President Obama submitted his FY 2013 budget today. As expected, it is utterly irresponsible. The administration claims it will reduce the deficit by $4 trillion over ten years. That is absurd, for the reasons stated below. What the budget actually will do, if enacted, is increase spending in FY 2013 to $3.8 trillion and run up, in FY 2013, another $900 billion in debt (if you accept the administration’s rosy assumptions). That is on top of the $1.3 trillion deficit the budget projects for the current fiscal year.
Budgets include ten-year projections, but they are essentially meaningless: if you look at the out-years and compare them to past budgets, they are different, sometimes wildly so. But no one ever goes back to a budget from three or four years ago and compares it to what actually happened. Well, except for me. I keep copies of old budgets, and if I have time, I will compare the current product with Obama’s prior projections, just for entertainment value.
Let’s pretend for a moment that the ten-year plan that President Obama unveiled today is meaningful. Would it really trim the deficit by $4 trillion? Of course not. Here’s why: 1) The first $1.2 trillion represents the cost of replacing the money that would have been sequestered under the Budget Control Act, the compromise legislation that was passed last summer in connection with raising the debt limit. Obama’s budget spends the $1.2 trillion, but doesn’t count that increased spending against the budget’s supposed savings. 2) Obama counts as “savings” the fact that we won’t be fighting the wars in Iraq (already over) and Afghanistan (winding down) for the next ten years. Of course, no one ever planned on spending that money; the administration might as well claim another $1 trillion in savings because we are not sending a manned mission to Saturn. 3) This one is a classic of accounting deception. The guys who ran Enron would have been executed for this, only they were never dumb enough to try such a crude fraud. Obama claims credit for the $1.2 trillion sequestration of funds that is required by the Budget Control Act. Having taken credit for that spending reduction, he then restores the spending! It is all there in his budget. He increases taxes to pay for it, and he takes credit for the increased revenue, but he fails to count the $1.2 trillion in additional spending against his purported $4 trillion in savings. Unbelievable. 4) The perennial “doc fix”: the current baseline calls for payments to Medicare providers to be cut, something that we know will never happen. Obama’s budget acknowledges that the cuts will never happen, but fails to count the increased spending in calculating the budget’s impact on the deficit.
What actually happens under Obama’s FY 2013 budget–again, if you don’t question any of its assumptions–is that the national debt increases from the current $15 trillion to $25.9 trillion.
So, as has been true for the past three years, Obama’s budget is a fraud. Jeff Sessions, the ranking Republican on the Senate Budget Committee, released a statement that said, in part:
Today we are witnessing one of the most spectacular fiscal cover-ups in American history. The White House claims they have introduced a plan to achieve $4 trillion in deficit reduction, with $2.50 in spending cuts for every $1 in tax hikes. But these assertions rely on a calculated series of budget gimmicks. An honest analysis proves that the president’s plan achieves only $273 billion in total deficit reduction over ten years. Under this plan, we will accumulate $11 trillion in new gross debt—the $4 trillion reduction in deficit is nowhere to be found.
When the gimmicks are removed, spending even rises $1.5 trillion above current projections—$47 trillion in total. Annual spending will rise by 62 percent between 2011 and 2022. There are no real reforms and the new taxes are used to fund more wasteful Washington spending. So even with almost $2 trillion in job-crushing tax hikes, the president remains incapable of reducing the deficit—he just can’t resist the temptation to spend the money. …
What makes matters even more atrocious is the use of accounting tricks to conceal these facts. For instance: the White House repeals $1.2 trillion in Budget Control Act cuts and doesn’t count it as new spending; they stop the planned cuts to Medicare providers without identifying any means to pay for it; they give themselves credit for discretionary caps that are already in law; and they pretend overseas spending will continue at higher levels so long-planned reductions in borrowing magically produce free money to spend somewhere else. The result is that the president has made no improvements to the debt course his own officials have described as unsustainable.
Meanwhile, the Senate’s Democrat majority have forfeited their own claim on continued leadership by scandalously refusing to offer a budget plan for the third straight year in the midst of a crisis.
By the end of his first term President Obama will have overseen four straight deficits in excess of a trillion dollars and the accumulation of $6.4 trillion in new gross debt. Yet 1.2 million fewer Americans are working today than when he took office. The vision the president has laid out today leads to a bigger government, a smaller middle class, and a painful debt crisis.
By the way, I understand that Sessions quoted me in his speech this afternoon on the Senate floor. If that is correct, it is a real honor. Sessions is the fiscal hero of the Senate in much the same way that Paul Ryan is the fiscal hero of the House.
Obama’s budget appears to be mostly a political document. It calls for even higher taxes on the “rich,” which is another way of saying, those Americans who are already over-taxed. As we have noted many times (e.g., here), America’s personal tax system is more progressive–that is, unfair–than that of any other developed country. But Obama cares nothing about fairness, as is evident from the fact that he proposes to increase taxation of dividends to as much as 39.6%.
So let’s add it up: assume that people invest money to start a business; the company is one of the minority that are successful, and it turns a profit. Instead of losing their money, the investors expect to receive a return. But the federal government taxes any profit between $335,000 and $10,000,000–let’s assume our company’s profit falls in that range–at 34%. After paying that 34%, the company pays dividends to its shareholders. Under Obama’s proposal, the shareholders, having invested their money and having been lucky enough to invest in a company that operates in the black, would pay up to another 39.6% on the dividends they receive.
That means that after the investors take the risk of investing their money, and the managers and employees of the business work hard to make the company a success, the federal government makes off with 73.6% of the resulting profit. Oh, and don’t forget: the states tax corporate income, too. In New York, to take just one example, the state will skim off another 7.1% of the company’s profits, so that altogether, the investors get just 19.3% of the profit generated by their investment. The government, at its various levels, rakes off 80.7%. If you think this is either a fair system or a recipe for economic growth, you are undoubtedly an Obama voter. [UPDATE: In the comments, reader Martin Karo corrects my calculation. The right number for the federal government should be 60% rather than 73.6. The point, of course, remains the same.]
I will have more to say about Obama’s budget after I have had an opportunity to study the 250-page document.
UPDATE: Courtesy of the Senate Budget Committee, here is another look at the federal debt called for by Obama’s budget, compared to the current baseline under last year’s Budget Control Act. Notice how Obama’s budget increases federal debt next year and the year after, compared with the added debt already contemplated by the BCA. The budget magically projects lower deficits in 2017 and thereafter, so that as of 2022–a decade from now, long after Obama will be gone–his budget purports to add less debt, cumulatively, than the existing baseline ($11.2 trillion in added debt, compared to $11.5 trillion):
But, of course, Obama has no control over what happens in 2022. The only salient fact is that his budget breaks the bank during the remaining years of his term.