An exercise in deceiving the public while setting the country up for financial ruin.
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.
So how do we get $4 trillion in savings over ten years? Pure legerdemain. $1.2 trillion in "savings" comes from funds sequestered by the Budget Control Act, passed as a result of the debt ceiling battle last summer. Yet after taking credit for the reductions, the president restores the spending elsewhere in the budget by increasing taxes--and then fails to count the additional spending against the savings! Second, he counts as "saved" money we'll no longer be spending prosecuting the wars in Iraq and Afghanistan. That's tantamount to saying that if one decides not to buy a million dollar home next year, one has saved a million dollars. Third, is the so-called "doc fix" that currently calls for a 27 percent reduction in payments for Medicare providers. Congress has kicked this can down the road for years, knowing the most doctors would stop taking Medicare patients as a result. The administration knows that Congress will never enact the cuts, yet it ignores the additional $522 billion in Medicare physician reimbursement costs that accrues without them. Toss in the $1.9 trillion in additional taxes and fees and the Obama administration has "saved" $4 trillion.
Even the New York Times recognizes the gamesmanship, noting that "the indignation that greeted Mr. Obama’s budget on Monday seemed to be amplified by the presidential election, debt crises already rocking Europe and the sheer size of the additional debt envisioned by the president’s plan: $6.7 trillion through 2022" (italic mine). Thus it is no surprise that, despite all of the "savings," the non-partisan CBO has projected that America's debt will reach $21.7 trillion by 2022, an increase of more than 50 percent.
That's if all goes well. Right now our debt is being financed with historically low interest rates the Federal Reserve insists will remain low until 2014. If rates go up, which could happen under a number of scenarios, such as another downgrade, a stock market swoon, or another debt ceiling battle, the national debt level could skyrocket. If interest rates were to return to 2000 levels, America could be saddled with $26 trillion of debt--not in 2022, but five years earlier in 2017.
And for those who blanch at the ever-expanding nature of our federal government, it should be noted that federal spending never falls much below 22 percent of GDP over the next decade, despite a historical average of 18 percent. In fact, if Obama serves two terms, he would be the first president in history to spend 22 percent or more of GDP for eight straight years.
Jeff Sessions (R-AL), the ranking Republican on the Senate Budget Committee, reveals the scope of a budget he characterizes "one of the most spectacular fiscal cover-ups in American history." "By the end of his first term President Obama will have overseen four straight deficits in excess of a trillion dollars and the accumulation of $6.4 trillion in new gross debt," said Sessions in a released statement. "Yet 1.2 million fewer Americans are working today than when he took office. "The vision the president has laid out today leads to a bigger government, a smaller middle class, and a painful debt crisis."
Yet perhaps the most egregious lie of all with regard to this budget is best debunked by Human Events staff writer John Hayward. "If there’s one argument this fairy-tale budget should resolve, it’s the mythology that deficits can be eliminated through tax increases," Hayward writes. Obama’s proposal is loaded with tax hikes...but he’s still running trillion-dollar deficits."
Class warfare, coupled with budgetary gimmicks, may resonate with some Americans, but math can only be manipulated for so long. Moreover, human behavior, especially with respect to tax avoidance, is inherently unpredictable. What is predictable is the reality that we are on the road to fiscal Armageddon--and this budget represents nothing more than the Obama administration's effort to press down harder on the accelerator.
Freedom Center pamphlets now available on Kindle: Click here.