Pres. Barack Obama has proposed the largest federal budget in the history of the United States of America, at $3.73 trillion. It includes a string of monster deficits, including a projected 2012 deficit amounting to 10.9 percent of GDP — a borrowing binge exceeded by the United States only during the height of World War II. With President Obama’s spending vision pushing the $4 trillion mark, it is worth remembering that it was only a few short years ago when Pres. George W. Bush shocked the nation by proposing the first $2 trillion budget. Time flies when you’re on your way toward doubling federal spending.
Obama’s budget is bad — very bad, inasmuch as its vision of fiscal responsibility includes deficits in excess of $1 trillion for the next decade, an arrangement that Uncle Sam’s creditors will have something to say about, none of it likely to be pleasant. It is wishful thinking to assert that our nation can continue to pile more than a trillion dollars a year onto its debt without driving up interest rates, depressing the dollar, and smothering the productive economy. Obama’s budget projects anemic economic growth for the next two years, and even those assumptions may be rosy; either way, his budget goes a long way toward undermining even these tepid growth projections.
Such wishful thinking is, unfortunately, the theme of this budget. For example, Obama’s proposal predicts that the costs of bailing out Fannie Mae and Freddie Mac — the government-sponsored enterprises that contributed mightily to the housing bubble and the subsequent 2008 fiscal crisis — will be cut in half. How precisely that will be accomplished is a mystery, especially given the unlimited line of credit that the two enterprises enjoy courtesy of the U.S. Treasury and the Obama administration’s steadfast refusal to downsize or dismantle these beasts. With the U.S. housing market continuing to decline, it is extraordinarily unlikely that the Obama administration and its allies in the Democrat-controlled Senate will take the necessary steps to rein in Fannie and Freddie, and allow the U.S. housing market to find its bottom. It is at least as likely that continued pressure on home prices will end up increasing the expense of keeping Fannie and Freddie from crumbling.
To the extent that Obama’s budget makes even a half-hearted attempt at deficit reduction, it does so too often through raising taxes and fees. Some of these are relatively benign, such as increasing the royalties charged to oil drillers working on federal land, which currently are set at very generous rates. Likewise, charging similar royalties to mining companies working on federal lands, as Obama proposes to do, would help to ensure that Americans receive a reasonable return for the use of our property by commercial interests. But Obama’s other tax proposals would impose very high costs and cause extensive damage to the economy in return for relatively little revenue. Those proposals include raising many Americans’ income taxes (after the 2012 election, of course!), raising taxes on energy companies (including the ones that already will be paying higher oil-and-gas royalties), imposing fees on some investment products, and more. President Obama will no doubt couch these tax increases as a levy on big corporations to finance investments that benefit the little guy, to help us “Win The Future,” as the president insists on putting it. That class-warfare rhetoric on taxes persists because President Obama and his more ardent supporters do not have sufficient wit to appreciate that the corporations they abominate are not payers of taxes, but collectors of them. When Uncle Sam reaches deeper into Big Business’s pocket, his hand passes straight through and into the pockets of consumers, who will pay higher prices at the filling station, in their utility bills, and at the grocery store.