March 2, 2009

March 2, 2009 | Commentary on Taxes

Bam's Budget: the Good, the Bad and the Ugly

The president's budget blueprint contains some good initiatives, more that are bad - and some truly ugly ideas that would dramatically expand the government's role in American life.

First, the good stuff:

  • There are some spending cuts. President Obama wants to stop one kind of farm subsidy to agribusiness and farmers earning $500,000/year or more. This would save $9.8 billion over 10 years.
  • Obama would boost retirement security for 80 million workers by creating "automatic" individual-retirement accounts. Tax-free payroll deductions would flow into IRAs for workers with no employer-sponsored pension plan (unless they decline to participate). It's a great way to secure a retirement nest egg - especially given Social Security's shaky fiscal situation.
  • He'd scale the Medicare prescription-drug benefit to reflect need - wealthy retirees would have to pick up a greater share of their premiums. It's the kind of reform needed to make entitlement programs financially sustainable for the long haul. Unfortunately, this change is so small, the savings amount to little more than a rounding error, so it falls well short of the overhaul needed to meet long-term challenges.

Unfortunately, that's about it on the "plus" side. Overall, the budget projects an unprecedented $1.75 trillion deficit for this year - and suggests no comprehensive plan for reducing the estimated $12.7 trillion national debt.

It does, however, call for several huge new initiatives that will deepen the debt, next year and for the long haul. Worse, these initiatives would greatly expand American's dependence on government.

A prime example: Obama's call to create a $624 billion fund to expand government health care. This is just a down payment on his universal-coverage initiative, which is expected to cost the taxpayers an estimated $1 trillion over the next 10 years.

He would fund it by: 1) squeezing provider payments for Medicare and Medicaid (e.g., reducing payments for the popular Medicare Advantage program), and 2) hiking taxes by some $318 billion.

Another bad provision: $750 billion to bail out banks. That's on top of the $700 billion Troubled Assets Relief Program. The Obama team says it hopes it won't have to spend another $750 billion, but. . . This is a huge chunk of change to be "parked" in a budget. Combine it with the continued talk of "nationalizing" banks, and it's no wonder the stock market is increasingly skittish.

The plan is light on candor, too. While it jettisons some of the Bush administration's budget gimmicks, it comes up with new tricks of its own to help offset the costs of universal health insurance and of converting Pell Grants into a new entitlement program.

One new gimmick: The budget assumes that Iraq spending was going to continue indefinitely at 2008 levels (which was never going to happen, according to the military's own Joint Campaign Plan), then credits a troop pullout with delivering $1.5 trillion in savings.

The budget also counts, as a middle-class tax cut, Obama's call to prevent the Bush tax cuts from expiring for families making less than $250,000 a year. (Yes, preventing a tax hike is presented as a tax cut.)

Then there's the new revenue stream outlined as bringing in $646 billion over eight years, starting in 2012. The cash is to come from a controversial "cap and trade" system regulating carbon emissions. Companies would pay the government for carbon credits as a cost of doing business. Of course, they'd have to pass the costs on to consumers - low-, middle- and upper-income alike.

Call it whatever you want, "cap and trade" looks, walks, and quacks like a tax hike. And tax hikes are hard on taxpayers and bad for economic growth.

The bottom line: The president's budget plan aims to greatly expand the size and scope of the federal government. It greatly accelerates federal spending on his domestic priorities, at the cost of inadequate investment in defense and blithe disregard of the burgeoning national debt.

Congress will now get to work on crafting its own budget. Given the spending enthusiasms of House Speaker Nancy Pelosi and Senate Majority Leader Reid, odds are it will be even "badder" and uglier than President Obama's plan.

Brian Darling is director of U.S. Senate Relations at The Heritage Foundation

About the Author

Brian Darling Senior Fellow for Government Studies
Government Studies

First Appeared in the New York Post