Here’s the thing: the President’s budget proposal is effectively DOA. Even if the Republicans didn’t control the House, his Senate has refused to propose a budget in three years. So there is no chance today’s proposal will come anywhere close to passing.
Given that, why doesn’t he propose something bold? Why does’t he put out Simpson-Bowles? Why doesn’t he say, “Hey, you want the budget balanced? Here’s what it’s going to take.” and put out a proposal with big tax hikes and even bigger spending cuts. He’s had two plans — Simpson-Bowles and the Ryan Plan — but out in front of him. And he responds with this?
President Obama on Monday unveiled a $3.8 trillion spending plan that seeks to pump billions of dollars into the economy while raising taxes on the rich to tame a soaring national debt now projected to grow significantly faster than previously forecast.
The president’s outlook for debt reduction has slid markedly since September, when Obama told Congress that his proposals would hold annual deficits well under $600 billion after next year and permit the debt held by outside investors to rise to $17.7 trillion by 2021, or 73 percent of the overall economy.
The new 10-year blueprint shows annual deficits exceeding $600 billion every year except 2018. And the portion of the debt held by outside investors would grow to $18.7 trillion by 2021, or 76.5 percent of the economy — a full $1 trillion higher.
Administration officials said about half the increase is due to policy changes, with the other half driven by gloomier economic projections that tend to depress tax collections, increase government spending and drive deficits up. Job growth has proved stronger than expected since the budget was prepared, they said, adding that the picture would look brighter today.
To see how accurate their past budget projections have been, Veronique de Rugy looked at the 2010 budget proposal. It projected a $500 billion deficit in FY 2013, about half of what we will actually have.
Now to be fair, the budget proposal keeps overall spending nearly frozen at $3.8 trillion. However, this is part of the problem. The Stimulus bumped up the baseline and we are still well ahead of it. I said at the time that the true cost of the stimulus would be more like $4.5 trillion over the next decade (a $300 billion one-year increase times ten years with the usual spending growth). And rather than cut stimulus bullshit, Obama’s spending cuts, such as they are, are coming from things like NASA, which did not get stimulus spending but is losing any Mars exploration to pay for things like Solyndra.
The President proposes to tax dividends as ordinary income. While I think this should be paired with an overall rate cut, I’m not opposed to this in principle. Since we lowered the capital gains and dividend rates in the 1990’s, we’ve had two investment bubble and little economic growth. I recently talked to an engineering professor who confided that his best students were going into finance instead of … engineering. I think it’s a fair argument that the low tax rates on investments had the side effect of keeping tax rates low for high-stakes financial gambling (that we subsequently bailed out) while leaving them high on people actually working and making. When Wall Street bankers pay a third of the tax rate of business owners, something is wrong.
BUT. But … you don’t start tax reform with the objective of taxing Mitt Romney or Warren Buffet more. The appropriate thing to do here is scrap the entire system and rebuild it from scratch in a way that minimizes the deadweight loss of the revenue our government needs to operate. It is possible, as Reagan showed, to increase overall tax revenues while decreasing the impact on the economy.
But that would require courage. And Obama’s budget basically punts on all the big issues. Stimulus spending? Maintained. Green energy? Increased. Medicare? Untouched. Social Security? Ha!
This is a joke. We should treat it as such. The first serious budget proposal will come out of the House. That’s when we should pay attention.