The Administration says not to worry, its record budget deficit of $1.65 trillion for this fiscal year will equal roughly 11% of our gross domestic product. Though that’s the highest level since World War II, but the White House has projected that it will come down.
Time to relax? Hardly. The government has been a poor math student when it comes to deficit projections.
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In 2009, the White House projected a 2010 deficit of 8% of GDP. A year later, the 2010 deficit was running at 10.6% of GDP, or 32% higher than projections. In 2010, the White House projected a 2011 deficit of 8.3%. A year later, that number had been adjusted to 10.9%, or 31% higher. And the debt is taking its toll. According to the latest estimates, total debt as a percentage of GDP has not crossed 100%.
The Administration has added more than $4.4 trillion to the U.S. debt, making the White House the biggest spenders in U.S. history, spending more than the prior 43 presidents combined.
At the same time, the bipartisan commission appointed by President Barack Obama proposed $3.9 trillion in deficit reduction – now about two and half times more aggressive than the White House’s proposals – are required through 2020 to right size the government’s debt picture and avoid a bond market crisis. But the White House ignored the cost-cutting ideas of the president’s own deficit panel and instead wants to add an estimated $2.7 trillion in new debt over the next two years.
Leaving it up to the bond market to fix a government’s fiscal problems is a dangerous game to play. The reaction can be overnight, it can be swift, violent and brutal. It could raise borrowing costs higher very quickly, triggering rapid tax hikes as well.
Interest expense on that debt is going to quadruple from $207 billion to $844 billion in the next 10 years. That’s money out the door. That’s equivalent to the economy of Taiwan. That’s enough to pay for an estimated 22 government agencies, including the entire Judiciary and Legislative branches, and the Department of Transportation.
And, finally, the $7.2 trillion in new borrowing over the next 10 years would be twice what the nation has borrowed between its founding and 2010.
And here come the new taxes that the White House proposes, an estimated $1.5 trillion over ten years, estimates Americans for Tax Reform.
An elected official who says the ‘rich’ are those who make $250,000 is not a centrist. It is not centrist to cut just $33 billion when you have spent more than your 43 presidential predecessors combined. Which is like trying to stop a freight train with a bag of feathers. It is not centrist to continue spending on stimulus items like the $7,500 tax credit the White House’s budget proposes toward the purchase of new electric vehicles. Electric cars whose batteries lose power dramatically in the cold, and couldn’t fit a family of four.
The bipartisan the Committee for a Responsible Federal Budget (CRFB) weighs in:
“Unfortunately, the Administration does not achieve either of the fiscal goals it established for its own Fiscal Commission. For one, the budget does not reach primary balance in 2015. Instead, at just over $600 billion, the deficit remains more than $100 billion away from primary balance.
Secondly, the budget does not make meaningful improvements to the long-term fiscal outlook…, the level at which the budget stabilizes the debt – 77% of GDP – is way too high. It is well above historical levels (about 40 percent of GDP) and the traditional target of 60% of GDP – and could threaten the government’s ability to borrow in case of a real emergency down the road. It also begins to creep up again at the end of the ten-year window, and likely will grow substantially beyond this window.”
CRFB adds: “Unfortunately, the budget doesn’t make any meaningful improvements to the largest problem areas of the budget,” including Medicare, Medicaid and defense spending.
Now to the White House’s proposed massive tax hikes, on businesses and on upper-income families in the Administration’s budget has, a proposed, estimated $1.5 trillion worth taken out of the U.S. economy over the next ten years. Will these tax hikes constrict the powerful bandwidth of the U.S. markets now in Immaculate Recovery mode and trigger another economic downturn?
ore broadly, why should taxpayers give the U.S. government any more money when it has shown countless times it simply is recklessly unable to get its own fiscal house in order?
Americans for Tax Reform says the White House wants to raise taxes in the following ways, this is straight from its Web site:
* Raising the top marginal income tax rate (at which a majority of small business profits face taxation) from 35% to 39.6%. This is a $709 billion/10 year tax hike
* Raising the capital gains and dividends rate from 15% to 20%
* Raising the death tax rate from 35% to 45% and lowering the death tax exemption amount from $5 million ($10 million for couples) to $3.5 million. This is a $98 billion/ten year tax hike
* Capping the value of itemized deductions at the 28% bracket rate. This will effectively cut tax deductions for mortgage interest, charitable contributions, property taxes, state and local income or sales taxes, out-of-pocket medical expenses, and unreimbursed employee business expenses.
A new means-tested phase-out of itemized deductions limits them even more. This is a $321 billion/ten year tax hike*New bank taxes totaling $33 billion over ten years*New international corporate tax hikes totaling $129 billion over ten years*New life insurance company taxes totaling $14 billion over ten years*Massive new taxes on energy, including LIFO repeal, Superfund, domestic energy manufacturing, and many others totaling $120 billion over ten years*Increasing unemployment payroll taxes by $15 billion over ten years*Taxing management capital gains in an investment partnership (“carried interest”) as ordinary income. This is a tax hike of $15 billion over ten years*A giveaway to the trial lawyers—not letting companies deduct the cost of punitive damages from a lawsuit settlement. This is a tax hike of $300 million over ten years*Increasing tax penalties, information reporting, and IRS information sharing. This is a ten-year tax hike of $20 billion.