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The GOP’s Alternative Budget

It will be released this morning by Rep. Paul Ryan, as an alternative to the Obama insanity.

By 4.1.09

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This morning Congressman Paul Ryan, the ranking Republican on the House Budget Committee, will release the GOP alternative budget, which will come up for a vote on the House floor. This budget will have complete and thorough numbers scored by CBO. The difference between Obama's budget and this budget is like the difference between Che Guevara and George Washington.

Ryan said at a press conference yesterday that the GOP budget would involve lower spending, lower deficits, lower taxes, lower debt, and more jobs, all based on Congressional Budget Office projections. The difference is shown in particular by the wide divergence between the two budgets on the national debt. Under the Obama budget, CBO projects that the national debt as a percentage of GDP will soar over the next 10 years from 40% of GDP today to a shocking 82.4%. Ryan, moreover, will show that over the long run Obama's budget plan will lead to the national debt soaring to 200% of GDP by 2035. Even during World War II, America's national debt peaked at 113% of GDP.

Under Ryan's budget plan, however, the national debt is just over 60% of GDP by 2019. But over the longer run, Ryan slows runaway entitlement spending, so the debt by 2040 is held to about 70% of GDP, and then declines thereafter to below current levels.

As Ryan said yesterday, "We cannot continue to borrow more under this presidency than all prior 43 presidencies combined…because if we do that, the future will be jeopardized. We will not have a prosperous America. Our currency will be debased, and we won't have the kind of jobs…that we have enjoyed in this country. So tomorrow the Republican budget will attack these issues. The Republican budget will show a better future for America on all the key metrics: spending, borrowing, taxing, job creation. This is the future we want to achieve. This is the future the President's budget does not achieve. The President's budget does not solve our economic crisis, our fiscal crisis. I would argue that this budget exploits it."

Indeed, the last budget passed by a Congress with GOP majorities was for fiscal 2007. That budget had a deficit of $162 billion, or 1.2% of GDP. But under Obama's budget, the deficit for this year would total $1.845 trillion, according to the CBO, the highest ever. That would be more than 7 times Reagan's largest deficit of $221 billion, which caused so much howling among liberals and Democrats.

The CBO estimates that this Obama budget deficit will total an astounding 13.1% of GDP, more than one-eighth of the entire U.S. economy, for the federal deficit alone! That is the largest in U.S. history, except for World War II, more than twice Reagan's highest deficit as a percent of GDP.

The budget Obama proposes for this year increases federal spending by a fiscally insane 34% over the budget adopted for last year, with a total of $4 trillion in federal spending, the highest ever. That spending would equal 28.5% of GDP, an increase in the size of the federal government in Obama's first year of 42% compared to the postwar average relative to GDP. Ryan will show, moreover, that over the long run Obama's budget would lead to federal spending at roughly 50% of GDP! That is for Federal spending alone! Talk about socialism! That means good-bye to the America we have known and loved. Good-bye to freedom and prosperity.

Obama's budget adds $1 trillion in tax increases on that hated upper 5% of income earners, mostly tax rate increases. But the top 1% of income earners already pay 40% of all federal income taxes. The top 5% already pay 60% of those taxes.

Another $645 billion tax increase comes from Obama's anti-global warming cap and trade system, which will raise costs by that amount on the production and use of carbon energy, such as oil, natural gas, and coal. This tax increase will be paid by consumers in increased utility bills, gas prices, prices for home heating oil, prices for electricity, food prices, particularly for meat and dairy products, and in prices for every product whose production uses energy. Indeed, that tax increase will far more than offset the so-called tax cut for 95% of workers that Obama promised, which is a miserable $400 tax credit per worker for the year which will do nothing to boost the economy. Instead, the cap and trade tax increase will destroy at least 1.5 million jobs by 2015.

The Obama budget also projects that revenues from the corporate income tax will more than double in 3 years, increasing, in fact, by more than 124%. Overall, this budget represents the largest tax increase in U.S. history, by far. All these tax increases will drag down the economy into stagnation, not lead to long-term economic growth. Obama's huge budget deficits will also produce high interest rates and soaring inflation over time, which will further drag the economy down.

By contrast, Ryan's GOP alternative budget includes no tax increases. Instead, it reforms income taxes, with a low rate of 10% applying to the first $100,000 in income, and a top rate of 25% applying to all income after that. Those lower tax rates will provide powerful incentives to boost the economy, by allowing producers to keep a higher percentage of what they produce. At the same time, the GOP alternative budget will also show an eventual balanced budget, as scored by CBO.

A key question is how the so-called Blue Dog Democrats will vote on the budget. The Democrats owe their House majority to the election of 40-50 of these Blue Dogs, who ran in conservative districts claiming to be better conservatives than their Republican opponents. A few of them actually voted against Obama's counterproductive "stimulus" bill, which makes them legitimate in my book. The others will reveal themselves as true frauds if they vote for Obama's loony left budget instead of Ryan's mainstream middle America budget, and provide the foundation for a Republican takeover of the House next year.

In his press conference last week, Obama said, "But, I'm -- look, I'm not going to lie to you. It is tough. As I said, that's why the critics tend to criticize, but they don't offer an alternative budget, because even if we were not doing health care, we were not doing energy, we were not doing education, they would still have a whole bunch of problems in those out years, according to CBO projections. The only difference would -- is that we will not have invested in what's necessary to make this economy grow." Paul Ryan is going to make Obama regret that taunt.

And just what is Obama going to "invest" in to make the economy grow? (Note: Obama uses the word "invest" to mean runaway government spending. This was explained in his underwhelming press conference last week.)

First, he is going to create all those "green" jobs by greatly restricting production of the proven sources of our current energy supply, oil, natural gas, coal, nuclear power, and greatly increase taxes on whatever supplies of this energy do get through. Then he will greatly subsidize the new politically correct sources of energy, wind, solar, biofuels. He figures building all those solar panels and windmills, and growing and processing all that agrifuel, will create oodles of jobs.

This is economic foolishness because the real economic costs of those politically correct energy sources are far greater than for the current sources. Then the economy is also losing the costs of the increased taxes and subsidies. Overall, this will slow economic growth and reduce jobs on net. If the new sources don't really come through with enough energy to power our economy, as is quite likely, that will harm growth even more.

The second component of the Obama "economic growth" agenda is to reduce health costs. But there is nothing in his health reforms that will legitimately reduce health costs by nearly enough to really help. The only way Obama's health reforms are going to reduce health costs is by depriving doctors and hospitals of adequate compensation, and by rationing health care for those who are actually sick, as they do in Canada, Great Britain, and everywhere else they have so-called national health care. This will not only trash the health care industry. It will reduce the standard of living of the middle class, just like the new Fiat cars that Chrysler is now going to produce will do.

Finally, Obama is going to promote economic growth by increasing spending on education. But we already spend more on education than anyone else in the world by far, probably still more than we spend on national defense. That is why study after study shows that educational performance is not related to spending in America. What will improve education is fundamental reforms like school choice, which Obama opposes because he is owned by the teachers' unions who are interested only in their own power and money, not education performance. So Obama's increased education spending is not going to promote economic growth either.

Overall, the notion that this agenda is going to promote long-term economic growth is daft, to be as polite and diplomatic as circumstances will allow. Obama should not even use the words "economic growth." He knows as much about that as he does about playing shortstop for the New York Yankees.

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About the Author
Peter Ferrara is Director of Entitlement and Budget Policy at the Heartland Institute, General Counsel of the American Civil Rights Union, Senior Fellow at the National Center for Policy Analysis, and Senior Policy Advisor on Entitlements and Budget Policy at the National Tax Limitation Foundation. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.