- FEBRUARY 15, 2012
He’s proposing higher spending and deficits this year.
Federal budgets are by definition political documents, but even by that standard yesterday’s White House proposal for fiscal year 2013 is a brilliant bit of misdirection. With the abracadabra of a tax increase on the wealthy and defense spending cuts that will never materialize, the White House asserts that in President Obama’s second term revenues will soar, outlays will fall, and $1.3 trillion annual deficits will be cut in half like the lady in the box on stage.
All voters need to do is suspend disbelief for another nine months. And ignore the first four years.
The real news in Mr. Obama’s budget proposal is the story of those four years, and what a tale they tell.
• Four years of spending of more than 24% of GDP, the four highest spending years since 1946. In the current fiscal year of 2012, despite talk of austerity, Mr. Obama predicts spending will increase by $193 billion to $3.8 trillion, or 24.3% of GDP. The top chart shows the unprecedented four-year blowout.
• Another deficit of $1.327 trillion in 2012, also an increase from 2011, and making four years in a row above $1.29 trillion. The last time that happened? Never.
• Revenues at historic lows because of the mediocre recovery and temporary tax cuts that are deadweight revenue losses because they do so little for economic growth. The White House budget office estimates that for the fourth year in a row revenues won’t reach 16% of GDP. The last time they were below 16% for any year was 1950.
• All of this has added as astonishing $5 trillion in debt in a single Presidential term. National debt held by the public—the kind you have to pay back—will hit 74.2% this year and keep rising to 77.4% next year. The bottom chart shows the trend.
Economists believe that when debt to GDP reaches 90% or so, the economic damage begins to rise. And this doesn’t include the debt that future taxpayers owe current and future retirees through the IOUs in the Social Security “trust fund.”
But, lo, says the White House, all of this will change in 2013 if Mr. Obama is re-elected. Next year, revenues will suddenly leap to 17.8% of GDP thanks to tax increases on the wealthy, which we are supposed to believe will have little impact on growth. (more…)