President Obama Submits his 2012 Budget

Posted by PITHOCRATES - February 14th, 2011

Deficit Reduction without Touching Medicare, Medicaid or Social Security?

President submits his 2012 budget.  The president says it’ll cut the deficit.  Make America more competitive.  Create jobs.  Restore vigorous economic activity.  And make America dominant again.  Two years of his policy have failed to do any of this.  But it’ll be different this time.  Why?  I haven’t the foggiest idea.  I can only guess that the president is counting on a bunch of poor memories.

Deficit reduction.  Really?  Well, here’re the numbers (see Budget Plan Marks Start of Long Fight on Spending by Corey Boles posted 2/14/2011 on The Wall Street Journal).

Mr. Obama’s budget offers up more than $1 trillion in deficit reductions over a 10-year period—three-quarters coming from spending cuts and the balance from tax increases or the elimination of existing tax breaks.

That’s $100 billion per year.  That sounds like a lot.  But in the first year when we cut $100 billion from the deficit, we’re still adding another $900 billion to the national debt.  That’s more borrowing.  And more interest to pay.  Sort of like living on your credit cards.  And just like the balance on your credit cards never seems to get smaller, neither will our federal debt.

And the proposed Obama budget reductions don’t come close to the $4 trillion in savings recommended by a White House-appointed deficit commission. This is largely because the president’s budget shies away from pushing for any substantial changes to the entitlement programs Medicare, Medicaid or Social Security. Nor does it include a specific outline for overhauling either the corporate or individual tax codes.

Just under half of the federal budget covers the big three: Medicare, Medicaid or Social Security.  Add in interest on the debt and you’re at about half of the budget.  Defense spending is at about 20%.  Discretionary spending (the kind of spending that the law allows us to cut) is at about 20%.  In other words, we’re making small cuts in about 40% of the budget.  While the 50% that is currently growing out of control (Medicare, Medicaid, Social Security and interest on the debt) we’re not cutting at all.  In fact, this 50% is growing.  And Obama is increasing spending still.

“My budget makes investments that can help America win this competition and transform our economy, and it does so fully aware of the very difficult fiscal situation we face,” Mr. Obama said in his budget message.

His budget would boost funding for the Department of Education to $77 billion from the $64 billion it received in fiscal 2010. The money would be used to increase education competitiveness and increase the number of science, engineering and math teachers in schools by 100,000.

More of the same.  Tax and spend.  And for what?  The kind of spending he’s proposing has never paid the dividends promised.  If it has there would be no need to include it in the 2012 budget.  Because they would already have delivered those promised dividends.  But they haven’t.  Just like they never have.  And never will.  Government spending has never caused the great economic expansions in our history.  Cuts in the tax rates triggered those expansions.  And less government spending.

History doesn’t include any success stories of tax and spend Keynesian economics.  But that is exactly what this budget is.

Baseline Budgeting makes Spending Increases Spending Cuts

And what about that deficit reduction?  Is it real?  No (see President Obama’s Budget – Increased Spending and Taxes by Brian Darling posted 2/14/2011 on REDSTATE).

The fact of the matter is that the President is using fuzzy math to create an inflated budgetary baseline (in other words he has inflated projected spending over a 10 year period) so that he can claim cuts that don’t exist.  Today is the President’s day to pitch his plan, but the Obama Administration has to answer why his baseline is so inflated and why he is planning to raise taxes at a time of economic pain.

Baseline budgeting.  That’s the fuzzy math that says how we can count a spending increase as a spending cut.  Here’s how.  I project I’m going to spend $250,000 for a new house next year.  That’s $250,000 in new spending.  Then I change my mind.  Instead, I decide to spend only $175,000 on a new house.  In the real world, that’s new spending of $175,000.  In baseline budgeting, that’s a cut of $50,000.  Because I’m cutting the increase in the amount I’m going to spend.  And the 2012 budget is full of this stuff.

More Obama math.  Add in a $3.3 trillion in program adjustments and $642 billion in debt services on adjustments.  Add in all of these projections to the baseline and you have adjusted the baseline from $5.5 trillion to $9.39 trillion in debt from 2012-2021.  That is how you adjust debt upward to make it look like the President’s budget is cutting spending.  You inflate projected spending over the next 10 years then increase spending at a lower rate than the baseline, you can create a “cut.”

This is smoke and mirrors.  To count huge spending increases as spending cuts, you just say that spending was originally ‘baselined’ at some ridiculously higher number.  And then you sneak in a big tax increase.

On taxes, the President has hidden a massive increase in the gas tax.  There is a line item in the President’s budget summary tables titled “Bipartisan financing for Transportation Trust Fund” that adds up to $328 billion from 2012-2021.  In the President’s Bipartisan Debt Commission Report, they recommended a 15 cent increase in the gas tax.  The President’s budget seems to assume that his commission’s report is implemented by Congress and send to his desk.  This is an implicit endorsement of a massive increase in the price of gas at the pump in the form of increasing the federal gas tax from $18.4 cents.  If this idea does not pass, then you have a $328 billion shortfall in the projected transportation budget.

Hello $4/gallon gasoline.  And when Republicans try to prevent this tax increase from being implemented, the Democrats will call it an irresponsible tax cut.  For the rich, of course.

Tax and Spend, over Promise and under Deliver 

It gets old.  The same old politics.  Tax and spend.  Over promise.  And under deliver.  Banking on Americans having poor memories.  And that a lot of young new voters who haven’t heard the lies before show up at the polls.  Because the ‘get out the vote’ crowd will tell them “yes they can.”  And they will.  Breathe new life into failed, Keynesian economics.  And make the final reckoning ever worse.

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