October 7, 2009

October 7, 2009 | Commentary on Federal Budget

Obama Would Create $13 Trillion Deficit

President Obama's budget office recently caused a stir when it projected that his tax-and-spend agenda would leave more than $9 trillion in new budget deficits over the next decade - doubling the national debt. Now, it appears even that figure was too low.

A careful reading of the president's budget reveals that it would actually add $13 trillion in budget deficits over the next decade. That extra $4 trillion alone represents more debt than President George W. Bush accumulated during his entire term of office.

Mr. Obama's budget failed to include $4.756 trillion in new spending and $862 billion in new revenues, for a total net of $3.894 trillion in added budget deficits through 2019. The excluded policies include:

  • Additional discretionary spending ($1.545 trillion).

Since 2000, non-emergency discretionary spending has typically increased 7 percent annually. Yet Mr. Obama follows his 8 percent proposed increase in 2010 by freezing discretionary spending growth at the inflation rate (approximately 2.5 percent annually) from 2011 through 2019. These restrained figures are incompatible with the president's pledges of historic increases in discretionary spending for education, highways, energy, health, veterans and science.

They also leave no room for the predictable extensions of expiring discretionary "stimulus" spending. Even conservatively assuming that non-war discretionary spending grows no faster than the economy - 4 percent to 5 percent annually - it would add $1.545 trillion in spending through 2019. These figures also assume Mr. Obama can successfully hold spending on the global war on terrorism to $50 billion annually, despite the surge in Afghanistan and the possibility of a continued American military presence in Iraq. Thus, even these figures likely underestimate discretionary spending.

  • Health care reform ($595 billion in spending, $583 billion in revenues).

The president excluded his health care reserve fund from his budget totals. The House health care bill (H.R. 3200) has the most complete budget score and generally fits within his parameters for health reform. Therefore, its figures (net of the Medicare physician payment reforms already included in the president's budget) are included in these budget estimates.

  • Additional cap-and-trade outlays and revenues ($821 billion in spending, $214 billion in revenues).

Mr. Obama's budget assumes that cap-and-trade energy legislation will raise $632 billion and then spend it on new energy research spending and on making permanent the Making Work Pay tax credit. However, the president also has endorsed the House-passed bill that would raise $846 billion in revenues (an additional $214 billion) and then spend $821 billion by giving away the emissions credits for free.

Because the White House has shown no intention of dropping the Making Work Pay tax credit and new energy research, regardless of whether they make it into this bill, the House bill's $821 billion in spending represents additional spending would add to the deficit (with an additional $214 billion in net revenues).

  • Extending "expiring" entitlements ($216 billion).

Congress hid the full cost of its recent children's health care expansion by scheduling it to expire in 2014 (its accompanying tobacco tax increases would continue). Additionally, food stamp and Supplemental Security Income expansions in the recent "stimulus" are set to expire within four years. History suggests that Congress and the president will not let these program expansions expire, and their extensions will cost $216 billion through 2019.

  • Net interest expenses resulting from the increased deficit spending ($251 billion).

These policies will produce $2.4 trillion in additional debt over 10 years, which will increase interest costs by $251 billion.

  • More realistic interest rates ($1.328 trillion in spending, $65 billion in revenues).

Congressional scorekeepers assume that interest rates will remain much lower than in the 1980s and 1990s. This assumption is dubious, given the inflationary threat from the Federal Reserve's recent increases of the money supply and the real interest rate threat from the president's proposal to nearly double the national debt.

Even conservatively incorporating the interest rates of the 1990s (a period of comparatively modest debt levels and inflation rates) would add $1.328 trillion to net interest costs and $65 billion to revenues.

Overall, Mr. Obama's agenda would increase the budget deficit by nearly $4 trillion more than has been reported. Federal spending, which has generally remained between 18 percent and 22 percent of the economy since the 1950s, would surpass 28 percent by 2019. Federal spending per household would rise from $25,000 per household in 2008 to more than $37,000 per household. This represents an enormous, permanent increase in the size of government.

The national debt would surge. After borrowing just under $6 trillion from 1789 through 2008 (plus nearly $2 trillion in 2009), Washington would borrow $13 trillion over the next decade - nearly $100,000 for every household. By 2019, annual budget deficits would approach $2 trillion and push the public debt to nearly 100 percent of GDP.

Merely paying the interest on this debt would soon cost taxpayers $1 trillion annually, and spending and deficits would continue to rise thereafter. Just balancing the budget would require permanently raising taxes by $12,000 per household.

Washington cannot run these trillion-dollar deficits forever. Only through spending restraint can America avoid this painful choice between ruinous debt and enormous tax increases. It is time for Mr. Obama to stop digging the hole deeper and to present a serious plan for spending restraint.

Brian M. Riedl is Grover M. Hermann Fellow in Federal Budgetary Affairs in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

About the Author

Brian M. Riedl Grover Hermann Fellow in Federal Budgetary Affairs
Thomas A. Roe Institute for Economic Policy Studies

First appeared in the Washington Times