obama is purposely destroying us economy: 22 trillions debt

8/9/2019 Obama Is PURPOSELY DESTROYING US ECONOMY: 22 TRILLIONS DEBT

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All the Presidents Budget Gimmicks

Published on March 16, 2010 by Brian Riedl

President Obama's new budget proposal would raise

taxes by $3 trillion over the decade and stilldouble the national debt.

He inherited unsustainable Social Security, Medicare,Medicaid and net interest costs, but instead of paring
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spending back, decided to pile on trillions of dollarsin new health care, education and energy spending.Even the historic tax increases proposed by the

president would cover only a fraction of these newcosts. By 2020 even assuming peace and

prosperity the budget deficit would still top $1trillion. At that point, more than one-third of allincome taxes would be needed just to pay the intereston this debt.

Yet it could be even worse.

Mr. Obama deserves credit for reversing PresidentBush's budget gimmicks of not budgeting for theAlternative Minimum Tax patch, the global war onterrorism and future unanticipated emergencies. Buthis budget contains numerous large gimmicks of his

own:

Rosy economic scenario: Just like last year, thepresident's new budget assumes a rosy economicscenario. The White House projects a 2011 economicgrowth rate double the rate forecasted by theCongressional Budget Office (CBO). Overall, White

House projects that in 2020 the economy will benearly $1 trillion larger (adjusted forinflation) thanthe CBO estimates. If the economy performs closer tothe CBO projections, it will raise budget deficits evenhigher.
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Excluding cap-and-trade costs: Last year, thepresident simply excluded the cost of his health planfrom his aggregate budget tables. This year, he

budgeted for his health care plan, but removed thecosts of his cap-and-trade plan, even though he hasendorsed the House-passed bill that would raise taxes

by $846 billion, and spending by $822 billion. The $3trillion tax-increase figure above incorporates thiscost.

A $132 billion "magic asterisk": The president'sbudget vaguely claims $132 billion in "programintegrity" savings. The White House says thisincludes cleaning up waste in entitlement programsand increasing Internal Revenue Service enforcementof tax laws.Of course, government waste is easy toidentify and difficult to eliminate. The federalgovernment's track record on rooting out waste isabysmal, and promises to close the "tax gap" ofunpaid taxes have not translated into progress.

$23 billion terminations and cuts?: Mr. Obama alsohypes his $23 billion in proposed spending cuts andterminations (less than 1 percent of all spending). He

doesn't mention that last year, every dollar savedfrom his $7 billion in spending cuts went into newgovernment spending. Not a dollar went towarddeficit reduction. And this year he proposes more of


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the same. Using "low-hanging fruit" budget cuts fornew spending means that more of the higher taxes orspending cuts down the road must come from the

remaining higher-priority policies.

The baseline assumes war spending rises forever:Repeating his much-maligned gimmick from lastyear's budget, the president first creates a fantasy

baseline that assumes the Iraq surge continues forever(which was never U.S. policy), and then "saves" $728

billion against that baseline by ending the surge asscheduled under his policies. It is like a family"saving" $10,000 by first assuming an expensivevacation and then not taking it.

Low-balling discretionary spending: Mr. Obamawisely proposed temporarily freezing a small sliver

of discretionary funding (albeit at an inflated level).However, over the next decade, the presidentassumes that non-war, non-emergency discretionaryspending will expand by 30 percent, just slightlyfaster than inflation. But in reality, discretionaryspending surged by 104 percentduring the pastdecade. The free-spending Democratic Congress

provides no reason to expect sudden austerity. Ifdiscretionary spending instead grows at the same rateas the economy (about 5 percent nominally per year),


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it would add about $400 billion to the 2020budgetdeficit.

PAY-GO: Mr. Obama bases much of his proposedbudget restraint on his new "pay-as-you-go" (PAY-GO) law. While the PAY-GO concept thatCongress must offset the cost of any new initiative sounds promising, its glaring loopholes mean it won'treduce the deficit at all. PAY-GO exempts alldiscretionary spending (which makes up 40 percent

of the budget) from its constraints. It exempts theautomatic annual growth of Social Security,Medicare and Medicaid, which threatensWashington's long-run solvency. It exempts theendless stream of emergency "stimulus" bills. WhenPAY-GO is violated, nearly all spending is exemptfrom being cut to offset the new expansions. PAY-GO is designed to serve more as a talking point thanas a tool for deficit reduction.

Deficit Commission: Rather than take the lead andpropose entitlement reforms that would reduce thedeficit, the president has appointed a commission todevise a plan. While some commissions may be

useful, this one likely will not. The deficitcommission currently plans to write itsrecommendations in a back room without publichearings or public buy-in. These recommendations
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won't be unveiled until afterthe election, where theywould be voted on by a lame-duck Congress ifthey are even voted on at all. (There is no "fast-track"

procedure guaranteeing a vote.) The American peoplewill be unlikely to embrace major tax and spendingchanges thrust upon them with so little transparencyand voted on by an unaccountable lame-duckCongress.

http://www.heritage.org/Research/Commentary/2010/03/All-

the-Presidents-Budget-GimmicksRead More >>

Brian Riedlis Grover M. Hermann

Fellow in Federal Budgetary Affairs at the Heritage Foundation

(www.heritage.org).

First appeared in The Washington Times

__________________________________________________
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Rising Taxes Still Wouldn't Keep Up With New

SpendingPublished on March 12, 2010 by Brian Riedl

In the blizzard of numbers and analyses surroundingPresident Obama's new budget proposal, two itemsstand out.

First, the budget would raise taxes by $3 trillion overthe next decade. Second, the national debt would stilldouble over that period.
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That $3 trillion tax increase includes a $743 billionhealth-care reform tax, and an $843 billion cap-and-trade energy tax that would be passed on to every

household and business. (The president endorsed thistax but inexplicably excluded its cost from his

budget.) President Obama would also raise taxes by$968 billion on small businesses and upper-incomefamilies, and by $468 billion on corporations - justas these businesses are struggling to create jobs.

These tax increases would push Washington's totaltax bite to its highest sustained level in Americanhistory. And yet it still wouldn't keep up with all thenew spending. The Social Security and Medicarecosts of 78 million retiring baby boomers threaten to

bury Washington in an avalanche of debt. PresidentObama's answer? To deepen the avalanche withtrillions of dollars in additional health care, educationand energy spending.

Overall, federal spending which had been $24,000per-household before the recession would top$36,000 per-household by 2020 (adjusted forinflation).

Which leads to the debt problem. Because spendingis rising even faster than the president can raise taxes,the national debt is set to double over the nextdecade. From the American Revolution all the way
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through 2008, Washington ran up $5.8 trillion inpublicly-held debt. This debt jumped to $7.5 trillionlast year, and according to page 146 of the

president's own budget would reach an astonishing$18.6 trillion by 2020.

The economic consequences of this debt are quitepainful. By 2020, more than one-third of all incometaxes would be needed just to pay the interest on thisdebt. That's nearly $1 trillion in annual tax dollars

that won't educate a single child, fund a singleAmerican troop, or provide retirement security to asingle senior citizen. It may also mean steeply higherinterest rates for anyone seeking a mortgage loan, carloan, student loan or business loan.

This debt also brings profound moral consequences.

Washington is preparing to undertake the greatestintergenerational transfer of debt in Americanhistory. This debt burden will saddle youngergenerations, not old enough to vote when most ofthese policies were enacted, with staggering taxincreases, slower economic growth, and lowerincomes.

President Obama has proposed a three-year freeze onsome discretionary spending. Clearly this is betterthan another budget hike. But he doesn't mention thatthis freeze affects only one-eighth of all spending
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a group of programs whose budget jumped 19percent in the past two years, and is still sitting onmore than $200 billion in unspent stimulus dollars.

President Obama also hypes his $23 billion inproposed spending cuts and terminations (less than 1percent of all spending). He doesn't mention that lastyear, every dollar saved from his spending cuts wentinto new government spending. Not a dollar wenttoward deficit reduction. And this year he proposes

more of the same.

Finally, President Obama blames much of the futuredeficits on the 2001 and 2003 "tax cuts for the rich,"and war spending. However, page 164 of his budgetshows that his proposed repeal of these tax policieswould raise less than $70 billion annually. And page

173 shows war spending phasing down to $50 billionannually.

Yet his budget's deficits would still top $1 trillion by2020. Obviously, those items are not driving thedeficit. Instead, the long-term deficit is rising due tosurging entitlement costs and interest on the debt.

Unfortunately, President Obama and Congress haveonce again shown that politicians use tax increases toexpand government, not reduce the deficit. Beforeasking recession-weary Americans to further tighten
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our belts, it's time for President Obama and Congressto tighten their own.

Brian Riedl is the Grover M. Hermann Fellow in FederalBudgetary Affairs at The Heritage Foundation, 214 MassachusettsAvenue NE, Washington, D.C. 20002.

First appeared in the Pioneer Press

_________________________________________________

Obama Budget Raises Taxes and

Doubles the National Debt
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Published on March 9, 2010 by Brian Riedl

Abstract:President Obama declared: "I didn't come here to passour problems on to the next president or the next generation--I'm

here to solve them." Yet rather than "solve" the runaway spendingthat is projected to cause historic deficits, the President's budget

doubles down on it with trillions of dollars in new spending and

taxes, culminating in a doubling of the national debt. Heritage

Foundation economic policy expert Brian Riedl lays out how a

$3 trillion tax hike and an additional $74,000 debtburden on every U.S. household will affect the

country--and why Congress should reject PresidentObama's budget proposal.

When he released his new budget proposal on February 1,President Barack Obama asserted that the government "simplycannot continue to spend as if deficits don't have consequences;as if waste doesn't matter; as if the hard-earned tax dollars of the

American people can be treated like Monopoly money; as if wecan ignore this challenge for another generation."[1]

Yet the President's new budget does exactly that--

raising taxes by $3 trillion and federal spending

by $1.6 trillion over the next ten years. If enacted, thisbudget would increase the 2010 deficit to more than

$1.5 trillion, and leave a deficit of more than $1 trillion

even after an assumed return to peace and prosperity.

Overall, the President's budget would double thenational debt over the next decade.[2]

President Obama's Budget
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Would permanently expand the federal

government by 3 percent of gross domestic

product (GDP) over 2007 pre-recession levels;

Would raise taxes onall Americans by nearly$3 trillion over the next decade;

Would raise taxes for 3.2 million small

businesses and upper-income taxpayers by an

average of $300,000 over the next decade;

Would borrow 42 cents for each dollar spent

in 2010;

Would run a $1.6 trillion deficit in 2010--$143

billion higher than the recession-driven 2009

deficit;

Would leave permanent deficits that top $1

trillion as late as 2020;

Would dump an additional $74,000 per

household of debt into the laps of our childrenand grandchildren; and

Would double the publicly held national debt

to over $18 trillion.

Source: Heritage Foundation calculations based on U.S. Office ofManagement and Budget,Budget of the United StatesGovernment, Fiscal Year 2011 (Washington, D.C.: U.S.

Government Printing Office, 2010), pp. 146-179, Tables S-1through S-14. Also includes the cost of House-passed cap-and-trade bill, which President Obama endorsed yet excluded from

his budget tables.


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Before the recession began, annual federal spending totaled$24,000 per household. President Obama would hike that spendingabove $36,000 per household by 2020--an inflation-adjusted$12,000-per-household expansion of government. (See Chart 1.)

But even these steep tax increases would not financeall of this new spending: The President's budgetwould lead to trillions in new debt over the next decade.

In fact, the President's new budget proposal contains even more

spending and debt than last year's proposal. Over the 10 yearsin which both budget projections overlap (fiscal years 2010

through 2019) this year's budget would add an

additional $1.7 trillion in spending and an

additional $2 trillion in budget deficits. (See Table 1.)


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[3] Overall, this year's proposal shows annual budget

deficits as much as 49 percent larger than last

year's proposal--raising the debt by an additional

6 percent of GDP over the same period. It is aspending spree that will drive up both taxes

and deficits.

Yet Another "Stimulus"

In a triumph of hope over experience, the President proposesspending $267 billion on yet another stimulus bill.

Last year's $787 billion stimulus bill (now

estimated to cost $862 billion)[4] was supposed to

create (not just save) 3.3 million net jobs. Since its
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passage one year ago, more than 3 million

additional net jobs have been lost, pushing the

unemployment rate to 10 percent. This failure was

utterly predictable--as the United States during the GreatDepression and Japan in the 1990s have shown that

governments cannot spend their way out of recessions

or depressions.[5]

The proper response from the government would be to repealthe unspent portion of the stimulus and stop piling more debt

onto future generations. Instead, President Obama prefers

to borrow an additional$267 billion from themore productive private sector so that politicians

and bureaucrats can spend those dollars. This

move would only weaken the economic recovery,

increase the debt, and eventually push interest

rates higher by draining funds from global capital

markets as a massive and growing federal

government competes with the private sector for

resources.

Misdiagnosing the Cause of the Deficit

President Obama's misplaced budget priorities may be

the result of his Administration's misdiagnosis of the

cause of the deficit. During his State of the Union speech inJanuary, the President asserted that "by the time I

took office, we had a one-year deficit of over $1

trillion and projected deficits of $8 trillion over

the next decade. Most of this was the result of not
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paying for two wars, two tax cuts, and an

expensive prescription drug program."[6] That

is simply not true. The various policies mentioned byPresident Obama were implemented in the early 2000s. Yet evenwith all those policies in place, the 2007 budget deficit

stood at only $161 billion. The trillion-dollar

deficit did not begin until 2009 (driven by financialbailouts, stimulus, and declining revenues) as the recessionhit its trough.

The wars, tax cuts, and prescription drug program mentioned bythe President certainly could not be responsible for most of thetrillion-dollar deficits projected for the next decade, given that
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most war spending will be phased out by then, and the tax cuts andMedicare benefit are expected to cost a combined 2.4 percent ofGDP by 2020--even as the baseline budget deficit rises past 8

percent of GDP. (See Table 2.)[7] That even ignores whatever

portion of the lost tax cut revenues is replenished by economicgrowth.

By contrast, the rising costs of Social Security, Medicare

(beyond just the drug benefit), Medicaid, and net

interest are responsible for nearly 5 percent in

additional deficits as a share of GDP by 2020. Yet the

President failed to mention this spending as driving

long-term budget deficits.


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There is also some hypocrisy at work in that President Obama doesnot want to "pay for" more than a fraction of these initiatives,

either. Just like President George W. Bush, President Obama has

proposed continued funding of the Medicare drug

entitlement as well as the costs of the wars in Iraq and

Afghanistan without any offsets. He has also proposed

extending more than three-quarters of the 2001 and

2003 tax cuts without offsets. Thus, President Obama hasopened himself up to the same criticism that he heaped onPresident Bush.

Doubling the Debt

President Obama has harshly criticized the $3.3 trillion in

budget deficits accumulated in eight years under

President Bush.[8] Yet President Obama is now

proposing to borrow $7.6 trillion during what would behis own eight years in the White House. (See Chart 2.) In

fact, President Obama would add more to the

national debt than every other President in


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American history from George Washington throughGeorge W. Bush combined.

The President has claimed that his budget deficits are a temporary

result of the recession. Yet his budget would increase thedeficit in 2010 even as the economy moves out of

recession. The Obama budget fails to achieve his

goal of cutting the budget deficit in half by the end

of his first term. Even by 2020--a time of assumed peace


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and prosperity-- the annual budget deficit would still top $1

trillion. By that point, the debt would reach 77 percent ofGDP (nearly double the level before the recession).

Eventually, this unprecedented surge of debt would increaseinterest rates. The United States government would find

itself competing with other big-spending, deficit-ridden

nations and the productive private sector to borrow

massive amounts of money from the pool of global

savings. Although U.S. Treasury bills are a popular investmentfor domestic and international investors in these uncertain

economic times, many investors will shift into higher-returninvestments (such as stocks) when the economy fully recovers,thereby forcing Washington to offer higher interest rates to induce

purchases of its debt. Eventually, this could cause a vicious circle

where rising interest rates push up the cost of servicing

the national debt, forcing the government to borrow

even more money from the private sector--thus raising

interest rates further. Moody's Investors Service has noted

this potential debt-and-interest-rate spiral, and signaledthat it may cost the United States government its prized

AAA bond rating.[9] These high interest rates would

also slow down the economic recovery by making it

more costly for businesses to invest and more difficult

for families to afford home and auto loans.

In the long run, Washington is dumping a colossal amount

of debt into the laps of Americans' children andgrandchildren. Between 2011 and 2020, President

Obama's proposed budget would add $8.5 trillion

($74,000 per U.S. household) in new government

debt. By 2020, 35 cents of every dollar paid in


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individual income taxes would be used to pay

interest on this debt. Moreover, given theunsustainable costs of paying Social Security, Medicare,

and Medicaid benefits to 77 million retiring babyboomers, the federal debt will continue to expand after

2020.[10] Without real reforms, the federal

government will undertake the greatest

intergenerational transfer of debt in American

history. Younger generations, not old enough to vote when mostof these policies were enacted, will be relegated to staggering

tax increases, deep government debt, and slowereconomic growth in order to pay for their parents' and

grandparents' retirement benefits. The President's

budget not only does nothing to prevent this

fundamentally immoral situation--it makes it worse.

Nearly $3 Trillion in Tax Increases

Last year, President Obama promised that "if your familyearns less than $250,000 a year, you will not see your

taxes increased a single dime. I repeat: not one single

dime."[11] Yet even before the budget was released, he signedinto law a 62 cent tobacco-tax increase that has a disproportionate

negative effect on lower-income smokers. He has endorsed the

$846 billion cap-and-trade tax passed by the

House in 2009, which electric utility companies, oilrefiners, natural gas producers, and other energy

producers would immediately pass on to

consumers, including those earning less than $250,000.
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[12]Consequently, President Obama's budget

would raise everyone's taxes. (See Table 3.)

The President has pared back some tax cuts proposed last year (themaking-work-pay tax credit would now expire in 2013). He also

proposes new tax cuts, some of which are helpful (automaticenrollment in Individual Retirement Accounts would help more

people save for retirement) and others that are not (expansion ofthe child and dependent care tax credit is biased toward those whochoose paid child care over staying home with their children).

A nearly $1 trillion tax increase is reserved for couples

earning more than $250,000 and individuals earning

more than $200,000. Beginning in 2011, the President's

budget will increase these Americans' taxes by:


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Raising the top two income tax brackets from

33 percent to 36 percent, and from 35 percent

39.6 percent ($364 billion);

Raising capital gains and dividends tax ratesfrom 15 percent to 20 percent ($105 billion);

Phasing out personal exemptions and limiting

itemized deductions ($208 billion); and

Reducing the value of tax deductions by

approximately one-fourth ($291 billion).

This $1 trillion tax hike would fall on the backs ofonly3.2 million tax filers--an average tax hike of more than

$300,000 per filer over 10 years on a group that is

already shouldering an increasing portion of the income

tax burden.[13]

Moreover, businesses and upper-income individuals

would also pay a substantial burden of the proposed

$743 billion in new taxes to finance the President'shealth care reform. American businesses, trying to

compete globally despite the world's second-highest

corporate tax rate, would also face an additional $468

billion in various new taxes at a time when they are--

according to the White House--supposed to be getting

back on their feet and begin hiring new employees.

Such tax increases would significantly reduce

economic growth by reducing people's incentives

to work, save, and invest. Specifically, higher

investment taxes may prevent the economy from


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receiving the investment capital it needs to

recover. Because most small businesses pay the

individual income tax, they would face new

barriers to expanding, investing, hiring, and evenstaying in business. Wealthier individuals would be morelikely to allocate their wealth to wherever they can avoid these newtaxes, instead of in areas where their wealth would be most

productive for the economy.

While there is never a good time to raise taxes, President Obama'sproposal to raise taxes at the beginning of a tenuous recovery is

especially problematic. Even if the tax increases are notimplemented until 2011, many businesses planning investmentand hiring will likely begin scaling back their plans in

anticipation of the coming tax hikes.

More than $1.6 Trillion in New Spending

One could, ostensibly, defend this $3 trillion tax increase asnecessary to rein in the staggering deficits contained in the

President's budget proposal. But even stipulating that argument,

President Obama would still use more than half of these

tax increases to expand government instead of reducing

the deficit. Nearly $600 billion would go toward a new

health care entitlement. More than $800 billion would

go toward cap-and-trade energy legislation. An

additional $168 billion would be spent on more failed

"stimulus" spending, and $52 billion would createeducational entitlements. While the President would reducethe growth of non-security discretionary spending by nearly $250

billion over 10 years, all the savings would go toward otherdiscretionary spending.


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The rest of the tax increases would be needed just to keep

pace with a portion of the new automatic increases in

Social Security, Medicare, and Medicaid. Once the

President's $3 trillion tax increase reduced the $1.6trillion in new spending, the additional $1.4 trillion in

new revenues will cover just one-fourth of the

additional costs of these three programs.

As a result, the President's budget would raise tax revenues toapproximately 1.8 percent of GDP above the historical average--

yet leave spending more than 3.5 percent of GDP above

the historical average. Simply put,surging spending isdriving the budget deficits.[14]

Too Many Gimmicks

President Obama does deserve credit for reversing PresidentBush's policy of not budgeting for the Alternative Minimum Tax

patch (the annual reform to prevent a large tax increase), the global

war on terrorism, and future unanticipated emergencies. But theObama budget contains numerous large gimmicks, too:

Cap-and-Trade Costs Are Not Included . Last year,

the President simply left the cost of his health plan

out of his aggregate budget tables.[15] This year,

he budgeted for his health care plan, but removed

the costs of his cap-and-trade plan. Given that the

President has endorsed the House-passed bill thatwould raise taxes by $846 billion, and spending by

$822 billion, The Heritage Foundation has

incorporated this government expansion into its

presidential budget estimates.[16]
http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftn14http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftn15http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftn16http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftn14http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftn15http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftn16


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The Baseline Assumes War Spending Rises

Forever. Repeating his much-maligned gimmick

from last year's budget, the President first creates

a baseline that assumes the Iraq surge continuesforever (which was never U.S. policy), and then"saves" $728 billion against that baseline by endingthe surge as scheduled under his policies. It is like afamily "saving" $10,000 by first assuming an

expensive vacation and then not taking it. This

paper does not give credit for such savings relative

to a fantasy baseline.

The $132 Billion "Magic Asterisk." The President'sbudget claims $132 billion in savings over 10 years

from "program integrity" reforms. Basically, this

means unspecified reforms to fight waste, fraud, andabuse. The "Budget Process" section in the budget'sAnalytical Perspectives volume contends that suchsavings can be found chiefly from stronger IRS

enforcement of tax laws, with some additionalsavings from the Social Security Administration andfederal health programs.[17]Of course, governmentwaste is easy to identify and difficult to eliminate.The federal government's track record on rooting

out waste is abysmal, and promises to close the

"tax gap" of unpaid taxes have not translated into

progress. While the President should be applauded

for trying to root out waste, it is unrealistic to

assume $132 billion in savings to offset additional

entitlement spending.

The $23 Billion Terminations and Cuts . The White

House is advertising $23 billion in proposed


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spending cuts and terminations. Given the

multitude of outdated and failed programs, many

of these cuts are necessary. Yet if last year is any

indication, they will not save taxpayers a dime.

Last year, Congress and President Obama agreedon $7 billon worth of terminations and spending cuts(mostly in defense)--and then plowed 100 percent ofthe savings into new spending (mostly non-defense).Not a dollar went toward deficitreduction.[18]There is no reason to expect this year will be any

different.

ThePresident's largest savings proposal ($8 billionin 2011), for instance, would come from eliminatingthe subsidized student loan program (run by bankswith federal subsidies), and shepherding all studentsinto direct loans run by the federal government. Yetthe President would use all $43 billion in savings to

help finance a $69 billion expansion of Pell Grants.The deficit would not be reduced at all. Using "lowhanging fruit" budget cuts for new spending meansthat more of the higher taxes or spending cuts downthe road will have to come from the remaininghigher-priority policies.

The Lowballing of Discretionary Spending.

President Obama deserves credit for proposing to

freeze a small sliver of discretionary funding for

the next three years (albeit at an inflated level).[19]

However, the President's budget projection clearly

lowballs discretionary spending over the next
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decade--especially for the seven years following the

freeze. Over the next decade, the President assumes

that discretionary spending (excluding emergencies

like war and "stimulus") will expand by 30 percent,just slightly faster than inflation. But in reality,discretionary spending surged by 104 percent duringthe past decade. Given that the Democraticcongressional majority has increased non-

emergency discretionary spending by 25 percent

over the past three years, there is no reason to

expect sudden austerity. If discretionary spending

instead grows at the same rate as the economy(about 5 percent nominally per year), it would add

about $400 billion to the 2020budget deficit.[20]

PAYGO .Much of the President's budget couplesspecific spending increases with vague, process-based calls for future spending restraint. Oneexample is his endorsement of the newPay-As-You-

Go (PAYGO) law(since signed into law). While thePAYGO concept--that Congress must offset the

cost of any new initiative--sounds promising, its

glaring loopholes will not reduce the deficit at all.

PAYGO exempts all discretionary spending (which

comprises 40 percent of the budget) from its

constraints. It exempts the automatic annualgrowth of Social Security, Medicare, and Medicaid

that threatens Washington's long-run solvency. Itexempts the endless stream of emergency

"stimulus" bills. When PAYGO is violated, nearlyall spending is exempt from being cut to offset the

new expansions.PAYGO is designed to serve


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more as a talking point than as a tool for deficit

reduction.[21] Deficit Commission. Another example of choosing

process over substance is the President's "deficitcommission" that will recommend a set of policies

to reduce the deficit by 2015. Although such

commissions can be useful, the one appointed by

the President suffers from three weaknesses: (1)

The commission's recommendations are not

guaranteed legislative "fast track" protections--or

a congressional vote at all; (2) if Congress does vote

on these recommendations, the most likely time will

be after the November 2010 elections with a lame

duck Congress; and (3) there is no indication that

this commission will include any public hearings

and thus will be more likely to create its

recommendations in a back room without public

input. Putting it all together, this commission will

likely become a partisan exercise that fails to bringdown deficits and merely kicks the can down theroad. The President should lead the national

dialogue by offering a specific set of entitlement

reforms to bring long-term sustainability to the

federal budget. If a commission is to be set up,

Congress should take the responsibility to create

one that solves the three problems listed above. Rosy Economic Scenario. Just like last year, the

President's new budget assumes a rosy economicscenario. For 2011, the White House projects that

the economy will grow by 3.8 percent, twice the 1.9


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percent growth rate forecasted by the

Congressional Budget Office (CBO). Over the next

decade, the President's budget assumes 43 percent

real growth, compared to the CBO estimate of 37percent. The difference is not trivial-- The White

House projects that in 2020 the economy will be

nearly $1 trillion larger (adjusted for inflation)

than the CBO estimates. But if the economy

performs closer to the CBO projections, it will

raise budget deficits even higher.[22]

An Irresponsible Budget

President Obama has offered a budget that does nothing

to address the nation's serious short-term and long-

term fiscal problems--and indeed makes them worse. By

doubling the national debt above pre-recession

levels, America could be heading toward the

tipping point when debt levels will become toolarge for global capital markets to absorb,

potentially triggering a financial crisis, an interest

rate spike, and crippling tax increases.

Countries that finance U.S. debt will note that President

Obama's budget includes no plan for long-term fiscal

sustainability. While he talks of controllingentitlement spending, his budget would do the

opposite. By supporting a trillion-dollar health care

expansion that is partially offset with tax increases

and Medicare cuts, he essentially takes those
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policies off the table for any future deficit

reduction. That means higher taxes and deeper

spending cuts down the road.

The President who declared to the nation that "I didn't come

here to pass our problems on to the next president or

the next generation--I'm here to solve them,"[23]would,

over the next decade, drop an additional$74,000 perhousehold in debt onto the laps of our children and

grandchildren.

A responsible budget must rein in runaway spendingand deficits. It must reject expensive cap-and-trade and

health care proposals, and repeal the remaining

stimulus and Troubled Asset Relief Program (TARP)

funds. A responsible budget must reject devastating tax

increases during a fragile recovery, and instead cap the

growth of government spending at a reasonable rate.

Most important,a responsible budget must proposespecific reforms to address the unaffordable Social

Security, Medicare, and Medicare spending trends.Congress's budget should aim to meet these standards--eventhough the Obama budget fails to do so.

Brian M. Riedlis Grover M. Hermann Fellow in Federal Budgetary Affairs in theThomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

Show references in this report

[1]Press release, "Remarks by the President on the Budget," The White House, February1, 2010, at http://www.whitehouse.gov/the-press- office/remarks-president-budget(February 26, 2010).

[2]Unless otherwise noted, the President's budget numbers come from HeritageFoundation calculations based on: U.S. Office of Management and Budget,Budget of theUnited States Government, Fiscal Year 2011 (Washington, D.C.: U.S. Government
http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftn23http://www.heritage.org/about/staff/brianriedl.cfmhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debthttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref1http://www.whitehouse.gov/the-press-office/remarks-president-budgethttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref2http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftn23http://www.heritage.org/about/staff/brianriedl.cfmhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debthttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref1http://www.whitehouse.gov/the-press-office/remarks-president-budgethttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref2


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Printing Office, 2010), pp. 146-179 and Tables S-1 and S-14, athttp://www.whitehouse.gov/omb/budget/ fy2011/assets/budget.pdf(February 26, 2010).

[3]This is not merely the result of health care reform being added to this year's budgettotals, since health care reform is not supposed to significantly affect the deficit figures

anyway.

[4]Congressional Budget Office, "The Budget and Economic Outlook: Fiscal Years 2010to 2020," January 2010, p. 96, at http://www.cbo.gov /ftpdocs/108xx/doc10871/01-26-Outlook.pdf(March 1, 2010).

[5]For a longer discussion of why government spending fails to stimulate economicgrowth, see Brian M. Riedl, "Why Government Spending Does Not Stimulate EconomicGrowth: Answering the Critics," Heritage FoundationBackgrounderNo. 2354, January5, 2010, at http://www.heritage.org/Research/Economy/bg2354.cfm.

[6]Press release, "Remarks by the President in State of the Union Address," The WhiteHouse, January 27, 2010, at http://www.whitehouse .gov/the-press-office/remarks-president-state-union-address (February 27, 2010).

[7]The President's budget estimates that by 2020, the Medicare drug benefit will cost$137 billion, the operations in Iraq and Afghanistan will cost $50 billion, and the cost ofextending all 2001 and 2003 tax cuts would be $403 billion. This comes to $590 billion,or 2.4 percent of the $24 trillion estimated GDP. The current policy baseline of a budgetdeficit of 8 percent of GDP is calculated by The Heritage Foundation usingCongressional Budget Office data, and is detailed in Brian M. Riedl, "Realistic BudgetBaseline Shows $13 Trillion in Debt over the Next Decade," Heritage Foundation

WebMemo No. 2780, January 26, 2010, athttp://www.heritage.org/Research/Budget/wm2780.cfm.

[8]For FY 2009, President Bush is assigned $1.186 trillion in deficit spending(the CBOestimate for FY 2009 when he left office), while the remaining $228 billion in 2009deficit spending is attributed to President Obama.

[9]Joanna Slater, "Moody's Puts U.S., U.K. on Chopping Block," The Wall StreetJournal, December 8, 2009, at http://online.wsj.com/article/SB10001424052748704825504574582303781275842.html (February 27, 2010).

[10]Brian M. Riedl, "A Guide to Fixing Social Security, Medicare, and Medicaid,"Heritage FoundationBackgrounderNo. 2114, March 11, 2008, athttp://www.heritage.org/Research/Budget/bg2114.cfm.

[11]Barack Obama, "Address to Joint Session of Congress," The White House, February24, 2009, at http://www.whitehouse.gov/the_press_office /remarks-of-president-barack-obama-address-to-joint-session-of-congress (February 28, 2010).
http://www.whitehouse.gov/omb/budget/fy2011/assets/budget.pdfhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref3http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref4http://www.cbo.gov/ftpdocs/108xx/doc10871/01-26-Outlook.pdfhttp://www.cbo.gov/ftpdocs/108xx/doc10871/01-26-Outlook.pdfhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref5http://www.heritage.org/Research/Economy/bg2354.cfmhttp://www.heritage.org/Research/Economy/bg2354.cfmhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref6http://www.whitehouse.gov/the-press-office/remarks-president-state-union-addresshttp://www.whitehouse.gov/the-press-office/remarks-president-state-union-addresshttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref7http://www.heritage.org/Research/Budget/wm2780.cfmhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref8http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref9http://online.wsj.com/article/SB10001424052748704825504574582303781275842.htmlhttp://online.wsj.com/article/SB10001424052748704825504574582303781275842.htmlhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref10http://www.heritage.org/Research/Budget/bg2114.cfmhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref11http://www.whitehouse.gov/the_press_office/remarks-of-president-barack-obama-address-to-joint-session-of-congresshttp://www.whitehouse.gov/the_press_office/remarks-of-president-barack-obama-address-to-joint-session-of-congresshttp://www.whitehouse.gov/omb/budget/fy2011/assets/budget.pdfhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref3http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref4http://www.cbo.gov/ftpdocs/108xx/doc10871/01-26-Outlook.pdfhttp://www.cbo.gov/ftpdocs/108xx/doc10871/01-26-Outlook.pdfhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref5http://www.heritage.org/Research/Economy/bg2354.cfmhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref6http://www.whitehouse.gov/the-press-office/remarks-president-state-union-addresshttp://www.whitehouse.gov/the-press-office/remarks-president-state-union-addresshttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref7http://www.heritage.org/Research/Budget/wm2780.cfmhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref8http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref9http://online.wsj.com/article/SB10001424052748704825504574582303781275842.htmlhttp://online.wsj.com/article/SB10001424052748704825504574582303781275842.htmlhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref10http://www.heritage.org/Research/Budget/bg2114.cfmhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref11http://www.whitehouse.gov/the_press_office/remarks-of-president-barack-obama-address-to-joint-session-of-congresshttp://www.whitehouse.gov/the_press_office/remarks-of-president-barack-obama-address-to-joint-session-of-congress


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[12]President Obama has strongly endorsed the House bill. See U.S. Office ofManagement and Budget, "H.R. 2454--American Clean Energy and Security Act of2009," June 26, 2009, athttp://www.whitehouse.gov/omb/assets/sap_111/saphr2454h_20090626.pdf(March 1, 2010).

[13]The 3.2 million figure comes from The Heritage Foundation Center for DataAnalysis Individual Income Tax Model. For data on the increasing progressivity of thetax code, see U.S. Congressional Budget Office, "Shares of Federal Tax Liabilities forAll Households, by Comprehensive Household Income Quintile, 1979-2006," April 2009,at http://www.cbo.gov /publications/collections/tax/2009/tax_liability_shares.pdf(March2, 2010).

[14]The 40-year average (from 1969 through 2008) is revenues of 18.3 percent of GDPand spending at 20.7 percent of GDP.

[15]The President's FY 2010 budget tables did include a table (S-6) detailing a health

reform reserve fund. However, those spending and revenue figures were excluded fromthe aggregate budget tables (S-1 and S-4). See U.S. Office of Management and Budget,ANew Era of Responsibility: Renewing America's Promise (Washington, D.C.: U.S.Government Printing Office, 2009), pp. 114-134, athttp://www.whitehouse.gov/omb/assets/fy2010_new_era/A_New_Era_of_

Responsibility2.pdf(March 1, 2010).

[16]Congressional Budget Office, "H.R. 2454: American Clean Energy and Security Actof 2009," June 5, 2009, p. 10, athttp://www.cbo.gov/ ftpdocs/102xx/doc10262/hr2454.pdf(March 1, 2010).

[17]U.S. Office of Management and Budget,Analytical Perspectives, Budget of theUnited States Government, Fiscal Year 2011 (Washington, D.C.: U.S. GovernmentPrinting Office, 2010), at http://www.whitehouse.gov/omb/budget/Analytical_Perspectives (March 1, 2010).

[18]By the time President Obama released his proposed cuts last year, Congress and theWhite House had already agreed on a topline figure of $1,091 billion in discretionaryspending. The only remaining issue was how to divvy up the funds. So Congress merelytook $6.9 billion from the targeted programs and shifted that money to other programs.At the end of 2009, total discretionary spending remained at exactly $1,091 billion.

[19]This portion of the federal budget has increased by 19 percent over the past twoyears. In addition, these programs have yet to spend well over $200 billion inappropriated stimulus funds.

[20]Although President Obama has proposed moving most of Iraq and Afghanistanspending into the regular non-emergency budget, this analysis excludes those costs inorder to maintain an apples-to-apples comparison of non-war, non-stimulus, non-emergency discretionary-spending trends.
http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref12http://www.whitehouse.gov/omb/assets/sap_111/saphr2454h_20090626.pdfhttp://www.whitehouse.gov/omb/assets/sap_111/saphr2454h_20090626.pdfhttp://www.whitehouse.gov/omb/assets/sap_111/saphr2454h_20090626.pdfhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref13http://www.cbo.gov/publications/collections/tax/2009/tax_liability_shares.pdfhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref14http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref15http://www.whitehouse.gov/omb/assets/fy2010_new_era/A_New_Era_of_Responsibility2.pdfhttp://www.whitehouse.gov/omb/assets/fy2010_new_era/A_New_Era_of_Responsibility2.pdfhttp://www.whitehouse.gov/omb/assets/fy2010_new_era/A_New_Era_of_Responsibility2.pdfhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref16http://www.cbo.gov/ftpdocs/102xx/doc10262/hr2454.pdfhttp://www.cbo.gov/ftpdocs/102xx/doc10262/hr2454.pdfhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref17http://www.whitehouse.gov/omb/budget/Analytical_Perspectiveshttp://www.whitehouse.gov/omb/budget/Analytical_Perspectiveshttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref18http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref19http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref20http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref12http://www.whitehouse.gov/omb/assets/sap_111/saphr2454h_20090626.pdfhttp://www.whitehouse.gov/omb/assets/sap_111/saphr2454h_20090626.pdfhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref13http://www.cbo.gov/publications/collections/tax/2009/tax_liability_shares.pdfhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref14http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref15http://www.whitehouse.gov/omb/assets/fy2010_new_era/A_New_Era_of_Responsibility2.pdfhttp://www.whitehouse.gov/omb/assets/fy2010_new_era/A_New_Era_of_Responsibility2.pdfhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref16http://www.cbo.gov/ftpdocs/102xx/doc10262/hr2454.pdfhttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref17http://www.whitehouse.gov/omb/budget/Analytical_Perspectiveshttp://www.whitehouse.gov/omb/budget/Analytical_Perspectiveshttp://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref18http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref19http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt#_ftnref20


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[21]See Brian Riedl, "PAYGO is an Unworkable Gimmick," The Washington Times,June 23, 2009, at http://www.washingtontimes.com/news/2009 /jun/23/paygo-is-an-unworkable-gimmick/?feat=article_related_stories& (March 1, 2010).

[22]Heritage Foundation calculations based on Congressional Budget Office, "The

Budget and Economic Outlook: Fiscal Years 2010 to 2020," p. 122. Unless otherwisenoted, the Obama budget numbers cited in this paper come from Heritage Foundationcalculations based on U.S. Office of Management and Budget,Budget of the UnitedStates Government, Fiscal Year 2011, p. 177, Table S-13.

[23]Press release, "Excerpts from Obama Remarks on Business Roundtable," The WhiteHouse, March 12, 2009, at http://thepage.time.com/excerpts-from-obama-remarks-on-business -roundtable(March 1, 2010).

http://www.heritage.org/Research/Reports/2010/03/Obama-Budget-Raises-Taxes-and-Doubles-the-National-Debt

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Fantasy Jobs

Published onFebruary 18, 2010 by Brian Riedl

Last year, White House economists claimed that the$862 billion stimulus would create 3.3 million jobs.

Since then, the nation has lostmore than 3 million jobs.

That's a 6.3 millionjobs gap. By the White House's own

standards, the stimulus failed.

So President Obama has shifted his argument. Sure, the

economy lost jobs, he concedes -- but without thestimulus, it would've lost nearly 2 million more jobs.

This is nothing but faith-based economics. The White

House estimate of "saving" nearly 2 million jobs is

based not on observations of the economy's recent

performance -- but merely on the administration's

unshakable belief that deficit spending must create jobs

and growth.

Specifically, the White House staff's "proof" that the

stimulus created jobs is an economic model that they

programmed to assume that stimulus spending

automatically creates jobs. How's that for circular

logic?

In other words, even if we'd lost 20 million jobs, theirmodels would basically crank out the conclusion that

we'd have lost 22 million without the stimulus.
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Worse, the central tenet of this "faith" is false: The

premise that stimulus spending must create jobs just

isn't true.

The stimulus theory is that government spending injects

new dollars into the economy, thereby raising demand

and spurring economic growth. That makes some sense

-- if you don't ask where the government got the money.

Congress doesn't have a vault of cash waiting to be

distributed. Every dollar it "injects" into the economy

must first be taxed or borrowed out of the economy. Nonew income, and therefore no new demand, is created:

It's merely redistributed from one group of people to

another.

Removing water from one end of a swimming pool and

pouring it in the other won't raise the overall water

level, no matter how large the bucket. It's the same with

redistributing dollars from one part of the economy toanother.

The White House says the $300 billion spent from the

stimulus thus far has financed as many as 2 million

jobs. Even if we pretend that that's true, the private

sector was left with $300 billion less to spend, which --

by the same logic -- must lose the same number of jobs,

leaving a net jobs impact of zero.

Some will insist that this $300 billion represents new

demand because it was transferred from savers to

spenders. They're wrong.


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First, this assumes every dollar lent to Washington for

this spending would have otherwise been saved. Yet

anyone who has observed America's miniscule savings

rate understands the private sector would have spentthe vast majority of this $300 billion, had Washington

not taken the cash instead.

Second, savings don't fall out of the economy: They are

invested or deposited in banks -- which then lend them

out to others to spend. Even when recession-weary

banks hesitate to loan money, they invest it in Treasury

bills instead. They don't hoard customer deposits inmassive basement vaults. One person's savings quickly

finances another person's spending.

So all $300 billion would've otherwise been spent by the

private sector. The government stimulus spending

merely displaced private spending, dollar for dollar.

(Even money borrowed from foreigners is no free lunch.Before China can lend America dollars, it must acquire

them by running a trade surplus -- which is a trade

deficit for America. America's increased trade deficit

exactly offsets the dollars borrowed, leaving a net

impact of zero.)

Yes, the president can point to factories and people put

to work with government funds. What we don't see arethe jobs that would have been created (or factories

used) elsewhere in the economy with those same dollars

had Washington not taken them.
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If governments could spend their way to economic

growth, then Greece would be booming. Instead, it's in

free-fall. And if budget deficits stimulated growth, then

last year's $1.4 trillion budget deficit would haveoverheated the economy. It clearly did not.

But the White House has no use for this evidence that

the stimulus failed. It has its computer models -- and it's

not letting economic reality get in the way.

Brian M. Riedlis a fellow in federal budgetary affairs at The Heritage Foundation

(heritage.org).

First appeared in The New York Post

http://www.heritage.org/Research/Commentary/2010/02/Fantasy-Jobs

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Obama Misdiagnoses Source of Deficits

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President Obama says he wants to reduce America's

record trillion-dollar deficits. Too bad he hasn't even

correctly diagnosed their cause.

During his State of the Union Address, the president

asserted: "At the beginning of the last decade, America

had a budget surplus of over $200 billion. By the time I

took office, we had a one-year deficit of over $1 trillion

and projected deficits of $8 trillion over the next decade.

Most of this was the result of not paying for two wars,

two tax cuts, and an expensive prescription-drug

program."

In other words, it's President George W. Bush's fault.

This can't be true. Mr. Bush implemented the three

policies mentioned by Mr. Obama in the early 2000s.

Yet by 2007 the last year before the recession the

budget deficit stood at only $161 billion. So how could

those policies cause trillion-dollar deficits from 2009through 2020?

Let's unpack Mr. Obama's claim.

His methodology measures the combined cost of the

three policies against a "budget baseline" a snapshot

of what the budget would look like for the next decade if

today's tax and spending policies are maintained. Thinkof the budget baseline as the do-nothing default option.

The first problem is the president's baseline deficit of

"$8 trillion over the next decade." This likely refers to
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the 10-year, $8.9 trillion deficit in the White House's

budget baseline last year.

Yet this baseline contained numerous questionable

assumptions. It assumed that spending in Iraq and

Afghanistan would continue growing forever, while

spending on regular discretionary programs (which has

doubled over the past decade) would slow to

approximately 2 percent annual growth for most of the

decade.

The baseline also incorporated provisions of Mr.Obama's own stimulus bill that had already been

enacted deficit spending that he obviously didn't

inherit from his predecessor. Thus, the $8 trillion

baseline deficit figure is not credible.

And that's not all. By writing a baseline that assumes

spending in Iraq and Afghanistan would continue

growing forever (which was never U.S. policy), thepresident overstates the "inherited cost" of these wars

over the next decade by $1 trillion. In reality, troop

pullouts will drastically reduce the impact of Iraq and

Afghanistan on future budget deficits.

Overall, the president's data contains too many dubious

assumptions to be useful.

So how much of the deficit is really caused by the tax

cuts, war spending and Medicare prescription-drug

entitlement?
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One easy method is to begin with a more realistic

budget baseline, using data from the more neutral

Congressional Budget Office (CBO). Maintaining

today's tax and spending policies (and assuming agradual troop drawdown in Iraq and Afghanistan)

would, using CBO data, bring $13 trillion in deficits

over the next decade.

Compare that to the 10-year cost of the tax cuts ($3

trillion), Medicare prescription-drug entitlement ($1

trillion) and Iraq and Afghanistan spending

(approximately $600 billion, again assuming a gradualtroop drawdown). This adds up to $4.6 trillion, or just

over one-third of the $13 trillion in baseline deficits.

This contradicts the president's claim that most of the

deficits result from those three policies.

Even this methodology does not tell the whole story.

After all, if Washington collects $3 trillion in taxes andspends $4 trillion, who's to say which of the spending

programs "caused" the resulting $1 trillion deficit? One

could pinpoint any $1 trillion group of spending

programs and blame them for the budget deficit.

A better way to diagnose the cause of long-term deficits

is to measure taxes and spending against their historical

averages. This more comprehensive methodology showsthat long-term deficits are overwhelmingly driven by

runaway entitlement spending.
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By 2020, the CBO-based budget baseline projects that

federal spending will reach 26.0 percent of the economy

(5.3 percent of the economy above the 40-year spending

average). Revenues will settle at 17.7 percent of theeconomy (just 0.6 percent of the economy below the

revenue average) and even that assumes all tax cuts

are extended.

So as deficits expand by 5.9 percent of the economy,

nearly 90 percent of the growth will come from higher-

than-average spending, and just over 10 percent from

lower-than-average revenues.

Virtually all of this new spending will come from

surging Social Security, Medicare and Medicaid costs

(driven primarily by 77 million retiring baby boomers),

as well as net interest on the national debt. These four

expenditures will cost $26 trillion over the next decade

surging from $1.6 trillion this year to $3.6 trillion in

2020. That is causing the massive budget deficits overthe next decade and must be the focus of any serious

effort to reduce the budget deficit.

Finally, there is some hypocrisy at work. Mr. Obama

criticizes Mr. Bush for "not paying for two wars, two

tax cuts, and an expensive prescription-drug program."

Yet he would extend $3.9 trillion of these policies (while

repealing $700 billion in tax cuts) without paying for

them, either. By his own logic, he's almost as

irresponsible as Mr. Bush.

Brian Riedlis Grover M. Hermann Fellow in Federal Budgetary Affairs at the HeritageFoundation (www.heritage.org).
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First appeared in The Washington Times

http://www.heritage.org/Research/Commentary/2010/02/Obama-Misdiagnoses-Source-of-Deficits

___________________________________________________________________

The Most Bloated Budget Ever


It's a good thing President Obama and the Democratic

Congress just agreed to raise the federal debt limit by

nearly $2 trillion -- they're going to need every penny of

it. And fast.

Last year, Obama swept into office promising to make

tough choices -- and then released a budget proposing

the largest debt-and-spending spree in American
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history. This year, he's at it again: Over 2010-2019, his

new plan boosts spending another$1.7 trillion and thedeficit by $2 trillion over what he proposed last year.

In fact, this year's budget shows yearly deficits as much

as 49 percent larger than even last year's bloated

proposal. This spending spree will drive up both taxes

and deficits to levels unseen in US history.

Nor are the Obama deficits a temporary result of

the recession. Despite a modest recovery, the 2010

budget deficit will be higher than the 2009 deficit.Nearly 42 cents of each dollar Washington spends will

be borrowed.

Even by 2020 -- which Obama's planners assume will be

a time of peace and prosperity -- annual deficits would

still exceed $1 trillion. By that point, nearly a fifth of all

taxes would go toward paying the interest on this record

debt.

The president who said "I didn't come here to pass our

problems on to the next president or the next generation

-- I'm here to solve them" would, over the next decade,

dump $75,000 per household in added debt into the laps

of our children and grandchildren.

Obama claims it's not his fault. In his State of the Unionspeech, he asserted: "By the time I took office, we had a

one-year deficit of over $1 trillion and projected deficits

of $8 trillion over the next decade. Most of this was the
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result of not paying for two wars, two tax cuts and an

expensive prescription-drug program."

Not true. Those policies were all implemented in the

early 2000s. Yet, by 2007, the budget deficit was still

only $162 billion.

The trillion-dollar deficits didn't begin until 2009 --

after the recession hit. And the subsequent deficits are

driven by runaway spending -- mainly from Social

Security, Medicare (beyond just the drug benefit),

Medicaid and net interest.In fact, under current policies, nearly 90 percent of the

growth in the budget deficit by 2020 comes from

spending hikes already programmed in -- and just over

10 percent from declines in revenues (And even that

assumes all tax cuts are extended.)

Runaway spending is the problem -- yet Obama'sbudget includes no plan for long-term spending

restraint.

Before the recession, Washington spent $24,000 a year

per US household. Obama would hike it to $36,000 by

2020 -- an inflation-adjusted $12,000-per-household

expansion of government. (And does anyone think

they're getting their money's worth?)

If spending jumps $12,000 per household, taxes must

eventually rise. The president would make a large

down-payment on that with a $2 trillion tax hike on all

Americans. Yet that would still leave the government
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http://www.heritage.org/Research/Commentary/2010/02/The-Most-Bloated-Budget-Ever

____________________________________________________________________

Realistic Budget Baseline Shows $13 Trillionin Debt Over the Next Decade

Published onJanuary 26, 2010 by Brian Riedl

The new Congressional Budget Office (CBO) 10-year

budget baseline provides a sobering picture of a federal

government that has committed itself to trillions

more in spending than taxpayers can afford. Oncethe baseline is scrubbed of several unrealistic

assumptions that Congress demands CBO use , the more
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realistic baseline shows that massive spending increases

are set to keep the budget deficit to $1.4 trillion in 2010

and drive it to $1.9 trillion by 2020.

A Sea of Red Ink

The CBO baseline contains two important messages.

First, Washington is accumulating debt at an

unsustainable rate. After the debt slowly grew to

$5.8 trillion through 2008, the more realistic

baseline shows the federal government

adding an astonishing $16.3 trillion in new

debt between 2009 and 2020$130,000 per

household over those 12 years.

Budget deficits would average $1.3 trillion annually as

the debt climbs to 98 percent of the gross domestic

product (GDP) by 2020and continues growing

thereafter. This steep rise in debt would eventually

become too large for global capital markets to

absorb, potentially triggering a financial crisis,

interest rate spike, and gigantic tax increases.

The second message is that surging government

spendingnot low revenuesis driving these

deficits. Historically, spending has averaged 20.7percent of GDP, and revenues have averaged 18.3

percent of GDP, leading to sustainable average deficit of

2.4 percent.[1] Under the adjusted CBO baseline, 2020

spending would surge to 25.9 percent of GDP, while
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revenues would reach 17.6 percent (still slightly below

the historical average), leaving a deficit of 8.3 percent of

GDP.

This means that 88 percent ofthe additional

deficits would come from higher spending, and

only 12 percent would come from lower revenuesand that assumes all tax cuts are extended. Clearly,

spending is the problem.

Thus, President Obamas spending agendawhich

would be unaffordable even in good budget timesiscompletely unrealistic in this sea of red ink. On top of

this baseline, the President

obama is purposely destroying us economy: 22 trillions debt

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