American Elephants

Obama’s $1,470,000,000,000.00 Deficit! by The Elephant's Child

The “Friday Night News Dump” has become a thing of legend.  When everyone departs for the weekend,  unpleasant news is released by the White House when, hopefully, no one will notice.

So, it was Friday night news that reported that the Obama administration forecasts the deficit for fiscal 2010 to be $1,470,000,000,000.00 — the part that we do not know how to pay. The actual bill for government spending this year is more than twice that.

We are borrowing  41¢ of every dollar we spend.  We are spending $36,000* per household.  And it’s not forecast to improve much next year, at 1.42 trillion.

Here’s how the Heritage Foundation describes it:

These future deficits are driven almost exclusively by rising spending. President Obama’s budget would push inflation-adjusted federal spending past $36,000* per household by 2020—$12,000 above the level that prevailed under President Bush. Even President Obama’s enormous and anti-growth $3 trillion tax increase proposal won’t stop this spending spree from pushing the national debt to economically dangerous levels.

The Mid-Session Budget Review also confirms the failure of Obama’s economic agenda. The President concedes that the unemployment rate will remain at nearly 10 percent this year and not revert to pre-recession levels until 2016—and even that is based on the same optimistic Keynesian economic models that claim the stimulus created or saved 3 million jobs. If this is economic policy success, one wonders how failure would look.

All those ideas borrowed from Keynesian economics, the vast spending, the “multiplier effect,” did not work.  The stimulus did not stimulate, and the stimulus funds were largely wasted unless you happened to be a union member.

The 1981-82 recession was comparable in severity to the one President Obama reminds us daily that he “inherited” from President Bush.  The Reagan deficits were excoriated in the media and by the Democrats in Congress who insisted that only a huge tax increase could save the country from economic ruin.  Yet the Reagan deficits never reached more than 6% of GDP at their highest.  The Obama deficit is 10% of GDP. The historical average is 2.3 percent.

Above-average spending, outrageous amounts of spending — not below-average revenue — accounts for over 90 percent of rising budget deficits.   And the rising spending occurs in Social Security, Medicare, Medicaid and net interest payments.

President Obama has blamed all deficits and all future deficits on the 2001 and 2003 tax cuts, the wars in Afghanistan and Iraq, and the Medicare drug entitlement. It’s a myth, but a popular one among Democrats.

Obama expects to tackle the deficits by raising taxes.  Allowing the Bush tax cuts to expire will mean a massive tax increase for everyone. You have noticed that Democrats are unwilling to even discuss the budget before the election, they are “deeming ” it passed so that Republicans cannot claim that they are shutting down the government. But beware the “lame duck Congress” after the election.

The death tax (also known as ‘estate tax’) will return with a vengeance on January 1, 2011, with taxes on any estate over $1 million to reach 55%.  This is a tax on income that you have already paid taxes on.  It is particularly devastating to small businesses which often cannot raise the inflated amount of the tax, and businesses and farms must be sold to pay the tax.  It is deeply harmful to the economy, but part of the Democrats “war on the rich.” Democrats, the party of the rich, depend on a voting public that believes that the Democratic party is the party that “cares about the little people.”

Obama cannot tax his way out of this deficit.  The Democrat solution is to slash Defense spending, when the state of our deficits is an enormous threat to our national security.  But there is a lot of spending that can and should be slashed.  Martin Feldstein suggests that eliminating tax expenditures that are embedded in out tax code would take us a long way down that path.

There is an old rule that says “Do not raise taxes in the middle of a recession.”  As is usual with most old rules, there is a lot of research and experience behind the aphorism.

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