Before I dive into the president’s budget, I would like to give a little background. As you have heard many of us saying before, our debt is exploding. The Congressional Budget Office put out a report last week showing that federal debt held by the public will climb from $14 trillion this year to almost $24 trillion in fiscal year 2026. Measured as a share of the economy, publicly held debt as a percentage of GDP is projected to jump substantially, from 75.6 percent to 86.1 percent in the next eleven years.
As we have known for a long time, the drivers of our future debt are the so-called entitlement programs, government-provided health-care spending in particular. In fact, for the first time this year, spending on the major health-care programs was larger than spending on Social Security. It doesn’t mean that Social Security is not a problem, it is — but Social Security isn’t the biggest federal program anymore.
Now comes the president’s budget. According to CQ, it should be called the “Do Nothing Budget.” It’s a good name, if we consider that it doesn’t do anything to address the explosion of the debt and the growth in spending for Medicare, Medicaid, Obamacare subsidies, and Social Security.
What the budget does, however, is to once again address the rise in deficits by raising taxes.
The president proposes to get rid of “inefficient tax breaks for the wealthy and closing loopholes.” He also proposed raising taxes on some “wealthy business owners” to help delay — not fix — the projected insolvency of Medicare’s hospital trust fund.
He does propose to reform the corporate income-tax system but with the condition that Uncle Sam will cash out and tax income earned abroad. His repatriation proposal would impose a one-time 14 percent tax on $2.1 trillion worth of tax-deferred offshore corporate profits, and a minimum 19 percent tax on foreign business earnings. Any decent reforms of the corporate income tax would end the double taxation of foreign income.
He also proposes an additional $10 in taxes per barrel of oil — totally ignoring that its biggest impact will be felt by American drivers in the form of high gas prices. One of the most underrated findings in economics is that the person cutting the tax check isn’t always the one shouldering its burden. In this case, you can tax “oil companies” as much as you like, but the burden will be passed on to consumers. And indeed, estimates show the $10 per barrel fee could translate to roughly 22 cents per gallon of gasoline. That would more than double the current federal gasoline tax of 18.4 cents per gallon. The president, in other words, wants Uncle Sam to collect $5 or more every time you fill up.
As I mentioned yesterday, Republicans have already said that the budget and its $2.6 trillion worth of business tax hikes over the decade are dead on arrival. Unfortunately, when it comes to addressing our debt problems, Republicans lack credibility in my opinion since in the past they have been way too eager to compromise and give Democrats a lot of what they want. Case in point: the Omnibus bill and budget deal they agreed to at the end of last year. According to CBO, they made the debt worse and increased the deficit over ten years by $1.5 trillion over the August projections.
Finally, the budget is a playbook of typical Democratic goals such as a proposal to have a nationwide “wage insurance.” It is as bad as it sounds: If a worker loses his job and finds a new job that pays less than the one they had, taxpayers will partially make up the difference. The amount workers could receive will be capped to $10,000 a year. You can imagine the negative consequences this would have on the budget especially considering that when it has been tried in Canada the data show that it has a very small impact on the re-employment of displaced workers. In other words, it has a high cost for little to no effect.
The president, however, is once again eager to cut the Washington D.C. Opportunity Scholarship program from its current $20 million to $3.2 million. It is ironic for a Democratic president to be against this program since it provides low-income parents in D.C. a choice that high-income families already have — the choice to attend private schools by giving them a voucher.