$5 Trillion and Change
Obama's four years have seen the four highest deficits since 1946.
The
political strategy behind Obamanomics was always simple: Call for
"stimulus" to rescue the economy, run up the debt with the biggest
spending blitz in 60 years, and then when the deficit explodes call for
higher taxes. The Congressional Budget Office annual review released
yesterday shows this is all on track.
CBO reports that annual spending over
the Obama era has climbed to a projected $3.6 trillion this fiscal year
from $2.98 trillion in fiscal 2008, or more than 20%. The government
spending burden has averaged 24% of GDP, up from an average of about
20%. This doesn't include the $2 trillion tab for ObamaCare.
All of this has increased the federal
debt by about $5 trillion in a mere four years. Thanks to higher
revenues, the federal deficit will decline to $1.08 trillion in 2012, or
7% of GDP. But that is still the highest deficit since 1946—except for
the previous three years. In other words, the four years of the Obama's
Presidency will mark the four highest years in spending and deficits as a
share of the economy since Harry Truman sat in the Oval Office.
And don't forget the national debt held
by the public—the kind we have to pay back. On President Obama's watch,
CBO says public debt will climb this year to 72.5% of the economy from
40.3% in 2008. This isn't as high as Italy or Greece, but it's rising
fast toward the 90% level that begins to debilitate an economy.
We pause from this gloom for some good news: Despite the abuse
they've taken, House Republicans have made some fiscal progress. CBO
estimates that overall federal spending in 2012 will grow by only $3
billion, or less than 1%, which compares with double digit increases
during the Obama-Pelosi years. Republicans have also tried to reform
entitlements, but Democrats wanted a $1 trillion tax hike ransom for
even modest cuts, which was wisely rejected.
The other part of the fiscal story is that revenues have been in the
tank for five years. In 2012 revenues will hit $2.52 trillion down from
$2.57 trillion in 2007. Revenues are still only 16.3% of GDP, about two
percentage points below the norm.
The drought has two main causes. First, the anemic recovery in jobs
and investment isn't spinning off enough new output (1.7% growth last
year) to boost tax receipts anywhere near their historic level.
Second,
a series of non-stimulative tax cuts—tax rebates in 2008 and 2009, and
payroll tax holidays in 2011 and this year—have depleted the Treasury
with little economic benefit. These tax cuts don't change the incentive
at the margin to work or invest, and they thus have little feedback
effect in revenues from faster growth.
The most amusing part of the CBO's report is its projection that the
deficit will fall to $269 billion by 2015, or a mere 1.5% of GDP, if
current law holds. But this is a fiscal fantasy because current law
never holds.
CBO predicts, for example, that all the Bush tax cuts will go away
next year. The Alternative Minimum Tax will supposedly be allowed to hit
30 million tax filers (up from four million now) with an income as low
as $75,000 a year. Under those assumptions total federal revenues rise
by $1 trillion over the next three years, $1.5 trillion over five years,
and $3.6 trillion over 10 years. You can't get anywhere near that level
of revenues without a much bigger tax increase on the rich and the
middle class, or an extended boom in the range of 5% to 6% annual
growth.
Even the Keynesians who run CBO concede that the 2013 tax hike—on
capital gains, dividends, estates and small business—would knock
economic growth down to 1% next year and raise unemployment to 9.1%
(from 8.5%). That means about 750,000 more jobless Americans. You can't
have such a lousy economy and cut the deficit in half.
CBO also indulges in the fantasy that discretionary spending will
fall by nearly $2 trillion over the next decade—with almost all the cuts
after 2015. About $1.25 trillion of those cuts come from the automatic
across-the-board reductions that Congress and Mr. Obama agreed to last
year. But wait. More than half of those cuts will come from the military
budget and even Defense Secretary Leon Panetta has said these
reductions could be "devastating" to national security.
To sum it all up, CBO's facts plainly show that Mr. Obama has the
worst fiscal record of any President in modern times. No one else is
even close.
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