Lost amid the hype about Obama cutting the deficit in half, is the fact that most of his higher spending sticks.
The gap between rhetoric and hype in President Barack Obama’s budget is as wide as the Pacific Ocean. Obama has not offered change; he has offered a continuation of George W Bush’s policies.
Obama is not the anti-Bush. He is Bush on steroids.
Bush’s policies could be summarised in one sentence: Spend like a drunken sailor and don’t pay for it. Obama’s policies can be summarised by the same sentence, except that Obama goes beyond drunk to alcohol poisoning.
If Bush policies were disastrous, as Obama claims, then why is he continuing them?
Sure, Obama’s fans might say government finally is going to restore some fairness by spending on health care and other problems. Fact is, this was Bush’s core belief too, which is why he championed and signed the massive prescription-drug benefit under Medicare. In the end, Bush offered voters juicy benefits without paying for them.
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That’s exactly what Obama is doing too. Only now, the scale of spending is becoming truly shocking.
In January 2008, the Congressional Budget Office put out a 10-year forecast that included a projection for government spending. The forecast, at the end of the Bush spending spree, saw government spending in 2009 at about $3 trillion, increasing to $4.3 trillion by 2018.
Long-Term Spending
Federal spending for 2009 turned out $900 billion higher than was expected, because of the near-term policies associated with the financial crisis and the recession. Lost amid the hype about Obama cutting the deficit in half, however, is the fact that most of this higher spending sticks. Obama plans to spend $4.9 trillion in 2018, about $550 billion higher than the CBO’s projection.
That’s right, $550 billion more.
Looking at the entire 10 years, and extrapolating out the CBO number to include an estimate for 2019, Obama has proposed that government spending over the next 10 years be $5.3 trillion higher than the CBO projected just last year.
Those Obama defenders might point out that the CBO baseline assumes government spending only increases with inflation. But holding spending steady after the binge of the last eight years is hardly a radical idea.
And even if we use another baseline — allowing government spending to increase along with the economy — Obama’s budget would increase spending over the next 10 years by $3.7 trillion relative to what we thought last year.
How about revenue? Many of the Obama’s tax increases — including allowing the Bush tax cuts to expire after 2010 — were already in the CBO baseline.
Shrinking Revenue
The rash of recent economic bad news wasn’t part of the CBO estimate, however, so tax revenue will surely be lower over the entire forecast horizon. Last year at this time, the CBO thought we would collect $4.5 trillion in revenue in 2018. The Obama budget now expects to raise $4.2 trillion.
Even correcting for Obama’s admirable honesty concerning a real fix of the alternative minimum tax, and its resulting drop in tax revenue collected, his plan would raise less revenue than we thought we would get last year. And yet he plans to jack up spending.
Bush increased spending because of the Iraq war and because his “compassionate conservatism” expanded the reach of the federal government significantly. Obama will spend less on Iraq and more on other things. The basic principle is the same.
The main difference between Bush and Obama is their position on the marginal tax rate. Bush left the top rate on high incomes at 35 percent. Obama plans to let it return to 39.6 percent. To argue that Obama has offered an ambitious new vision, you have to believe that increasing the marginal tax rate back to where Bill Clinton left it is somehow a revolutionary idea with significant economic consequences.
Not Novel
It is hard to characterise this move as novel. Al Gore opposed the Bush tax cuts in 2000, and John Kerry argued that they should be repealed in 2004. Obama is just delivering on their promises.
And it is hard to make the case that this change will produce any significant economic benefits. On the one hand, the skyrocketing deficit might be a little lower, which might provide some economic benefit. On the other hand, the higher marginal tax rate will discourage work, increase taxes on small businesses and thus produce some economic harm. On net, the policy is probably a small negative.
Obama should stop claiming that Bush policies created the mess that we are in. If they did, then Obama’s policies will only make things worse.