New Era, But Same Old Budget Story
Budget: "The time has come to usher in a new era," the president said in unveiling his budget. If he means burdening the economy with huge new taxes, he's succeeded. If he means ending budget gimmicks, he has failed.
In describing his spending plan, President Obama claimed he's making "the tough choices necessary to restore fiscal discipline" and will "cut the deficit in half by the end of my first term in office and put our nation on sound fiscal footing."
The only tough thing about this budget is what it has in store for the most productive parts of the economy. Over the next 10 years, Obama seeks to impose tax hikes totaling a stunning $1.66 trillion on businesses and successful families.
The "rich" — those families earning $250,000 or more — would have to pay $954 billion more, thanks to Obama's plan to reimpose pre-Bush era tax rates, set a 20% rate on capital gains and add a limit on itemized deductions.
Businesses, meanwhile, would have to kick in an additional $645.7 billion through a cap-and-trade carbon tax the president hopes to get enacted allegedly to fight global warming.
Then there's the $353.5 billion raised through unspecified "other revenue changes and loophole closers." Given Obama's pledge not to raise taxes on the bottom 95% of taxpayers, that can only mean still more taxes for the "rich" and business owners.
Of course, Obama boasts that his plan also includes $940 billion in tax cuts. But much of this is actually in the form of checks written to people who don't pay income taxes to begin with — which is technically new spending, not a tax cut.
Meanwhile, the Obama budget clearly fails to live up to his goal of "honesty and accountability" in federal budgeting. Indeed, it's full of gimmicks designed to make it look much better than it is.
• Phony baseline spending forecasts. Obama's budget assumes that the government will continue to spend $170 billion a year on the Iraq War until the end of time. By cutting that number back, he magically credits himself a huge $1.49 trillion in savings over 10 years.
• Unreasonable assumptions: The budget counts on $316 billion in savings from Medicare, not through benefit cuts, but through efforts to promote "efficiency and accountability." History has shown that such promises are easy to make, but almost impossible to keep.
• Rosy economic scenarios: Budget forecasts are hugely dependent on underlying economic assumptions. And Obama's predictions assume that the economy will perform better over the next 10 years than the Congressional Budget Office or the Blue Chip Consensus predicts.
By 2013, for example, Obama says the GDP will be $700 billion bigger than the Blue Chip forecast, with unemployment, interest rates and inflation lower over the next four years. In the past, Democrats and the mainstream press routinely blasted GOP presidents for such sunny forecasts. Don't expect the same from them now.
• Spend now, save later: A subtler trick used by the administration is to front-load spending hikes while promising fiscal discipline later. In this case, Obama asks for an increase in discretionary spending of 6.5% this year, but then expects us to believe that he will hold spending hikes to 2% in the following years.
The president is right. This is certainly a new era. But somehow we doubt this is what voters had in mind when they voted for change last November.