At the invitation of the Republicans, President Obama spoke at the Republican retreat last Friday. During the following Q & A, Rep. Jeb Hensarling of Texas rose to ask the final question: “You are soon to submit a new budget, Mr. President. Will that new budget, like your old budget, triple the national debt and continue to take us down the path of increasing the cost of government to almost 25 percent of our economy.”
Rep. Hensarling’s statements regarding President Obama’s budget last year, supported by almost every Democrat, including those supposedly fiscal conservative “Blue Dog” Democrats, were completely accurate, taken directly from the analysis of the Congressional Budget Office (CBO). That 25% of our economy refers only to the cost of the federal government. State and local government adds over 50% more, increasing the total cost of government in America to almost 40% of GDP already.
But President Obama responded as if the question were completely illegitimate, saying, “I’ve just got to take this last question as an example of how it’s very hard to have the kind of bipartisan work that we’re going to do, because the whole question was structured as a talking point for running a campaign.”
On Monday, President Obama publicly submitted his new budget. That budget forthrightly answers Rep. Hensarling’s question, even though President Obama would not in the light of a national TV broadcast. President Obama’s own budget confesses that it would more than triple the national debt from $5.8 trillion at the end of 2008 to $18.6 trillion by 2020.
Indeed, it would almost double the national debt in just four years from 2008, to $11.5 trillion in 2012. The budget also confesses that under President Obama’s first three years, 2009-2011, the federal government will borrow over $4.2 trillion. As the Wall Street Journal reported last week, “That is more than the entire accumulated national debt for the first 225 years of U.S. history.”
During the glorious 2008 campaign for hope and change, then candidate Obama harshly criticized George Bush for running $3.3 trillion in deficits over his eight years in office. But President Obama’s new budget confesses that he will run up that much in deficits in just two years and three months. Moreover, as Brian Riedl of the Heritage Foundation reported on Monday, “President Obama would run up more debt over his eight years than all other Presidents in American history — from George Washington to George Bush — combined.”
But at the Republican retreat, when he was on national television, President Obama refused to take responsibility for any of this. Further responding to Rep. Hensarling, who had said, “what were the old annual deficits under Republicans became the monthly deficits under Democrats,” President Obama said that “had nothing to do with anything we had done.” He went on to repeat basically what he had said during his State of the Union Address earlier in the week, “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.”
Heritage’s Riedl corrected President Obama on Monday, saying, “This is simply not true. The policies mentioned by President Obama were implemented in the early 2000s. Yet even with all those policies in place, the 2007 budget deficit stood at only $162 billion.”
President Obama’s budget admits a federal deficit for 2010 of $1.6 trillion, ten times as much as that 2007 deficit of $162 billion, which was the deficit for the last budget adopted by Republican Congressional majorities. This was where Hensarling got his statement that the annual deficits under the Republicans had become the monthly deficits under the Democrats, to which President Obama wrongly responded, “that’s factually just not true, and you know it’s not true.”
But the truth is that President Obama’s $1.6 trillion deficit for 2010 is the largest in world history, rising still more from last year’s record $1.4 trillion deficit. And this record 2010 deficit assumes continued record low interest rates this year on our gargantuan national debt. If interest rates rise, then federal spending and deficits will explode still further due to interest costs on that debt. The Obama budget already projects that net interest spending will soar to $840 billion by 2020, more than four times current levels.
The “Spendaholic” Budget
The exploding federal deficits and debt are due to President Obama’s spendaholic budgets, which increased federal spending in 2009 by 18% over 2008, and in 2010 by 25% from 2008. That was not George Bush and the Republicans who did that. That was President Obama’s almost $1 trillion stimulus bill, the $400 billion supplemental spending bill a few weeks later, the new supplemental spending bill recently adopted, and the one-third increase in federal welfare spending over the first two years under President Obama.
Hensarling was proved right again by President Obama’s budget, which blows up federal spending to a peacetime record of 25.4% of GDP. President Obama has consequently already increased the federal government by one-fourth in just two years since 2008, when federal spending was 20.7% of GDP. Brian Riedl of Heritage points out that by 2020, President Obama will have increased the federal government by one-half on a per family basis, writing, “Before the recession, federal spending totaled $24,000 per U.S, household. President Obama would hike it to $36,000 per household by 2020.” And that is in real terms, after adjusting for inflation.
Riedl’s exposé of this year’s Obama budget shows most shockingly of all that the new budget increases spending, deficits, and debt even faster than last year’s budget over the next 10 years. Riedl writes, “Over the 10 years in which both budgets overlap (FY2010-2019), this year’s budget would spend an additional $1.7 trillion and run up an additional $2 trillion in budget deficits.”
President Obama’s Spending Freeze Trick
But wait a minute. Didn’t President Obama just announce in his State of the Union address a three-year spending freeze that would save $250 billion in federal spending? That turns out to be based on a budget math trick.
The stimulus bill passed a year ago provided for a temporary spending surge of almost $800 billion. A few months before that, Congress provided a temporary spending jolt in $750 billion for the TARP financial industry bailouts. That amounts to $1.5 trillion in temporary spending increases that will not be recurring in future years.
That means a sharp reduction in federal spending over the next several years should already be baked into the budget cake, as that $1.5 trillion temporary spending spike passes. In this context, a “budget freeze” saving $250 billion actually provides room for a large permanent spending increase in future years. In other words, spending should already be coming down by $1.5 trillion over the next several years, as the temporary stimulus and TARP increases are not repeated.
CBO projects that federal spending overall will total $42.9 trillion over the next 10 years. President Obama’s proposed budget freeze savings of $250 billion is only about one half of 1% of that total. The savings is so small because the freeze would apply to only 18% of the federal budget, only part of federal domestic discretionary spending, which Obama increased by 17.4% last year. Even worse, given the sharp hike in temporary spending over the last two years, President Obama should now be slashing total spending, not freezing it, let alone just freezing a small part of it.
Making You Pay
All this record spending, deficits, and debt means your taxes are going to record levels as well, leaving you with a lower standard of living, which President Obama thinks is currently excessive anyway.
This new budget already provides for more than $2 trillion in new taxes on the American people over the next decade. That includes higher taxes on 3.2 million small businesses and upper income taxpayers by an average of $300,000 over that 10 years.
Under this budget, the top marginal income tax rate will be increased next year by close to 20%. The capital gains tax rate will be increased by 33%, and the top tax rate on corporate dividends goes up by 164%. President Obama also proposes in this budget to abolish the deduction for charitable giving and for home mortgage interest for millions of Americans.
He also proposes to “slash the tax breaks for companies that ship our jobs overseas.” What tax breaks are those you should ask. President Obama thinks American companies are enjoying an unfair tax break if their overseas earnings are not subject to double taxation, once overseas and again here at home. No foreign country does that to their own companies. As Ryan Ellis of Americans for Tax Reform tries to explain, “There’s no reason that an American company with an Irish subsidiary cannot become an Irish company with an American subsidiary. America has a 39 percent ‘all-in’ corporate rate. Ireland’s is 12.5 percent.”
But it’s not all taxes “on the rich,” which is a sucker line for simpletons with the economic sophistication of pirates. There is an $800 billion cap and trade tax which will be paid by everyone who uses electricity, gasoline, natural gas, home heating oil, or any product or service made or transported using any of these items. There are also taxes on health insurance and “medical devices,” which includes condoms, tampons, contact lenses, hearing aids, and blood glucose monitors to control diabetes. When he was campaigning in 2008, President Obama promised us over and over he would not raise taxes on those making less than $250,000 per year “in an form.” Now that he is President, that is all forgotten.
But this is only the beginning. President Obama is also promising to appoint a “Deficit Commission,” with the job to report back on how to clean up this unprecedented mess he is making, after this year’s elections of course. And the way to clean it up is going to be precisely a record breaking tax increase on those very people making less than $250,000 a year, as he is already plundering everyone else. He will say the Republicans on the Commission made him do it.
Back to the Future
This is not a prescription for an economic boom and prosperity for working people. At best, it is a prescription for a return to the long-term economic stagnation of the 1970s. In particular, with the above tax rate increases, we are not going to get the private investment necessary to create jobs and higher wages over the long term.
But, not to worry, President Obama is going to rescue us by giving a temporary tax credit of up to $5,000 to small businesses for every worker they add in 2010, and for every dollar they increase wages faster than inflation, for workers making less than $100,000 per year.
Many people were fooled into voting for Obama in 2008 on the idea that he was a forward-looking agent of change who was going to bring new ideas and futuristic progress to America. But in office now he is just the opposite, focused on trying to bring back long ago tried and failed ideas from the past. Like the old-fashioned socialized medicine adopted by poorer countries deep into the last century, or the make work jobs programs of the 1930s, or the Synfuels boondoggles of Jimmy Carter in the 1970s.
And that is exactly what he is doing with his jobs tax credit. We had virtually the same Targeted Jobs Tax Credit under Jimmy Carter. It was abolished because it did not work. It was just like sending government checks to companies for workers they were going to hire and raises they were going to give anyway. What creates jobs is private savings and investment, not government spending.
This is the same thing that is wrong with the supposed tax cuts in the stimulus bill President Obama keeps bragging about. Tax credits economically are just like government welfare checks. They do not change the fundamental incentives governing the economy. What does that is reductions in tax rates, which allows producers to keep more of what they produce. That increases incentives to produce more, through more savings, investment, new jobs, business creation, business expansion, entrepreneurship, and work. That is what creates economic growth and prosperity. Talking about stimulating the economy with “tax cuts” that do not involve rate cuts, but rather tax credits, is illogical and uninformed.
Yet, that is exactly what we hear from the spokesmen for the new socialist, George Soros funded think tanks, like the Center for American Progress, home of the ultra-left Van Jones, among others. Christian Weller, Rip Van Winkle Senior Fellow at the “Center,” repeatedly goes on television to deny that such incentives have anything to do with the economy. He says there is no evidence that they work, citing the 2003 cuts in the tax rates on capital gains and corporate dividends.
As Larry Kudlow and Steve Moore tried to explain to him in a recent TV appearance, he couldn’t be more wrong. Before those 2003 rate cuts, business investment spending had declined for nine straight quarters, and was contracting at an annualized rate of 1.14% over the prior 14 quarters. After the 2003 tax cuts, non-residential fixed investment increased at a rate of 6.7% per quarter, and manufacturing output soared to its highest level in 20 years. From March, 2000 to October, 2002, the stock market declined by 52%, destroying $9.6 trillion of shareholder wealth. But soon after the 2003 tax cuts, close to $7 trillion in new stockholder wealth was created. The economy created 7.8 million new jobs and the unemployment rate fell from over 6% to 4.4%. Capital gains realizations tripled and corporate dividend payments soared. While government bureaucrats with the thinking of Mr. Weller officially estimated that the capital gains cuts would lose $5.4 billion in revenue during those years, capital gains revenues actually increased by $133 billion during that time, as compared to the pre-tax cut projections.
America is not going to return to long-term growth and prosperity until it returns to the Reaganomics that created the 25-year economic boom, the Golden Age of Prosperity, as Steve Forbes has called it, which Mr. Weller seems to have completely missed. The American people, however, already seem to get that. The only question is how much will they have to suffer until they can get new leaders who understand that as well.