President Obama’s release today of the 2012 budget was met by considerable skepticism, despite administration claims that the proposed spending cuts will put the government on track to half the budget deficit by the end of Obama’s first term in office.
The Dow Jones Industrial Average closed at 12,268, down five points on a day in which the market traded mostly down as experts sorted through the details of the budget.
Almost immediately after the 216-page plan was released, along with a 1,368-page appendix and a third 360-page volume of historical tables, critics pointed out that Obama’s budget conceded that 2011 will see the largest one-year jump in debt in U.S. history, almost $2 trillion in a single year.
With the release of these documents, the Obama administration was forced to concede that the national debt will total $15.476 trillion by Sept. 30, the end of the fiscal year. The debt will reach 102.6 percent of the gross domestic product, or GDP, for the first time since the end of World War II.
Taking up the opposition, House Speaker John Boehner, R-Ohio, warned that the Obama administration planned cuts were not deep enough.
“We’re broke,” Boehner said, rejecting Obama’s contention that $1.1 trillion cut out of the federal budget over the next 10 years would go far enough. “Everything is on the table.”
Looking closely, experts soon discovered Obama’s 2012 budget was so filled with hidden tax hikes that it amounted not to a $1.1 trillion tax cut over the next 10 years, but a 10-year $1.5 trillion tax hike.
The Obama budget assumes the Bush tax cuts will expire. It envisions raising the top marginal income tax rate from 35 percent to 39.6 percent, raising the capital gains and dividends rate from 15 percent to 20 percent, and raising the estate tax from 35 percent to 45 percent, while lowering the estate tax exemption from $5 million for an individual to $3.5 million.
Additional new taxes are imposed on banks, international corporations, life insurance companies, energy taxes (or expirations of tax exemptions). There are even new taxes on airline travelers by raising the “passenger facility charge” on an airline ticket to a maximum of $7 per flight from $4.50 per flight.
Even more bad news is that the federal deficit is expected to spike to $1.65 trillion for this fiscal year, up from a previously estimated $1.5 trillion, and the third trillion-dollar-plus budget in a row.
Former Republican Sen. Alan Simpson, co-chair of Obama’s federal budget commission, appeared yesterday on Fox News to point out the 2012 budget did nothing to cut Social Security or Medicare/Medicaid, even though non-discretionary social welfare spending is not topping 60 percent of the total federal budget.
Conspicuously, Obama’s 2012 proposed federal budget avoided implementing the core recommendations of the National Commission on Fiscal Responsibility and Reform that Simpson co-chaired with Democratic politician and businessman Erskine Bowles.
How real are the Obama cuts?
Iain Murray, director of the Competitive Enterprise Institute, pointed out that most of the Obama administration so-called budget cuts are from last year’s projected budget for 2012, but still represent an increase in spending.
The Commerce Department, for instance, once the decennial Census is removed from the budget, actually gets a $1 billion increase in its discretionary budget, instead of the advertised $5 billion decrease.
Similarly, the State Department budget decreases, but only compared with the last year’s projection of the 2012 budget.
“What we see in this budget is a government where spending is out of control,” Murray said, “rather than a responsible government cutting back to stay within its means.”
The Washington Post pointed out that the Department of Education actually gets an 11 percent spending increase in the 2012 budget, to pay for Pell grants for an estimated 9 million needy students in 2012, compared to 6 million in 2008, plus increases of $300 million for Title 2 anti-poverty school programs, $200 million for special education and $900 million for Race to the Top initiatives.
Obama would also raise the Department of Energy 2012 spending 12 percent, to $29.5 billion, to fund an ideologically-driven “clean energy” program, including a $1 billion boost for renewable energy research and development, ranging from solar, to wind, to biomass and geothermal energy.
Then the new budget includes $30 billion to finance a National Infrastructure Bank, known within the beltway as the I-Bank. The point is to move from user-pays highway taxes to fund highway development. For instance, general revenue could be used to promote high-speed rail, even though no passenger railroads outside the Northeast Corridor have been proven by transportation experts to have even a remote chance of operating profitably since at least the 1960s, with the completion of the interstate highways system and the rise of air travel.
Stock market unenthusiastic
UPI reported that the Dow “stumbled Monday as investors reacted to the White House budget proposal.
The Wall Street Journal pointed out that the Obama administration cuts rest on the non-security, discretionary-spending portion of the budget that represents only about 12 percent of all federal spending, such that even the budget document itself noted, “The solution to our long-term fiscal problems cannot rest on this alone.”
The release yesterday of the federal budget proposal accomplished for certain only one result – the start of a long and most likely bitter battle with the GOP in Congress.
“We’re not having any leadership” at all, Sen. Jeff Sessions, R-Ala., the top Republican on the Senate budget committee told CNN, according to the Wall Street Journal Report. “I do believe [Obama] deserves serious criticism for that.”
The Wall Street Journal also reported the Obama administration came under attack from David Walker, the former U.S. comptroller general, who warned that U.S. federal budget GAAP-accounted budget deficits and unfunded liabilities were no longer sustainable.
“The budget contains language that notes the importance of addressing our nation’s structural deficits, however, it is largely void of concrete proposals and specific time lines for addressing them,” Walker said.