Obama's Cosmic Budget

by John M. Curtis
(310) 204-8700

Copyright February 26, 2009
All Rights Reserved.                    

            Putting his money where his mouth is, President Barack Obama delivered a whopping $3.55 trillion dollar budget, a figure so staggering that no one really knows what to make of it.  Despite today’s economic mess, Barack went gung-ho on his campaign promises, especially more bank bailouts, launching his idea of national health care, developing alternative energy sources and overhauling public education.  “What I won’t do is sacrifice investments that will make Americans stronger, more competitive and more prosperous in the 21st century—investments that have been neglected for too long,” said Barack explaining why his programs add $500 billion to an already intolerable $1.3 trillion deficit.  Republicans bristled at Obama’s budget, believing his spending and taxing plans were far too ambitious—and dangerous—at a time of great economic peril.

            Conventional wisdom holds that a new president must complete the lion’s share of his agenda during the first 100 days, accounting for the haste with which Barack tries to fulfill campaign promises.  When he spoke to a joint session of Congress Feb. 24, he told nation that all must sacrifice and show restraint during this time of economic upheaval.  His proposed budget shows few signs of compromise, willing to launch an already astronomical deficit into outer space.  As promised in the campaign, he plans to raise taxes on the top 2% of wage-earners, those earning $250,000 and above.  Despite giving tax cuts to some 95% of taxpayers, Republicans object during a time of recession to raising taxes.   Barack hopes to finance national health care in part on wealthy Amercians, whose tax rates would revert back to the same rates they paid under President Bill Clinton.

            Conservative economists don’t like “spreading the wealth,” or, in this case, the tax liability.  ”The taxing aspect of this is worse than Robin Hood,” said University of Maryland economics professor Peter Morici.  “He’s resurrecting class warfare for political gain,” offering up the GOP critique of Obama’s budget.  Morici and others may not like the plan but that’s what Americans voted for Nov. 4.  It’s more reasonable questioning the advisability of adding to the deficit than attacking Barack’s taxing philosophy that believes the top 2% should pay higher tax rates than those earning under $250,000 a year.  Barack’s budget director Peter Orszag believes the White House can reduce the projected $1.75 trillion deficit by a combination of tax-hikes, built-in efficiencies and phasing out the Iraq War.  Promising to cut the deficit in two during his first term is unlikely.

            While the battle over the budget has now begun, it’s reasonable to ask whether, given all the government spending to keep the economy afloat, it’s reasonable to move aggressively with new government spending.  When the late President Ronald Reagan inherited in 1981 a now puny $63 billion deficit from President Jimmy Carter, Reagan insisted his across-the-board tax cuts would balance the budget by 1983.  Like Orszag, his budget director Dave Stockman had high hopes about balancing the budget.  Reagan never saw Supply Side Economic fully redeemed, leaving office with a $136 billion deficit.  Despite expectations about increased revenue and lower defense spending, Orszag pipe-dreams about cutting the deficit in half in four years.  With Afghanistan ramping up and with Obama’s vast social agenda, the long-term consequences on the deficit could be disastrous.

            Today’s economic woes are likely to last for some time, shrinking tax revenue to the federal government.  “Given the economic catastrophe that we face, to go right into the teeth of the hurricane and plan for some ambitious expansion of government that goes beyond the triage element is bold to say the least,” said Norman J. Ornstein, resident scholar at the American Enterprise Institute.  Instead of going off to the races with well-intentioned spending, Obama should demonstrate first his ability to whittle down the projected $1.75 million deficit.  Too much taxpayer money now goes to keep the U.S. financial system afloat to spend willy-nilly on national health care or any other costly program.  Given the economic meltdown, more government spending would explode the deficit and complicate an already dicey economic recovery.  Orszag’s rosy forecasts could be dead wrong.

            Obama made many promises during the campaign.  He’s already making good on ending the Iraq War, though taking a bit longer to do it.  Given the economic mess, biting off too much too soon could threaten recovery by miscalculating the damage of exploding budget deficits.  Democrats have an ambitious agenda but they must deal with reality that every available nickel must go now to securing financial markets not financing costly new programs.  “I’m assuming this is going to fin rough sailing in the Congress and I think rightly so,” said former Senate Majority Leader Trent Lott (R-Miss.).  Obama can’t gamble with the U.S. economy on rosy budget projections from his brilliant new budget director.  Every past optimistic projection about deficit reduction—with the exception of former President Bill Clinton—has been wrong.  Obama can’t count on the next “bubble” to bail him out.

John M. Curtis writes politically neutral commentary analysing spin in national and global news.  He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.

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