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May 1, 2009

A Budget to Infinity, and Beyond

Obama Victory on 2010 Budget
04/29/09 - MarketWatch by Robert Schroeder

Democrats have repealed Obama's middle class tax cut, effective just after the November 2010 elections.

[quotes are edited]

The budget resolution preserves Obama's domestic priorities and cuts the yearly federal budget deficit (yearly borrowing) by almost two-thirds in five years.

While it would cut the deficit in the short term, the budget would also increase deficits over the next 10 years by more than $2 trillion ($2,000 billion).

"More than $2,000 billion" is an error. The deficit will increase by that much just in 2009. The actual figure is about $10,700 billion over the next 11 years, from CBO estimates of past and future deficits graphed below. That is $10.7 trillion, 75% of the $14.3 trillion total US production in 2008.

The 2007 deficit was $168 billion under Bush. The 2008 deficit was about $500 billion (3 times larger), in part due to a Bush stimulus package. Did you notice the improvement from that stimulus? There was not much improvement, but the money did disappear.

The 2009 deficit was crafted by Democrats in control of Congress, and is now vastly increased by Obama's policies. The 2009 deficit is going to be about $1,850 billion ($1.85 trillion), 3.7 times the 2008 Bush deficit, and 11 times the 2007 Bush deficit.

The following graph from the Washington Post presents Congressional Budget Office (CBO) data on past and projected deficits. The Heritage Foundation compares this spending by Bush and Obama.

wapoobamabudget1 at Washington Post

After 5 years of accumulating debt, a two-thirds reduction would make the yearly deficit $615 billion. Private estimates are higher. That is a "reduction" to a yearly level that is more than Bush's splurge. Then, the yearly deficit increases even according to Obama's estimates.

The tax burden goes up with all government spending. A deficit represents a delay in collecting that tax, like spending on a credit card. The things that government buys today are taken out of what you can buy tomorrow.

Bush spent to "save the economy". That splurge of spending in each of two years is being multiplied 3.7 times in 2009, and the future "cut" is from this level of $1,850 billion.

The bill pares back some of Obama's initiatives. For example, it allows his $400/worker  ($800/couple) tax cuts to expire at the end of 2010.

Obama's "tax cut for 95% of Americans" is ending, after a run of two years, just after the 2010 elections. Obama's priorities make that tax rebate unsustainable. It was sustainable only as a promise before election.

House Republican Leader John Boehner correctly sums it up:

This bill spends an awful lot of money, it raises a lot of taxes, and it puts all of this debt on the backs of our kids and our grandkids.

Don't worry, you will get a chance to pay off some of this debt. It won't all go to your children. (smile)

The House resolution includes a "pay as you go" requirement for four bills later this year, about the alternative minimum tax, Medicare payments to doctors, adjusting the estate tax, and extending middle-class tax cuts.

"Pay as you go" means that Congress is promising now to raise taxes to pay for any new spending. The "rich" top 5% (above $150,000 incomes) paid $613 billion in 2006 federal income taxes. Will they be made to pay 2.6 times that amount, or will the middle class also pay for these dramatic spending increases? I have faith in the middle class. (smile)

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2006 Tax Comparisons
See what you, your neighbor, and the rich guy are already paying in income tax.

The Real Tax Burden
The amount of tax that a government imposes is the amount it spends. The timing and amount of tax collections is merely finance.

Econ 201: The Myth of the Economic Multiplier
Government spending doesn't multiply anything. It takes resources from taxpayers and applies them to government projects. You get a bridge or some paperwork, that is it.

1 comment :

Throckmorton said...

This is a great post. I am amazed that the true expense of the budget was only barely mentioned by the mainstream media. Further, given this spending increase, I can not help but project that we will be having double digit inflation as a result. I think of it this was. Obama promised about $500/year from his tax cut for a family who makes, $50,000/year. However, with his spending, a 10% inflation rate means that the same family's money is now worth 10% less. In other words he gave them $500 to win the election but then took $5000!

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