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.
In exchange for what? Obama proposes to spend even more on his failed foreclosure-prevention program, one of the bailout initiatives that continue to lose money. (Distasteful as the bank bailouts were, those funds have largely been repaid, often at a modest profit; the secondary measures demanded by Obama and other Democrats — money for mortgage defaulters, the GM fiasco, etc. — are where the losses have occurred.) Obama proposes to pay for his “investments” in renewable/green/unicorn energy by smacking around real energy providers with higher taxes and more invasive regulation. He even proposes to start pawning some of the family jewels, selling off oil from the strategic reserve to help fatten Energy Department bureaucrats. The strategic petroleum reserve is there to stockpile oil in case of a true national emergency — war or natural disaster — and bad as Obama’s budget is, it isn’t exactly the sort of catastrophe America had in mind when the reserve was created.
While the president is bailing out mortgage deadbeats and playing sandbox energy tycoon, his budget shortchanges one of the few areas of spending that represent an inarguable federal responsibility: national defense. Hacking away at the military while U.S. troops are at war in Afghanistan and Iraq — and while the Middle East is undergoing historic turmoil and China grows ambitious — is problematic on its own. Doing so to free up money for spending on projects that are far beyond federal responsibility and far outside of federal expertise is asinine.
Republicans, who already have offered credible proposals to reduce this year’s spending, are well-positioned to propose a significantly better budget, and they should fight for one. It should not be forgotten that Democrats didn’t even bother to pass a budget last time around, leaving the nation’s finances under an ad hoc “continuing resolution.” Obama’s proposal suggests that the nation may be better off if Democrats continue to take a pass.