Obama’s Budget Disregards Lessons of Debt-Ceiling Debate

COMMENTARY Budget and Spending

Obama’s Budget Disregards Lessons of Debt-Ceiling Debate

Feb 15th, 2012 2 min read

Former Consultant - Visiting Fellow

Patrick Louis served as a Consultant - Visiting Fellow.
In his first budget following last year’s debt-ceiling clash, President Obama has either forgotten or ignored the point of that entire confrontation: that runaway federal spending threatens to bury the country in debt and must be reversed.

Instead, when it comes to higher spending, the president who insists “We Can’t Wait” really can’t. He opens the spigot immediately, before the start of the new fiscal year on Oct. 1. His budget calls for more spending on roads and bridges, school refurbishing and teacher pay - all starting in the current fiscal year. In the process, he raises the 2012 deficit by $200 billion more than it would be otherwise, to $1.33 trillion - then promises deficit reduction later. The problem is that when later comes, there is always some new excuse to keep on spending.

This year’s claim is that the economy, while growing, remains too weak to suffer the loss of government cash infusions. Odd, however, that the president assumes the same frail economy can handle a $1.8 trillion tax increase.

This budget reflects the president’s well-known appetite for bigger government. He proposes a more than 50 percent increase in annual spending over the next decade, to $5.8 trillion in 2022. That would hold federal outlays stubbornly above 22 percent of gross domestic product (GDP), more than twice the New Deal’s share of the economy in its peak years. In constant dollars, spending is more than three times the peak of World War II.

In practice, spending levels will be even higher, in part because $848 billion of the president’s proposed “reductions” are actually phantom “savings” from the wind-down of operations in Iraq and Afghanistan.

The president’s fiscal amnesia also extends to another key topic of last year’s debt-ceiling debate: the imperative to restructure Medicare, Medicaid and Social Security, the three greatest threats to the country’s fiscal and economic health. By the middle of this century, these three programs and Obamacare will eat up about 18 percent of GDP (the historical average of all federal tax revenue). The notion of “protecting” these programs through benign neglect only ensures their collapse, and the longer Congress and the administration wait to address the problem, the more wrenching will be the consequences. But the president’s budget merely reruns previous ideas, such as more cuts to medical providers, and ignores the need for fundamental reform.

While the president fails to bring down spending, he drives up total tax levels - to a historically high 20.1 percent of GDP in 2022. Federal tax revenue has exceeded 20 percent of GDP just three times before: in the World War II years of 1944 and 1945, and in 2000, when it was followed by a recession.

Remarkably, even with the hefty tax increases and illusory savings, the president fails to achieve sustained deficit reduction. Projected deficits over the next decade never fall below $575 billion (in 2018) and climb back to $704 billion (in 2022) - and, even then, only if one assumes a bevy of tax increases and mystical savings.

This leads back to the question of debt. Debt held by the public in the president’s budget rises from 74.2 percent of GDP today to 76.5 percent of GDP in 2022. These too are historically high debt levels: The post World War II average is just 43 percent. Moreover, the president’s debt estimates are low because of the unreal nature of much of his proposed deficit reduction.

The president’s latest budget, then, is just more of the same: larger government, higher spending and taxes, permanent deficits, and growing debt. On his end of Pennsylvania Avenue, the central fiscal debate of the past year has been forgotten.

Patrick Louis Knudsen is the Grover M. Hermann Senior Fellow in Federal Budgetary Affairs at the Heritage Foundation

First appeared in The Washington Post