In the News
The Cee Lo Green Budget
This was supposed to be the moment we were all waiting for. After three years of historic deficits that have added almost $4.5 trillion to the national debt, President Obama was finally going to get serious about fiscal discipline. Instead, what landed on Congress's doorstep on Monday was a White House budget that increases deficits above the spending baseline for the next two years. Hosni Mubarak was more in touch with reality last Thursday night.
The White House actually touts as tight-fisted a budget proposing a record $1.645 trillion deficit for fiscal 2011, due largely to a new surge in spending to 25.3% of GDP. That's more spending than in any year since 1945. Federal debt held by the public -- the kind we have to pay back -- will rise to 75.1% in 2012, which is the highest since 1951 and more than double what it was as recently as 2007.
This $3.73 trillion budget does a Cee Lo Green ("Forget You," as cleaned up for the Grammys) to the voter mandate in November to control spending. It leaves every hard decision to the new House Republican majority. And it ignores almost entirely the recommendations of Mr. Obama's own deficit commission. No wonder the commission's Democratic co-chairman, Erskine Bowles, said Monday that this budget goes "nowhere near where they will have to go to resolve our fiscal nightmare." And he's an ally.
How unserious is this budget? Although the White House trumpets $2.18 trillion in deficit reduction over the next decade, those savings are so far off in the magical "out years" that you can barely see them from here. More than 95% of the savings would happen after Mr. Obama's first term in the White House is over, and almost two-thirds of the promised deficit reduction would arrive after 2016. Pretending to cut deficits by pushing all real cuts into the future is Budget Flimflam 101.
From hard experience, we know that what matters are the cuts and reforms a White House is willing to make now. The Obama budget doesn't cut a penny from the deficit in the last seven months of fiscal 2011. Over the next three years -- through 2013 -- the spending reductions in this budget add up to a paltry $20 billion net, out of a projected $3.5 trillion deficit. That's a 0.57% reduction in red ink and less than what the feds spend every two days.
As for Medicare, Medicaid, Social Security and other entitlements, which account for roughly 60% of federal expenditures, the proposed savings are close to zero. The President would allow these programs to continue on automatic pilot, meaning they nearly double to $2.7 trillion in 2021 from $1.4 trillion in 2010.
Every serious analyst agrees that the time to fix these retirement programs is before 75 million graying baby boomers start collecting the benefits and voting as beneficiaries rather than as net payers. Meanwhile, Medicaid spending would grow by 115% over the next decade thanks to that renowned deficit reducer, ObamaCare.
The proudest White House boast is that its budget would cap domestic discretionary spending at current levels for five years. These are programs ranging from NASA to the Washington Metro to school lunch programs to wind turbine grants, which overall and including stimulus expanded by more than 80% in Mr. Obama's first two years. This spending freeze would cut these programs from 2011-2013 by a grand total of $14 billion.
By contrast, the plan now emerging from House Republicans would cut about $80 billion immediately, and nearly $280 billion over three years -- some 20 times the White House savings. Mr. Obama's budget also assumes annual economic growth of more than 4% from 2012-2014. That's far more robust than anything this recovery has produced so far, and it is at least a percentage point higher than most private economists or the Congressional Budget Office predict.
We'd love to see that happen, because deficit reduction depends above all on economic growth to generate more tax revenue. But those growth targets would be undermined by the sizable tax hikes in Mr. Obama's budget. After 2013 the capital gains and dividend tax rates would rise to 20% from 15%, and the highest income tax rate, paid mostly by noncorporate businesses, would rise to 39.6% from 35%. The Administration foresees a $700 billion windfall, but history shows that higher rates are unlikely to yield anywhere near that amount.
The budget also proposes roughly $300 billion in new taxes on energy companies, multinationals and banks. So much for the new detente between the White House and business. When including all the tax increases, there is more than $1 of new taxes for every $1 of future spending cuts.
This will go down as canny politics in Washington, as the President lies in wait to ambush Republicans when they propose their real spending cuts. Then he hopes he can cut them to ribbons on his way to re-election. That may be the White House game plan, but we wonder if the politics will play out that way. The American people also want a President to lead, and this budget is so transparently cynical it may help Republicans make their case that if they don't lead, no one will.