More Spending, Taxes, and Deficits: The Obama’s Budget

Published February 28, 2011

President Obama’s proposed budget calling for more than $3.7 trillion of spending—including deficit spending of $1.65 trillion—also projects $1.1 trillion of deficit spending the following year, which would give the nation four consecutive years of budget deficits exceeding $1 trillion annually. No budget deficit had ever come close to $1 trillion until Obama took office in 2009.

The budget has critics aplenty, many of whom point out it fails to propose any substantive reforms to mandatory entitlement spending programs such as Medicare, Medicaid, and Social Security, costs of which will keep climbing as the Baby Boomers age.

The budget proposal does have strong support, including from government workers’ unions, environmental groups, and others who favor continued high levels of government spending.

Meanwhile, Republicans in Congress are wrangling over their own budget proposal, with newcomers who had campaigned on pledges to be more fiscally responsible demanding deeper budget cuts than some Republican Party establishment lawmakers are willing to endorse.

Increases in Real Spending
“Most of the so-called cuts are [in comparison with] last year’s projected budget for 2012, but still represent an increase in spending,” noted Iain Murray, director of the Center for Economic Freedom at the Competitive Enterprise Institute. “Take the Commerce Department, for instance.  Once you discount the once-a-decade census, the Department’s discretionary budget actually increases by $1 billion, compared with the advertised $5 billion decrease. Similarly, the State Department budget decreases compared with the projected budget from last year, but increases compared with actual spending in 2010.”

Murray added, “What we see in this budget is a government where spending is out of control, rather than a responsible government cutting back to stay within its means.”

Chris Edwards, director of tax policy studies for the Cato Institute, noted in an article for National Review Online, “Last year, Obama proposed 2012 discretionary outlays of $1.30 trillion. This year, Obama proposed 2012 discretionary outlays of $1.34 trillion.”

Edwards added, “In the administration’s mind, apparently absolutely nothing has changed on fiscal policy in the last year. Obama hasn’t shifted toward fiscal responsibility an inch. The Tea Party movement, the November elections, the government debt crises in Europe, and the Obama Fiscal Commission have all been totally ignored in the new federal budget.”

New, Higher Taxes
“The problem is that this budget, like the previous one, grounds most of the deficit reduction in revenue increases,” said Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University. “In this case, spending would go down by $90 billion and revenue would increase by $453 billion between this year and next year. However, Obama also would rely heavily on new taxes, to a degree unacknowledged by administration officials in recent days. His budget request calls for well over $1.6 trillion in fresh revenue over the next decade, much of it through higher taxes on the wealthy and businesses.

“That’s a risky bet, considering that the president doesn’t have much control over how people react to tax increases,” de Rugy added. “He can’t stop taxpayers from reacting to a tax increase by working less, hiding assets, hiring fewer employees, and sitting on their capital instead of investing it.”

Among other things, the Obama budget proposal directs billions of additional dollars to alternative energy projects, high-speed rail, and many social services, spending that has constituencies of supporters.

Support from Nurses
“It’s heartening to see the Obama administration continues to recognize the invaluable contribution that nurses make in the delivery of care,” said American Nurses Association President Karen A. Daley in a statement. “This proposed budget represents a substantial commitment to addressing the nursing shortage and ensuring access to care for all. Increased funding for Title VIII programs is vital to reducing avoidable complications associated with the nursing shortage—saving lives and reducing health care costs.”

The proposal calls for a 28 percent increase for Title VIII Nursing Workforce Development Programs that serve to recruit new nurses into the profession, promote career advancement within nursing, and allocate nurses to areas experiencing shortages. 
More for Infrastructure, Education
Another supporter of higher spending is Reece Rushing, director of government reform at the Center for American Progress. “President Obama’s budget proposes to increase funding for infrastructure by $35 billion, for research and development by $3 billion, and for education by $14.2 billion (covering the Education Department and Head Start),” Rushing wrote at the Center’s Web site. “Investments like these form the foundation of economic growth, now and in the future.”

Rushing added: “Yet where Obama proposes increases, House Republicans propose cuts: $8.1 billion in cuts from infrastructure, $5.5 billion from R&D, and $5.1 billion from education, not including $26.7 billion in cuts to Pell grants for low-income college students. This shortsightedness threatens our still fragile economic recovery.”

House Republicans have said they’d like to roll spending back to 2008 levels.

In late February the House passed $61 billion of spending cuts, but Democrats who control the Senate have declared they will not approve the cuts. A continuing budget resolution to fund the federal government expires March 4. Without a further extension, the government would have to “shut down.” The last time a budget showdown led to shutdown was in 1995.

Steve Stanek ([email protected]) is a research fellow at The Heartland Institute and managing editor of Budget & Tax News.