President Obama presented his first budget outline to Congress and trumpeted that it will “cut the budget deficit in half, down to $533 billion by the end of his first term”.
Is that anything to be proud of nowadays? A $533 billion budget deficit in one year is something to brag about?
The problem is, based on current assumptions, the projected budget deficit for 2012 is expected to fall to $264 billion all by itself due to a presumed economic recovery and legislation already on the books.
How can that be?
Put another way, if President Obama and Congress went on recess for the next four years, the deficit would fall by over 75%! Since the Obama Administration says that a 50% reduction in the annual budget deficit is good, wouldn’t a 75% reduction be truly great?
The problem has been, and continues to be, congressional and Administration docile acquiescence when it comes to limiting the overall growth in federal spending. It is the same problem that existed under President George W. Bush and Republican and Democratic Congresses over the past 8 years and 37 of the last 40 years under all combinations of shared power in government.
The Obama Administration and this Congress don’t appear to be any different in this important regard, at least based on this initial budget out of the gates.
We can’t tax our way out of this mess any more than you can magically conjure up more salary income for yourself, unless you own your own business and decide to fire people and take home more pay. The very wealthy people targeted by this budget to pay more in taxes have already taken legitimate tax and estate planning steps to minimize their tax exposure. And unless the economy rebounds swiftly and powerfully, tax receipts from all sources are likely to be way below the levels envisioned in this budget.
CBO and OMB tax revenue estimates are notoriously volatile simply because it is next to impossible to accurately forecast economic decisions made by 310 million American consumers any more than a few months into the future at best. During the late 1990’s when the revenue numbers were at their highest percentage ever relative to GDP, revenue forecasts were typically $100-$200 billion below what actually came into the federal treasury, because no one came close to predicting just how many stock options were going to be exercised during the internet boom that was underway at the time.
We won’t have to worry about underestimating projected capital gains taxes or even corporate taxes for the next several years for the obvious reason that capital gains and corporate profits are not expected to be very high for the near future, unfortunately.
On the spending side, we have close to $1 trillion in proposed new spending in this budget. The potential savings attributed to the lower defense costs associated with pulling out of Iraq were already counted in the CBO projections of January, 2009. The assertion that hundreds of billions of dollars will be found each year from rooting out “waste, fraud and abuse” is an old budget bromide that rivals the search for the Holy Grail in the sense that people know it exists but they just can’t seem to find it anywhere for sure.
The Obama budget seeks to be a benevolent arbiter of economic justice and fairness for all people, except for the top 2% of income-earners in the country, while making a legitimate attempt to deal with the massive banking and economic dilemma we face as a nation.
Don’t be deceived by its alluring attributes.