Economy & Budget

3.8 Trillion for What?

Despite President Obama’s feigned concern about sky high federal spending, escalating budget deficits and mounting government debt, all three are expected to grow much worse under his new budget proposals.

Overall spending will be approaching a record $4 trillion in fiscal 2011, which begins this October, the deficits will still be in the trillion dollar range by the end of this decade and the government’s national debt will continue to climb exponentially as a result of persistent overspending.

“Last year’s budget was historically irresponsible and yet this year’s budget would spend $1.7 trillion more and run deficits $2 trillion greater over the same 10-year period,” Heritage Foundation’s chief budget analyst Brian Riedl told Human Events.

“It’s getting worse. By 2020 we’d still have trillion dollar deficits. It’s quite an amazing budget of fiscal irresponsibility.The national debt would double over the next decade,” Riedl said.

“If this budget is fully enacted, it would drive debt levels to a point where it would seriously risk a financial crisis,” he said. Top economists agree.
     
The most dramatic manifestation of the administration’s inability, or rather, unwillingness, to reduce spending to more responsible levels, can be seen in the budget’s growing gap between spending and tax revenues which this year will approach an unprecedented $1.6 trillion in red ink. This, despite the White House’s claim that the economy is coming out of its recession when tax revenues begin to rise.

The reason the deficit numbers are getting worse: Obama and the Democratic Congress are spending money faster than the economy and beleagured taxpayers can earn it.

The government’s unprecedented spending under Obama has become a major political issue in the midterm congressional elections that’s driven independents away from the Democrats in droves, plunging Obama’s job approval numbers into the 40s and threatening to flatten the Democrats’ majority in Congress.

But Obama’s budget shows little if any sign of wanting to scale back his big spending agenda, or his proposals to raise taxes on investors, banks, businesses, uninsured Americans who do not purchase health care plans, and upper income taxpayers.

“If you’re in business now and you’re trying to figure out what the future is, you’re looking at health care taxes, you’re looking at capital gains taxes going up, dividend taxes going up.So, is that a great environment in which to expand employment? I think the answer is no,” Senate Minority Leader Mitch McConnell said Sunday on CNN’s State of the Union program.

Obama’s fiscal 2011 budget continues to call for passage of his costly government-run health care plan, his cap and trade, climate control tax bill, expanding the federal student loan and grant programs, among scores of other big spending initiatives.

His budget also includes $100 billion more for a second jobs stimulus bill in another vain attempt to bring down the nation’s 10 percent jobless rate after his first $800 billion stimulus bill failed to create the three to four million jobs he said it would last year.

But the prospects of a staggering $1.6 trillion deficit in this fiscal year hasn’t stopped Obama from proposing a lot of new spending in the past week or so: $4 billion for an “infrastructure innovation and finance fund,” $5 billion for an anti-nuclear proliferation program, an additional $3 billion for aid-to- education, and $25 billion more to bail out state governments who have spent themselves deeply into debt.

He is also seeking $250 million to purchase a prison facility in his home state of Illinois to hold terrorist prisoners now incarcerated at the military facility in Guantanamo Bay.

The administration makes wildly exaggerated claims that it is moving the spending and deficit numbers in the right direction in the budget plan it is proposing the Congress this week, but short-term claims of lower, though still very sizeable, deficits were being criticized even by some Democraic supporters.

Boasting of a lower deficit by mid-decade that would still be 3.9 percent of the economy’s gross domestic product, presumably long after the U.S. recession ends (before rising again in 2015) amounted to “defining deficits down,” complained Isabel Sawhill, the noted government budget analyst at the Brookings Institution.

“In short, these proposals will still leave us with unsustainable deficits as far as the eye can see. It is depressing to discover that we can no longer even aspire to balance the budget once the recession is over,” the former assistant budget director in the Clinton administration wrote Friday in The Wall Street Journal.

A number of other economists who crunched the numbers in Obama’s budget Monday were also shocked by the smoke and mirrors accounting gimmicks used to show a lower $706 billion deficit by 2014 before it heads back into the trillion dollar range.

“To accomplish this feat, he proposes letting the Bush tax cuts expire and other spending cuts the Congress has rejected in the past,” said University of Maryland business economist Peter Morici.

“More extraordinary, though, the document assumes that real GDP grows at better than 4 percent a year over the four years from 2011 to 2014, and the economy does not encounter a serious recession. If your staff economist tells you that is realistic, fire him. Rosie Scenario wrote this budget,” Morici said in an analysis Monday.

“The United States is facing deficits greater than one trillion dollars for the foreseeable future,” requiring increased debts that run the risk of an international run on the dollar and uncontrolled inflation, he warned.

“A populist government, similar to those that drove Latin American republics into bankruptcy during t he 1970s is in charge,” Morici said.

Notably, none other than the Congressional Budget Office, whose director, Douglas Elmendorf, was appointed by Democratic leaders, is forecasting much lower economic growth numbers than the rosier expectations of the White House.

Testifying before the House Budget Committee last week, Elmendorf said CBO expected the economy to grow by an anemic 1.6 percent in this fiscal year, and warned that next year’s outlook isn’t going to be much better: 1.8 percent.

High unemployment around 10 percent this year and next will further depress the economy and thus revenue forecasts that impact heavily on the budget deficits, he told the panel.

To regain some control over the budget, Obama is counting heavily on his proposals to create a budget-cutting commission that would present Congress with a list of spending cuts and tax increases that it would vote up or down, and a spending freeze in 2011, after the midterm elections.

But the commission idea was rejected in the Senate and the freeze on discretionary spending which would barely make a dent in the deficit, faces a similar fate.

Obama’s freeze plan is “a proposal to raise federal spending 44.3 percent, as opposed to 45 percent” over this decade,” said Republican Rep. Jeb Hensarling of Texas.

 


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