The Obama Watch

Obama’s Fantasy Budget

it's nothing but a shameless exercise in left-wing extremism. There are no two ways around it.

By 3.4.09

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To understand Barack Obama, you have to recognize that he has established a clear pattern of calculated misrepresentations to mislead and confuse the public as to what he is doing and what he believes. For example, he repeatedly says he is only interested in what works, not ideology. That is meant to mislead and distract you away from his left wing extremist ideology, which is really what governs his policies and actions.

If you carefully examine his economic policies, you see he thoroughly avoids proven, practical policies that would stimulate economic growth, and pursues left-wing ideology instead. Nowhere in his economic program is there any reduction in tax rates, which is what creates real incentives for economic growth. Instead, he proposes in his new budget to sharply increase tax rates, because of his liberal/left ideology.

Instead of reducing government spending, just a few weeks ago he adopted the largest increase in government spending in world history through his so-called economic stimulus bill, which will only stimulate the increased welfare and Big Government that Obama believes in ideologically. Obama's new budget proposes the largest increase in Federal spending since World War II, an insane one-year increase of 33% over the prior budget, from $3 trillion in fiscal 2008 to $4 trillion for fiscal 2009. That whopping $4 trillion is the largest Federal spending total in U.S. history.

Obama says in his budget message that we have arrived at this present crisis "as a result of an era of profound irresponsibility…." Does this wild spending increase to record levels sound responsible to you?

Obama introduced his budget with much fanfare regarding his promise to cut the federal deficit in half by 2013. That will never remotely happen, as we will discuss further below. But it serves its purpose for now, which is to distract you from the astounding deficit the budget does propose for this year: $1.75 trillion, more than three times the highest previous total except for World War II. This is not George Bush's deficit. This is the deficit Obama has proposed for the rest of this year, resulting from the $1 trillion in increased spending he just adopted in the no-stimulus stimulus bill, and the $400 billion supplemental spending bill he supported and adopted in addition the next week, and the $275 billion housing bailout he proposed the next week, and the $638 billion he has proposed as a "down payment" on a new national health insurance entitlement that will be the most expensive entitlement of all, and the additional $250 billion in bank bailouts he is considering proposing. That is all after only little more than a month in office. See what I mean by left-wing extremism? Does this sound like responsibility to you?

That deficit, by the way, is 12.3% of GDP, about one-eighth of the entire U.S. economy, for the federal deficit alone! That is again the largest in U.S. history except for World War II. The federal deficit for 2008 was 3.2% of GDP. Reagan's largest deficit as a percentage of GDP was only half as big as this Obama deficit.

Obama's own budget also states that the national debt will grow by $2.7 trillion this year alone, an increase of 27% in one year! The national debt this year will reach $12.7 trillion, almost as large as our entire economy of $14 trillion. After 10 years of Obama's glorious budget policies, his own budget projects that the national debt will be $23.1 trillion. Does all this sound like a new era of responsibility to you, or more extremism?

Obama has also touted himself as a big budget cutter, saying he has gone line by line through the budget, and has already proposed budget cuts of $2 trillion over 10 years. But $1.5 trillion of that is from supposed savings from the Iraq war due to the pullout of U.S. troops. That comes from assuming that without Obama's policies Iraq war costs would have continued indefinitely at the same level as in fiscal 2008, when fighting from the surge was still at its peak. But President Bush already started withdrawals from Iraq last year, and signed an agreement with the Iraqi government providing for all U.S. troops to be pulled from active combat duty by July of this year, and phased out of the country completely by the end of 2011. Obama's latest policy only moves that complete withdrawal forward by less than 5 months.

You can use Obama's same budget methodology to save $1 million from your own family budget. Just budget a family vacation to Disneyland this year for $1,005,000. Then have a family meeting next month, and decide you can only afford $5,000 for the vacation, for a total family budget savings of $1 million.

Obama the budget cutter also supposedly saves $311 billion in interest expenses over the next 10 years by raising taxes on that disfavored top 5% of income earners, even though he projects the national debt over that time will more than double, with soaring interest expense. Another $316 billion in budget savings is from "health reform," $287 billion of which comes from "promoting efficiency/accountability." Obama's budget says:

As part of health care reform, the Administration would support comprehensive, but fiscally responsible, reforms to the payment formula [for doctors and hospitals]. The Administration believes Medicare and the country need to move toward a system in which doctors face better incentives for high quality care rather than simply more care.

Is that $287 billion coming out of the compensation of doctors and hospitals, or out of the care given to patients? And who decides what is high quality care: the patient or the government?

The Obama budget also helpfully includes $1 trillion in tax increases on that hated upper 5% of income earners, mostly tax rate increases. But nothing close to that will ever materialize from these tax increases. The top 1% of income earners already pay 40% of all federal income taxes. The top 5% already pay 60% of those taxes. Besides the dubious morality of trying to impose still more of the burden on this small group, they are not going to sit still and get sheared for more. These higher income earners have the most legal options as to where they take their income, when, and whether they take it at all. With the higher tax rates, total taxes paid by this group could even decline.

Then there is another trillion dollars in tax increases in the Obama budget, on businesses. Indeed, the Obama budget projects that revenues from the corporate income tax will more than double in 3 years, increasing, in fact, by more than 124%. In this globalized economy, that full revenue will never materialize either.

About $645 billion of that business tax increase comes from Obama's 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. Is that going to be paid by business, or by their customers? At CPAC last week, Newt Gingrich gave his opinion, saying:

Now I listened carefully to the President's speech the other night… the final educational lesson of the evening came when the President having promised he would not raise taxes on anyone below $250,000 mentioned…that he is for an energy tax…. I said to myself, let me get this straight, we are not going to raise taxes on anyone making less than $250,000 per year, unless you use electricity. And we are not going to raise taxes on anyone under $250,000 per year, unless you buy gasoline, …[or] unless you buy heating oil, …[or] unless you use natural gas…. And I thought to myself how dumb do they think we are that they can pretend that an energy tax is not an energy tax and…that every retired American who uses electricity is not going to pay it, and every person in New Hampshire who uses heating oil is not going to pay it, and every person who drives a car isn't going to pay it. I just want to report to Attorney General Holder and President Obama that this is a nation of people courageous enough…to insist that we not be governed by people who won't tell us the truth.

Also in Obama's budget is $940 billion over 10 years for what he calls "tax cuts for families and businesses." But buried deep within the footnotes is the information that $326 billion of that, or more than one-third, is for people who do not pay income taxes, so it is actually accounted for in the budget quite rightly as outlays, not tax cuts. Because you can't cut income taxes for people who do not pay income taxes.

But Obama's tax cuts even for those who do pay income taxes that can be reduced are still problematic, because they are all carefully designed to avoid having any real effect in stimulating economic growth, for ideological reasons. Instead of rate cuts, which create incentives for economic growth by allowing people to keep a higher percentage of what they produce, the Obama tax cuts are all income tax credits that involve giving people a cash rebate. After they receive that cash, the incentives they face for savings, investment, business creation or expansion, job creation, or work, are all the same as before. By contrast, rate cuts affect not only the amount of any tax cut and what they do with that money. They affect every dollar in the economy and every economic decision in the economy, by changing the incentives that apply to all such decisions and all dollars in the economy. That is why the rate cuts are so powerful, while tax credits have no real economic effect.

Obama reflects his ideological confusion and misinformation when he complains in his budget explanation:

[F]or far too long, the resilience, optimism, and industriousness of the American people have been frustrated by irresponsible policy choices in Washington. Prudent investments in education, clean energy, health care, and infrastructure were sacrificed for huge tax cuts for the wealthy and well-connected. In the face of these trade-offs, Washington has ignored the squeeze of middle class families that is making it harder for them to get ahead.

This is brain dead political propaganda. As already mentioned, the top 1% of income earners already pay 40% of all federal income taxes. The top 5%, who are now targeted for all the tax increases, already pay 60% of those taxes. Washington was not starved for funding because it was not getting tax revenues from them. By contrast, the bottom 40% of income earners pays no income taxes as a group on net. Instead, they already receive net payments from the tax system equal to 3.8% of total income tax revenues. Madly increasing these net payments for them as Obama is doing is only providing them with more welfare, not tax cuts. Moreover, the middle 20% of income earners now only pays 4.7% of all federal income taxes. They have not been squeezed by irresponsible tax policy. Rather, they have seen their federal income tax almost eliminated.

But Obama promises throughout his budget documents that his policies will bring the American people economic growth. He says:

The time has come to usher in a new era -- a new era of responsibility in which we act not only to save and create new jobs, but also to lay a new foundation of growth upon which we can renew the promise of America. This Budget…lays out for the American people…our plans to transform our economy for the 21st century to give our children and grandchildren the fruits of many years of economic growth.

Foolish promise. Because there is virtually nothing in the budget or Obama's economic policy that will produce economic growth, particularly over the long term, when Obama will clearly be responsible for the results.

Here, in fact, is exactly how the budget promises to produce these many years of economic growth, in its chapter on "Jumpstarting the Economy and Investing for the Future":

-- Make Permanent the $800 "Making Work Pay" Tax Cut for Workers and Families. This is the income tax credit discussed above that sends lots of money to people who do not pay income taxes, and involves no change in incentives for those who do pay income taxes. Borrowing $800 for each two-earner couple to send them a check for $800 adds nothing to the economy on net.

-- Continue to Cut Taxes for the Families of Millions of Children Through an Expansion of the Child Tax Credit. Ditto the above.

-- Increase Food Stamp Benefits for Over 30 Million Americans. Increasing welfare does not promote economic growth. It retards it, by promoting dependency and non-work instead.

-- Provide Nearly 60 Million Retired and Disabled Americans an Immediate $250 Through Temporarily Increasing Benefits. Increasing welfare does not promote economic growth, even if the recipient really needs the money.

-- Extend, Expand and Reform Unemployment Insurance (UI) Benefits. Extending and expanding unemployment insurance benefits provides no incentives or other boost for economic growth. Rather, it does just the opposite.

-- Reform Asset Tests. This means make it easier to get welfare. No economic boom here.

There is also some infrastructure spending, which will work to promote the economy like Roosevelt's old Works Progress Administration (WPA) did early in the Great Depression. Government spending is not free, and is not the foundation of economic growth. Then there is the Obama plan to move America to new energy sources that cost literally 10 times the sources we use now. That can be done with enough taxes on the old sources, and continual subsidies for the new sources, for a massive net loss to the economy overall. Adopting a new national health care entitlement with hundreds of billions in new taxes and new spending is also not the key to a renewed economic boom, especially when we can't afford the entitlements we already have. Numerous studies show, moreover, that increased education spending does not improve educational performance.

We will be checking the results in 2012, Barack, and holding you accountable.

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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.