The Corner

“Quick Observations on President Obama’s Budget”

From Brian Riedl:

Budget Trickery

The President is using some budget trickery. He assumes the extension of all 2001 and 2003 tax cuts and the AMT patch into the baseline, and then eliminates some of the same tax cuts, and counts them as “new” revenues.

The President also employs budget trickery on spending. He first assumes that Iraq spending will continue indefinitely at 2008 levels (which was never going to happen, according to the military’s own Joint Campaign Plan), and then calculates $1.5 trillion in savings against that baseline. If you eliminate that gimmick, President Obama increases spending by nearly $500 billion over ten years – not even counting the $634 billion health care reserve fund

The budget proposes $1,133 billion in regular discretionary spending in 2010, and claims that is a 7 percent hike over the 2009 level of $1,062 billion. But that actual 2009 baseline level – reflected in the budget resolution and appropriations bills — was $1,012 billion. This makes the actual proposed budget increase 12 percent.

Other Points

This is a classic tax-and-spend budget. It increases taxes by $1.3 trillion, raises entitlement spending by $700 billion (including the health care fund), and hikes discretionary spending by a steep 12 percent.

Given that the budget deficit has already quadrupled in one year, President Obama’s pledge to halve it by 2013 is hardly ambitious. Even with the assumption of peace and prosperity, the 2013 budget deficit of $533 billion would exceed those under President Bush.

Before the recession, revenues were 18 percent of GDP and spending was 20 percent. After the recession, President Obama would maintain revenues at 19 percent of GDP, and spending at 22 percent. In other words, all new tax revenues would finance new spending, rather than deficit reduction. President Obama’s structural budget deficit would exceed President Bush’s.

The proposed post-recession spending level of 22 percent of GDP has been exceeded only 8 times in the post-war era. This is hardly setting the stage for fiscal responsibility to deal with the long-term challenge of runaway entitlement spending.

The $2 trillion in “budget savings” are a mirage. $1 trillion is “saved” by raising taxes, and $1.5 trillion is “saved” from Iraq spending that was never going to continue at previous levels anyway, according to the military’s own Joint Campaign Plan. As stated above, if you eliminate that gimmick, the budget actually increases spending by nearly $500 billion over ten years – not even counting the health care reserve fund.

President Obama would convert Pell Grants into an entitlement, put them on autopilot, and steeply increase their budget. This comes at a time when analysts are calling on government to take expensive programs off autopilot and place them in the regular budget process.

This budget fails to significantly reduce the long-term cost of Social Security, Medicare, and Medicaid.

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