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On Tuesday, Barack Obama released his FY2013 budget proposal of $3.8 billion, one he characterized as a “make or break moment for the middle class.” If that number sounds somewhat familiar, it might be because it’s a one hundred billion dollar increase in spending over the budget he submitted to the Democratically-controlled Senate last year–which was rejected by a vote of 97-0. Since the president couldn’t get a single member of his own party to vote for his budget proposal last year, one might be tempted to conclude this budget is little more than a campaign document, highlighting the president’s determination to wage class warfare as his principle re-election strategy. Moreover, it is a document replete with “rosy assumptions,” if one is being charitable–and outright lies if one is not.
Let’s begin with the president’s track record. On February 23, 2009, Mr. Obama promised, “I’m pledging to cut the deficit we inherited in half by the end of my first term in office. This will not be easy. It will require us to make difficult decisions and face challenges we’ve long neglected. But I refuse to leave our children with a debt that they cannot repay–and that means taking responsibility right now, in this administration, for getting our spending under control.” The deficit the president inherited from the Bush administration–all of whose spending proposals then-Senators Joe Biden and Barack Obama voted in favor of–was $1.3 trillion. The projected deficit for 2012? $1.15 trillion. Thus another broken promise, to add to the string of “unexpected” economic headwinds for which this administration refuses to accept responsibility.
White House Chief of Staff Jack Lew rationalized the discrepancy with yet another variation of the “it was worse than we thought” refrain. Speaking to ABC’s George Stephanopoulos, Lew contended that “when we took office, the economy was falling so fast that the first thing we had to do was put a bottom in. That cost money in the Recovery Act. It cost money in terms of lost revenue and slower economic growth. We’re on track now.” How on track? When Stephanopoulos noted that Lew was revising projections made only months ago, he responded with the contention that “economic projections in a time of–of recovery from the deepest recession in a generation are going to fluctuate.”
Thus, the obvious question arises: if projections fluctuate over a period of months, what is the likelihood that budget projections of ten years will remain on target?
Which brings us to the president’s next assertion, namely that his budget produces $4 trillion in deficit reduction over the next ten years. How does the president propose to get from here to there? An absurd combination of higher taxes and fees totaling $1.9 trillion, coupled with the rosiest of rosy assumptions regarding growth rates. First the taxes:
–Taxes on the top income rate, as well as the majority of small business profits, would be raised to 39.6 percent from the current 35 percent, and, as per the “Buffett rule,” any household making over $1 million annually would never pay less than 30 percent of their income in taxes.
–$707 billion in “net deficit reduction proposals” will be implemented between now and the end of Obama’s second term, of which only 16 percent comprise actual cuts in spending, including the money “saved” from ending military operations in Iraq and Afghanistan counted as “spending cuts.”
–The capital gains rate will rise from 15 to 25 percent, reflecting a combination of the return to the pre-2001 capital gains rate, plus a surtax contained in the healthcare bill, plus a phase-out of certain tax deductions.
–Higher taxes will be imposed on corporations. The U.S. has the second highest corporate income tax rate in the developed world at 35%. If this budget passes, we will be number one. Oddly, this completely contradicts the president’s recent announcement that he will cut corporate tax rates as early as this month. Moreover, the administration proposes a double-taxation of profits on U.S. companies doing business overseas, meaning companies pay taxes to the country they do business in, and pay them again, if they decide to bring that money back to the United States–meaning they won’t.
–Higher death taxes and energy taxes. Death taxes go from 35 to 45 percent, and the standard estate deduction is reduced, while $100 billion in higher energy taxes on gas, oil and coal companies (that will inevitably be passed on to consumer) will also be imposed.
Yet as bad as the taxes are the growth rate assumptions are even worse. The president is projecting growth rates of 3.4 percent in 2015, 4.1 percent in 2016, 4.1 percent in 2017, and 3.9 percent in 2018. Such a run of growth has only occurred three times in the last 40 years–none of which included servicing the exploding level of debt with which Americans are currently saddled. How accurate are such predictions? For perspective’s sake, the White House Office of Management and Budget (OMB) projected a growth rate for 2011 of 2.7 percent. Actual growth was 1.6 percent, more than 40 percent below the prediction. For 2012, the OMB has downgraded growth projections from 3.6 percent to just 2 percent, a 44 percent “adjustment.” The Congressional Budget Office (CBO) predicted a 2013 growth rate of 1.1 percent–before this business-battering budget was presented.
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