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Obama's Budget-Buster

The White House gives "responsibility" a bad name.

12:36 PM, Feb 1, 2010 • By MATTHEW CONTINETTI
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The president released his $3.8 trillion budget for Fiscal Year 2011 today. You can read his message to Congress here. The Obama administration projects a $1.6 trillion deficit for FY 2011; as Phil Klein points out, that is around $400 billion more than the White House predicted last year. If all goes according to plan -- this almost never happens -- the White House predicts that the deficit will fall to $727 billion by 2013 and the government-debt-to-GDP ratio will rise to 77 percent by 2020. Welcome to the New Era of Responsibility!

Obama's Budget-Buster

Expect a new round of finger-pointing over the debt and deficit to begin shortly. Listen closely, and you can already hear the president saying he "inherited" all these problems. No question, President Bush expanded the federal government more than any president since LBJ, and he did it without paying for it or cutting elsewhere. Even so, as Jim Treacher points out, Bush's deficits hovered around $400 billion for most of his time in office.

Obama is right to suggest that one reason the debt is exploding is the financial crisis and recession. The bank bailout or TARP may have been necessary to forestall a second Great Depression; rather than use the returned TARP money to reduce the deficit, however, Obama is spending it on other purposes.

Without the stimulus bill, unemployment might have been higher than it is today; nevertheless, the economic gains the stimulus has produced are meager, at best. A tax reform package--cutting payroll taxes and the corporate rate while pledging to delay any tax hikes until the economy has returned to full employment--would have been deficit financed, too, but it probably also would have been more effective at spurring job creation, recovery, and thus greater tax revenues than we see today.

Even as his economic agenda failed to create jobs, President Obama spent a year negotiating a costly health care reform the public did not like under the guise of "deficit reduction." No question, the government's health-care bills are driving long-term deficits out of the control (see Robert Samuelson's column today here). But the claim that the Obama bill would cut the deficit is based on three faulty assumptions: (1) Congress would enact the so-called "Doc Fix" reducing Medicare reimbursements by 20 percent, something it has never done; (2) the Independent Medicare Advisory Board, or IMAB, would be able to force Congress to cut Medicare spending, something that has never happened; and (3) you can increase the demand for a fixed-supply product (health care) without seeing the cost of that product rise.

Obama understands that government debt is becoming a major political problem for the Democrats. A public focused on the economy and debt is unlikely to support the sort of welfare spending that is the Democratic party's bread-and-butter. So what does the president do? He proposes a toothless entitlement commission and an insignificant three-year freeze on non-defense discretionary spending. It's almost insulting.

President Obama is an intelligent man who no doubt understands the gravity of America's fiscal challenges. But his ideological commitments conflict with the bold thinking required to address these problems. No amount of taxes will restrain the "pragmatic leviathan's" desire to spend the additional dollar. At some point, however, the spending must stop.

Until you see the president invest a portion of his remaining political capital into a means-testing proposal, an increase in the retirement age, an end to government agricultural and corporate subsidies, or a pledge to devote the revenues from the expired Bush income tax cuts exclusively to paying the debt, there will be no reason to believe that he is serious about the government's fiscal problems.

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