Attack of the Federal Budget Monster
I spent a little time poking around the fiscal year 2010 budget document released today by the White House. I had to stop after a short while because what I was finding was making me ill. So I will limit myself here to a few highlights lowlights that I found.
The good part of the President’s budget is that it basically aims to solve every problem that mankind has experienced since the beginning of time. (OK, it doesn’t try to solve every problem. It excludes all of those problems caused by the government itself.)
The really bad part of the budget is that we don’t have that much money. Not even close.
Let’s start with the federal debt numbers. The White House loves to talk about deficit reduction as if that implies some sort of savings. Deficit reduction doesn’t impress me, for two reasons. First, the existence of any deficit means that the federal debt is still increasing. It’s like an obese person bragging about only gaining five pounds this week, compared to the seven pound gain the previous week.
Second, when you read the budget you understand that deficits are being reduced by increasing taxes, not by reducing spending. If you are excited about that concept, please take a minute to send me a check to help with my tax burden, which is about to go up, up, and more up.
According to the budget document, here are the projected federal debt numbers:
Gross Federal debt in 2008 = $ 9.986 trillion (actual)
Gross Federal debt in 2009 = $12.704 trillion (est.)
Gross Federal debt in 2013 = $16.198 trillion (est.)
(That’s $16,198,000,000,000.00 for those who like to see the zeroes.)
So in one budget year, the Obama team wants to increase our national debt by 27% and over four years, by 62%. Staggering. I expect the actual numbers to exceed the estimates, unless Congress decides to throw even more tax increases into the equation.
Moving on, the budget document includes some economic assumptions on which the projections are based. One of those economic assumptions was so bogus I laughed out loud. Table S-8 shows that the White House assumes that real GDP will fall by 1.2% in 2009 then increase by 3.2% in 2010. That’s a gigantic swing in one year. Table S-8 also includes the real GDP estimates from the Congressional Budget Office. The CBO predicts that GDP will fall by 2.2% in 2009 and increase by only 1.5% in 2010. These numbers are significantly less optimistic than those of the White House and even these numbers are wrong. Why? Because the CBO estimates used by the White House do not take into account the recently passed stimulus bill. You know, that little $787 billion expenditure. (The budget document points that out in a tiny footnote.)
So why would the White House use CBO estimates that ignore the stimulus spending? You would hope that the stimulus bill would actually improve GDP growth. But, as I reported in this fantasy interview, the CBO ran GDP projections that included the stimulus spending. Those projections were for GDP to show no growth in 2013 and to actually begin to decline in 2014. No wonder the White House didn’t use those numbers in its budget document.
A final point I want to make about the proposed budget is what it will do to home values and charities. The President proposes to raise billions by limiting the value of itemized deductions for taxpayers making more than $200,000 and for married couples with incomes over $250,000. As the budget proposal is currently written, all itemized deductions will be capped at 28%, regardless of your actual marginal tax rate. If this proposal passes, the tax benefit associated with mortgage interest is on its last legs for those with nice incomes. (Start paying off that mortgage, folks.) Home values will be depressed, at least in the upper price ranges.
Charitable donations are likely to be affected as well. The wealthiest taxpayers give a lot of money to charity but that is likely to be affected when you impair the tax benefit of those donations. The lobbying has probably already begun on this one.
Well, that’s all the great budget news for today. The White House promises to release more details later this Spring. I can’t wait. (Before I leave, a brief shout out to my Obamaniac friends. Yes I know that President Bush was terrible with money and ran huge deficits. I hated it. But that doesn’t let Obama off the hook for adding another 27% to the gross national debt in a single year. I am an equal opportunity budget-basher so I hope that we can still be friends.)
If you want to take a look yourself, the budget document is available at the Office of Management and Budget website. But before you go, remember that I warned you. It’s frightening.
Image credit: Michal Zacharzewski