]Press release, "Remarks by the President on the Budget," The White House, February1, 2010, at http://www.whitehouse.gov/the-press- office/remarks-president-budget(February 26, 2010).
[2]Unless otherwise noted, the President's budget numbers come from HeritageFoundation calculations based on: U.S. Office of Management and Budget,Budget of theUnited States Government, Fiscal Year 2011 (Washington, D.C.: U.S. Government
http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftn23http://www.heritage.org/about/staff/brianriedl.cfmhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debthttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref1http://www.whitehouse.gov/the-press-office/remarks-president-budgethttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref2http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftn23http://www.heritage.org/about/staff/brianriedl.cfmhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debthttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref1http://www.whitehouse.gov/the-press-office/remarks-president-budgethttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref28/9/2019 Obama Is PURPOSELY DESTROYING US ECONOMY: 22 TRILLIONS DEBT
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Printing Office, 2010), pp. 146-179 and Tables S-1 and S-14, athttp://www.whitehouse.gov/omb/budget/ fy2011/assets/budget.pdf(February 26, 2010).
[3]This is not merely the result of health care reform being added to this year's budgettotals, since health care reform is not supposed to significantly affect the deficit figures
anyway.
[4]Congressional Budget Office, "The Budget and Economic Outlook: Fiscal Years 2010to 2020," January 2010, p. 96, at http://www.cbo.gov /ftpdocs/108xx/doc10871/01-26-Outlook.pdf(March 1, 2010).
[5]For a longer discussion of why government spending fails to stimulate economicgrowth, see Brian M. Riedl, "Why Government Spending Does Not Stimulate EconomicGrowth: Answering the Critics," Heritage FoundationBackgrounderNo. 2354, January5, 2010, at http://www.heritage.org/Research/Economy/bg2354.cfm.
[6]Press release, "Remarks by the President in State of the Union Address," The WhiteHouse, January 27, 2010, at http://www.whitehouse .gov/the-press-office/remarks-president-state-union-address (February 27, 2010).
[7]The President's budget estimates that by 2020, the Medicare drug benefit will cost$137 billion, the operations in Iraq and Afghanistan will cost $50 billion, and the cost ofextending all 2001 and 2003 tax cuts would be $403 billion. This comes to $590 billion,or 2.4 percent of the $24 trillion estimated GDP. The current policy baseline of a budgetdeficit of 8 percent of GDP is calculated by The Heritage Foundation usingCongressional Budget Office data, and is detailed in Brian M. Riedl, "Realistic BudgetBaseline Shows $13 Trillion in Debt over the Next Decade," Heritage Foundation
WebMemo No. 2780, January 26, 2010, athttp://www.heritage.org/Research/Budget/wm2780.cfm.
[8]For FY 2009, President Bush is assigned $1.186 trillion in deficit spending(the CBOestimate for FY 2009 when he left office), while the remaining $228 billion in 2009deficit spending is attributed to President Obama.
[9]Joanna Slater, "Moody's Puts U.S., U.K. on Chopping Block," The Wall StreetJournal, December 8, 2009, at http://online.wsj.com/article/SB10001424052748704825504574582303781275842.html (February 27, 2010).
[10]Brian M. Riedl, "A Guide to Fixing Social Security, Medicare, and Medicaid,"Heritage FoundationBackgrounderNo. 2114, March 11, 2008, athttp://www.heritage.org/Research/Budget/bg2114.cfm.
[11]Barack Obama, "Address to Joint Session of Congress," The White House, February24, 2009, at http://www.whitehouse.gov/the_press_office /remarks-of-president-barack-obama-address-to-joint-session-of-congress (February 28, 2010).
http://www.whitehouse.gov/omb/budget/fy2011/assets/budget.pdfhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref3http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref4http://www.cbo.gov/ftpdocs/108xx/doc10871/01-26-Outlook.pdfhttp://www.cbo.gov/ftpdocs/108xx/doc10871/01-26-Outlook.pdfhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref5http://www.heritage.org/Research/Economy/bg2354.cfmhttp://www.heritage.org/Research/Economy/bg2354.cfmhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref6http://www.whitehouse.gov/the-press-office/remarks-president-state-union-addresshttp://www.whitehouse.gov/the-press-office/remarks-president-state-union-addresshttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref7http://www.heritage.org/Research/Budget/wm2780.cfmhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref8http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref9http://online.wsj.com/article/SB10001424052748704825504574582303781275842.htmlhttp://online.wsj.com/article/SB10001424052748704825504574582303781275842.htmlhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref10http://www.heritage.org/Research/Budget/bg2114.cfmhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref11http://www.whitehouse.gov/the_press_office/remarks-of-president-barack-obama-address-to-joint-session-of-congresshttp://www.whitehouse.gov/the_press_office/remarks-of-president-barack-obama-address-to-joint-session-of-congresshttp://www.whitehouse.gov/omb/budget/fy2011/assets/budget.pdfhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref3http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref4http://www.cbo.gov/ftpdocs/108xx/doc10871/01-26-Outlook.pdfhttp://www.cbo.gov/ftpdocs/108xx/doc10871/01-26-Outlook.pdfhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref5http://www.heritage.org/Research/Economy/bg2354.cfmhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref6http://www.whitehouse.gov/the-press-office/remarks-president-state-union-addresshttp://www.whitehouse.gov/the-press-office/remarks-president-state-union-addresshttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref7http://www.heritage.org/Research/Budget/wm2780.cfmhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref8http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref9http://online.wsj.com/article/SB10001424052748704825504574582303781275842.htmlhttp://online.wsj.com/article/SB10001424052748704825504574582303781275842.htmlhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref10http://www.heritage.org/Research/Budget/bg2114.cfmhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref11http://www.whitehouse.gov/the_press_office/remarks-of-president-barack-obama-address-to-joint-session-of-congresshttp://www.whitehouse.gov/the_press_office/remarks-of-president-barack-obama-address-to-joint-session-of-congress8/9/2019 Obama Is PURPOSELY DESTROYING US ECONOMY: 22 TRILLIONS DEBT
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[12]President Obama has strongly endorsed the House bill. See U.S. Office ofManagement and Budget, "H.R. 2454--American Clean Energy and Security Act of2009," June 26, 2009, athttp://www.whitehouse.gov/omb/assets/sap_111/saphr2454h_20090626.pdf(March 1, 2010).
[13]The 3.2 million figure comes from The Heritage Foundation Center for DataAnalysis Individual Income Tax Model. For data on the increasing progressivity of thetax code, see U.S. Congressional Budget Office, "Shares of Federal Tax Liabilities forAll Households, by Comprehensive Household Income Quintile, 1979-2006," April 2009,at http://www.cbo.gov /publications/collections/tax/2009/tax_liability_shares.pdf(March2, 2010).
[14]The 40-year average (from 1969 through 2008) is revenues of 18.3 percent of GDPand spending at 20.7 percent of GDP.
[15]The President's FY 2010 budget tables did include a table (S-6) detailing a health
reform reserve fund. However, those spending and revenue figures were excluded fromthe aggregate budget tables (S-1 and S-4). See U.S. Office of Management and Budget,ANew Era of Responsibility: Renewing America's Promise (Washington, D.C.: U.S.Government Printing Office, 2009), pp. 114-134, athttp://www.whitehouse.gov/omb/assets/fy2010_new_era/A_New_Era_of_
Responsibility2.pdf(March 1, 2010).
[16]Congressional Budget Office, "H.R. 2454: American Clean Energy and Security Actof 2009," June 5, 2009, p. 10, athttp://www.cbo.gov/ ftpdocs/102xx/doc10262/hr2454.pdf(March 1, 2010).
[17]U.S. Office of Management and Budget,Analytical Perspectives, Budget of theUnited States Government, Fiscal Year 2011 (Washington, D.C.: U.S. GovernmentPrinting Office, 2010), at http://www.whitehouse.gov/omb/budget/Analytical_Perspectives (March 1, 2010).
[18]By the time President Obama released his proposed cuts last year, Congress and theWhite House had already agreed on a topline figure of $1,091 billion in discretionaryspending. The only remaining issue was how to divvy up the funds. So Congress merelytook $6.9 billion from the targeted programs and shifted that money to other programs.At the end of 2009, total discretionary spending remained at exactly $1,091 billion.
[19]This portion of the federal budget has increased by 19 percent over the past twoyears. In addition, these programs have yet to spend well over $200 billion inappropriated stimulus funds.
[20]Although President Obama has proposed moving most of Iraq and Afghanistanspending into the regular non-emergency budget, this analysis excludes those costs inorder to maintain an apples-to-apples comparison of non-war, non-stimulus, non-emergency discretionary-spending trends.
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[21]See Brian Riedl, "PAYGO is an Unworkable Gimmick," The Washington Times,June 23, 2009, at http://www.washingtontimes.com/news/2009 /jun/23/paygo-is-an-unworkable-gimmick/?feat=article_related_stories& (March 1, 2010).
[22]Heritage Foundation calculations based on Congressional Budget Office, "The
Budget and Economic Outlook: Fiscal Years 2010 to 2020," p. 122. Unless otherwisenoted, the Obama budget numbers cited in this paper come from Heritage Foundationcalculations based on U.S. Office of Management and Budget,Budget of the UnitedStates Government, Fiscal Year 2011, p. 177, Table S-13.
[23]Press release, "Excerpts from Obama Remarks on Business Roundtable," The WhiteHouse, March 12, 2009, at http://thepage.time.com/excerpts-from-obama-remarks-on-business -roundtable(March 1, 2010).
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Fantasy Jobs
Published onFebruary 18, 2010 by Brian Riedl
Last year, White House economists claimed that the$862 billion stimulus would create 3.3 million jobs.
Since then, the nation has lostmore than 3 million jobs.
That's a 6.3 millionjobs gap. By the White House's own
standards, the stimulus failed.
So President Obama has shifted his argument. Sure, the
economy lost jobs, he concedes -- but without thestimulus, it would've lost nearly 2 million more jobs.
This is nothing but faith-based economics. The White
House estimate of "saving" nearly 2 million jobs is
based not on observations of the economy's recent
performance -- but merely on the administration's
unshakable belief that deficit spending must create jobs
and growth.
Specifically, the White House staff's "proof" that the
stimulus created jobs is an economic model that they
programmed to assume that stimulus spending
automatically creates jobs. How's that for circular
logic?
In other words, even if we'd lost 20 million jobs, theirmodels would basically crank out the conclusion that
we'd have lost 22 million without the stimulus.
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Worse, the central tenet of this "faith" is false: The
premise that stimulus spending must create jobs just
isn't true.
The stimulus theory is that government spending injects
new dollars into the economy, thereby raising demand
and spurring economic growth. That makes some sense
-- if you don't ask where the government got the money.
Congress doesn't have a vault of cash waiting to be
distributed. Every dollar it "injects" into the economy
must first be taxed or borrowed out of the economy. Nonew income, and therefore no new demand, is created:
It's merely redistributed from one group of people to
another.
Removing water from one end of a swimming pool and
pouring it in the other won't raise the overall water
level, no matter how large the bucket. It's the same with
redistributing dollars from one part of the economy toanother.
The White House says the $300 billion spent from the
stimulus thus far has financed as many as 2 million
jobs. Even if we pretend that that's true, the private
sector was left with $300 billion less to spend, which --
by the same logic -- must lose the same number of jobs,
leaving a net jobs impact of zero.
Some will insist that this $300 billion represents new
demand because it was transferred from savers to
spenders. They're wrong.
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First, this assumes every dollar lent to Washington for
this spending would have otherwise been saved. Yet
anyone who has observed America's miniscule savings
rate understands the private sector would have spentthe vast majority of this $300 billion, had Washington
not taken the cash instead.
Second, savings don't fall out of the economy: They are
invested or deposited in banks -- which then lend them
out to others to spend. Even when recession-weary
banks hesitate to loan money, they invest it in Treasury
bills instead. They don't hoard customer deposits inmassive basement vaults. One person's savings quickly
finances another person's spending.
So all $300 billion would've otherwise been spent by the
private sector. The government stimulus spending
merely displaced private spending, dollar for dollar.
(Even money borrowed from foreigners is no free lunch.Before China can lend America dollars, it must acquire
them by running a trade surplus -- which is a trade
deficit for America. America's increased trade deficit
exactly offsets the dollars borrowed, leaving a net
impact of zero.)
Yes, the president can point to factories and people put
to work with government funds. What we don't see arethe jobs that would have been created (or factories
used) elsewhere in the economy with those same dollars
had Washington not taken them.
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If governments could spend their way to economic
growth, then Greece would be booming. Instead, it's in
free-fall. And if budget deficits stimulated growth, then
last year's $1.4 trillion budget deficit would haveoverheated the economy. It clearly did not.
But the White House has no use for this evidence that
the stimulus failed. It has its computer models -- and it's
not letting economic reality get in the way.
Brian M. Riedlis a fellow in federal budgetary affairs at The Heritage Foundation
(heritage.org).
First appeared in The New York Post
http://www.heritage.org/Research/Commentary/2010/02/Fantasy-Jobs
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Obama Misdiagnoses Source of Deficits
Published onFebruary 16, 2010 by Brian Riedl
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President Obama says he wants to reduce America's
record trillion-dollar deficits. Too bad he hasn't even
correctly diagnosed their cause.
During his State of the Union Address, the president
asserted: "At the beginning of the last decade, America
had a budget surplus of over $200 billion. By the time I
took office, we had a one-year deficit of over $1 trillion
and projected deficits of $8 trillion over the next decade.
Most of this was the result of not paying for two wars,
two tax cuts, and an expensive prescription-drug
program."
In other words, it's President George W. Bush's fault.
This can't be true. Mr. Bush implemented the three
policies mentioned by Mr. Obama in the early 2000s.
Yet by 2007 the last year before the recession the
budget deficit stood at only $161 billion. So how could
those policies cause trillion-dollar deficits from 2009through 2020?
Let's unpack Mr. Obama's claim.
His methodology measures the combined cost of the
three policies against a "budget baseline" a snapshot
of what the budget would look like for the next decade if
today's tax and spending policies are maintained. Thinkof the budget baseline as the do-nothing default option.
The first problem is the president's baseline deficit of
"$8 trillion over the next decade." This likely refers to
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the 10-year, $8.9 trillion deficit in the White House's
budget baseline last year.
Yet this baseline contained numerous questionable
assumptions. It assumed that spending in Iraq and
Afghanistan would continue growing forever, while
spending on regular discretionary programs (which has
doubled over the past decade) would slow to
approximately 2 percent annual growth for most of the
decade.
The baseline also incorporated provisions of Mr.Obama's own stimulus bill that had already been
enacted deficit spending that he obviously didn't
inherit from his predecessor. Thus, the $8 trillion
baseline deficit figure is not credible.
And that's not all. By writing a baseline that assumes
spending in Iraq and Afghanistan would continue
growing forever (which was never U.S. policy), thepresident overstates the "inherited cost" of these wars
over the next decade by $1 trillion. In reality, troop
pullouts will drastically reduce the impact of Iraq and
Afghanistan on future budget deficits.
Overall, the president's data contains too many dubious
assumptions to be useful.
So how much of the deficit is really caused by the tax
cuts, war spending and Medicare prescription-drug
entitlement?
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One easy method is to begin with a more realistic
budget baseline, using data from the more neutral
Congressional Budget Office (CBO). Maintaining
today's tax and spending policies (and assuming agradual troop drawdown in Iraq and Afghanistan)
would, using CBO data, bring $13 trillion in deficits
over the next decade.
Compare that to the 10-year cost of the tax cuts ($3
trillion), Medicare prescription-drug entitlement ($1
trillion) and Iraq and Afghanistan spending
(approximately $600 billion, again assuming a gradualtroop drawdown). This adds up to $4.6 trillion, or just
over one-third of the $13 trillion in baseline deficits.
This contradicts the president's claim that most of the
deficits result from those three policies.
Even this methodology does not tell the whole story.
After all, if Washington collects $3 trillion in taxes andspends $4 trillion, who's to say which of the spending
programs "caused" the resulting $1 trillion deficit? One
could pinpoint any $1 trillion group of spending
programs and blame them for the budget deficit.
A better way to diagnose the cause of long-term deficits
is to measure taxes and spending against their historical
averages. This more comprehensive methodology showsthat long-term deficits are overwhelmingly driven by
runaway entitlement spending.
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By 2020, the CBO-based budget baseline projects that
federal spending will reach 26.0 percent of the economy
(5.3 percent of the economy above the 40-year spending
average). Revenues will settle at 17.7 percent of theeconomy (just 0.6 percent of the economy below the
revenue average) and even that assumes all tax cuts
are extended.
So as deficits expand by 5.9 percent of the economy,
nearly 90 percent of the growth will come from higher-
than-average spending, and just over 10 percent from
lower-than-average revenues.
Virtually all of this new spending will come from
surging Social Security, Medicare and Medicaid costs
(driven primarily by 77 million retiring baby boomers),
as well as net interest on the national debt. These four
expenditures will cost $26 trillion over the next decade
surging from $1.6 trillion this year to $3.6 trillion in
2020. That is causing the massive budget deficits overthe next decade and must be the focus of any serious
effort to reduce the budget deficit.
Finally, there is some hypocrisy at work. Mr. Obama
criticizes Mr. Bush for "not paying for two wars, two
tax cuts, and an expensive prescription-drug program."
Yet he would extend $3.9 trillion of these policies (while
repealing $700 billion in tax cuts) without paying for
them, either. By his own logic, he's almost as
irresponsible as Mr. Bush.
Brian Riedlis Grover M. Hermann Fellow in Federal Budgetary Affairs at the HeritageFoundation (www.heritage.org).
http://www.heritage.org/Issues/Economyhttp://www.heritage.org/Issues/Health-Care/Public-Health-Program-Reform/Medicaidhttp://www.heritage.org/About/Staff/R/Brian-Riedlhttp://www.heritage.org/Issues/Economyhttp://www.heritage.org/Issues/Health-Care/Public-Health-Program-Reform/Medicaidhttp://www.heritage.org/About/Staff/R/Brian-Riedl8/9/2019 Obama Is PURPOSELY DESTROYING US ECONOMY: 22 TRILLIONS DEBT
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First appeared in The Washington Times
http://www.heritage.org/Research/Commentary/2010/02/Obama-Misdiagnoses-Source-of-Deficits
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The Most Bloated Budget Ever
Published onFebruary 2, 2010 by Brian Riedl
It's a good thing President Obama and the Democratic
Congress just agreed to raise the federal debt limit by
nearly $2 trillion -- they're going to need every penny of
it. And fast.
Last year, Obama swept into office promising to make
tough choices -- and then released a budget proposing
the largest debt-and-spending spree in American
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history. This year, he's at it again: Over 2010-2019, his
new plan boosts spending another$1.7 trillion and thedeficit by $2 trillion over what he proposed last year.
In fact, this year's budget shows yearly deficits as much
as 49 percent larger than even last year's bloated
proposal. This spending spree will drive up both taxes
and deficits to levels unseen in US history.
Nor are the Obama deficits a temporary result of
the recession. Despite a modest recovery, the 2010
budget deficit will be higher than the 2009 deficit.Nearly 42 cents of each dollar Washington spends will
be borrowed.
Even by 2020 -- which Obama's planners assume will be
a time of peace and prosperity -- annual deficits would
still exceed $1 trillion. By that point, nearly a fifth of all
taxes would go toward paying the interest on this record
debt.
The president who said "I didn't come here to pass our
problems on to the next president or the next generation
-- I'm here to solve them" would, over the next decade,
dump $75,000 per household in added debt into the laps
of our children and grandchildren.
Obama claims it's not his fault. In his State of the Unionspeech, he asserted: "By the time I took office, we had a
one-year deficit of over $1 trillion and projected deficits
of $8 trillion over the next decade. Most of this was the
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result of not paying for two wars, two tax cuts and an
expensive prescription-drug program."
Not true. Those policies were all implemented in the
early 2000s. Yet, by 2007, the budget deficit was still
only $162 billion.
The trillion-dollar deficits didn't begin until 2009 --
after the recession hit. And the subsequent deficits are
driven by runaway spending -- mainly from Social
Security, Medicare (beyond just the drug benefit),
Medicaid and net interest.In fact, under current policies, nearly 90 percent of the
growth in the budget deficit by 2020 comes from
spending hikes already programmed in -- and just over
10 percent from declines in revenues (And even that
assumes all tax cuts are extended.)
Runaway spending is the problem -- yet Obama'sbudget includes no plan for long-term spending
restraint.
Before the recession, Washington spent $24,000 a year
per US household. Obama would hike it to $36,000 by
2020 -- an inflation-adjusted $12,000-per-household
expansion of government. (And does anyone think
they're getting their money's worth?)
If spending jumps $12,000 per household, taxes must
eventually rise. The president would make a large
down-payment on that with a $2 trillion tax hike on all
Americans. Yet that would still leave the government
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http://www.heritage.org/Research/Commentary/2010/02/The-Most-Bloated-Budget-Ever
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Realistic Budget Baseline Shows $13 Trillionin Debt Over the Next Decade
Published onJanuary 26, 2010 by Brian Riedl
The new Congressional Budget Office (CBO) 10-year
budget baseline provides a sobering picture of a federal
government that has committed itself to trillions
more in spending than taxpayers can afford. Oncethe baseline is scrubbed of several unrealistic
assumptions that Congress demands CBO use , the more
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realistic baseline shows that massive spending increases
are set to keep the budget deficit to $1.4 trillion in 2010
and drive it to $1.9 trillion by 2020.
A Sea of Red Ink
The CBO baseline contains two important messages.
First, Washington is accumulating debt at an
unsustainable rate. After the debt slowly grew to
$5.8 trillion through 2008, the more realistic
baseline shows the federal government
adding an astonishing $16.3 trillion in new
debt between 2009 and 2020$130,000 per
household over those 12 years.
Budget deficits would average $1.3 trillion annually as
the debt climbs to 98 percent of the gross domestic
product (GDP) by 2020and continues growing
thereafter. This steep rise in debt would eventually
become too large for global capital markets to
absorb, potentially triggering a financial crisis,
interest rate spike, and gigantic tax increases.
The second message is that surging government
spendingnot low revenuesis driving these
deficits. Historically, spending has averaged 20.7percent of GDP, and revenues have averaged 18.3
percent of GDP, leading to sustainable average deficit of
2.4 percent.[1] Under the adjusted CBO baseline, 2020
spending would surge to 25.9 percent of GDP, while
http://www.heritage.org/Issues/Budget-and-Spending/Deficits/National-Debthttp://www.heritage.org/Issues/Budget-and-Spending/Deficitshttp://www.heritage.org/Issues/Budget-and-Spending/Deficits/Interesthttp://www.heritage.org/Issues/Budget-and-Spending/Deficits/Interesthttp://www.heritage.org/Research/Reports/2010/01/Realistic-Budget-Baseline-Shows-$13-Trillion-in-Debt-over-the-Next-Decade#_ftn1http://www.heritage.org/Issues/Budget-and-Spending/Deficits/National-Debthttp://www.heritage.org/Issues/Budget-and-Spending/Deficitshttp://www.heritage.org/Issues/Budget-and-Spending/Deficits/Interesthttp://www.heritage.org/Research/Reports/2010/01/Realistic-Budget-Baseline-Shows-$13-Trillion-in-Debt-over-the-Next-Decade#_ftn18/9/2019 Obama Is PURPOSELY DESTROYING US ECONOMY: 22 TRILLIONS DEBT
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revenues would reach 17.6 percent (still slightly below
the historical average), leaving a deficit of 8.3 percent of
GDP.
This means that 88 percent ofthe additional
deficits would come from higher spending, and
only 12 percent would come from lower revenuesand that assumes all tax cuts are extended. Clearly,
spending is the problem.
Thus, President Obamas spending agendawhich
would be unaffordable even in good budget timesiscompletely unrealistic in this sea of red ink. On top of
this baseline, the President