Attack of the Federal Budget Monster

February 27, 2009 by  
Filed under Economics

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 bad part of the budget is that it costs a lot of money to solve all of mankind’s problems.

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


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Comments

19 Responses to “Attack of the Federal Budget Monster”
  1. K-money says:

    If itemized deductions are reduced by 28% does that mean I wouldn’t be able to deduct all of my mortgage interest (itemized deductions, mostly mortgage interest, ate up about 38% of my income)? That would put me in a higher tax bracket!

    Sometimes I think California should secede from the U.S. Incomes are higher here but that is necessary to have a lower middle class lifestyle because everything – houses, groceries, gas – is more expensive here. Those higher incomes mean that we get counted as “rich people”. A person in the last place I lived (North Carolina) could have a lifestyle as good as, if not better, than I do with a third of my California salary.

  2. Rick Beagle says:

    I have not looked at the budget in its entirety Tough, but it looks like it could use some trimming.

    However, the condescending tone, and total lack of connection between your materialistic rant a couple of days ago and your comments here leave me puzzled? Furthermore it is unfortunate that the “do nothing” generation that preceded the Obama presidency still thinks that their views and their sense of fiscal/social responsibility are superior to their progeny? Forty years of mismanagement, and zero forward thinking have brought us to this point, and now you complain about excessive spending?

    In the first couple of months, the X generation has shown a willingness to try and actually solve some problems, and provide some direction for our government at every level. And instead of providing a helping hand and helpful insight, we get complaints on the very materialism it claims are the root of our societies woes?

    Will we get it right every time? Heck no. But we haven’t given up, and I would rather make a mistake trying than to perpetuate the lack of effort of those that preceded me.

    Just my two cents Tough.
    Rick Beagle
    PS I think that graph on deficit spending since Reagan from zfacts.com illustrate my point nicely.

  3. K-Money – The proposal is to limit itemized deductions to 28% whereas now if you are in the 36% tax bracket, you would get a 36% benefit.

    Rick: If your reference to the “do nothing” generation is for baby boomers like me, look at it this way. Based on current values, we are transferring our investments to younger generations at a 40%-50% discount from what we paid for them. Plus you are receiving at least a 20%-30% discount on our residential real estate wealth. We put everything on sale for you. Our loss is your gain.

  4. TMN says:

    That’s assuming we’re even interested in buying at all. I’ve seen a lot of convincing numbers claiming that the housing bubble is maybe halfway through its collapse as yet, and a lot of young people wising up to the pyramid scheme that is non-dividend stock.

    I’m not sure where it’s going to end up, but it may well be that the old assumptions about getting rich by grabbing as much as you can and investing it in everything you can find are gone. There’s at least a chance that we’re going to come out of this with a much higher emphasis placed on income from real work as opposed to passive investment, both in societal norms and in the tax code.

    What looks like a giant step back for the top 5% looks like a step forward for the other 95%, and there’s a decent chance everything may shift while you’re sitting here complaining that the government isn’t supporting the bubble that valued your home at three quarters of a million.

  5. Rick Beagle says:

    Tough,

    You are not transferring anything to us other than a huge deficit, social security in the tank, crumbling infrastructure, health care costs out of control, dependences on foreign oil, and global warming. Your generations lack of solutions have created a false sense of wealth by deferring the costs for fixing these issues to your children and grandchildren. Which would be me, and my children Tough.

    You would then dare to complain about our efforts recoup some of the costs from the same people who got us here in the first place? Tough, I have no doubt that you are a great person who worked hard during your life, but you allowed the government of the people to run amuck at the expense of us, your future. The bill for those deferments are now due, and yeppers, it’s huge.

    The difference between us, and your generation, we are going to fix these things and then work our butts off to pay it back – all of us. It’s going to hurt like heck, but it is the right thing to do.

    It’s a shame that you only see rampant spending, socialism, and cries for entitlement.

    Rick Beagle

  6. MasterPo says:

    The numbers are so BIG to most people the message just get lost in the digits.

    Suffice to say the spending of the Messiah’s first 30 days will be paid for over the next 100 years. Maybe.

    Just think of the taxes that will need to be paid to pay down the debt of this year alone!!

    Then there’s the 2010, 2011 and 2012 budgets.

    Plus you know there will be some crisis over the next 4 years – another Katrina, earthquake in CA, terror attack etc. – that will need billions$$ in bailout.

    I really truly don’t know what this guy is smoking…

  7. Brian says:

    Must be lots of fun at the Beagle household during the holidays as young Rick simmers and glares at his parents for “huge deficit, social security in the tank, crumbling infrastructure, health care costs out of control, dependences on foreign oil, and global warming” How dare they provide him with elec, running water, schools and a computer which touches upon everything he complains about. I know I’ll hear back from Rick, but until he shows me that he is paying more taxes then he has to, and names any problems Gov’t has solved, I will continue to give short shift to his comments.

  8. MasterPo says:

    Rick – Obama is spending trillions NOW, today, this year.

    What happens in next year’s budget? Or the year after that?

    What happens when another Katrina hits the gulf or Florida or the Carolinas? Or an earthquake in CA, flood in the mid-west, tornados, etc? Where will get the money to send aid for that too?

    And what if there is another terrorist attack that causes huge damage and death on American soil? Where’s the money to rebuild going to come from?

    You can’t earn your way out of mounting debt.

    Didn’t you learn anything from the dot-com crash? (Companies with huge losses but no one cared as long as sells kept growing too. Sooner or later the band stops playing…)

  9. Rick Beagle says:

    Brian,
    Well, it would appear that I have personally offended you, and your response reflects this.

    But let me try a different tact with you, head over to zfacts.com and look at the deficit growth since 1980. Notice anything? The federal government has been printing cash like there was no tomorrow, with brief slow downs by the “spend spend spend” liberals. That’s right, the Democrats have been the only people in the last fifty years to reduce deficit spending.

    Furthermore, do a quick google and take a look at what states like Alaska, South Carolina, and Louisiana with respect to federal tax dollar vs the much maligned California. I am picking on those three states simply because they have been in the news preaching fiscal responsibility even though their states are welfare states (the rest of the states actually contribute money to their budgets to keep them afloat). The much maligned and troubled California is a cash cow for federal taxes. Why in the heck would we turn to these “welfare states” and tout their governors as fiscally responsible economic geniuses, while maligning the governor of California and Democrats? When did the world get so backwards?

    These deficits, my children and I will have to pay off – don’t I have a right to be upset with that? It does not mean that I don’t love and respect my parents, but at some point, you have to acknowledge their lack of substantiative value to the conversation based on their abysmal track record and go a different direction. That is not to say they didn’t do a lot of things that were right, but with regards to that deficit, they should have known better.

    Let me try one last closing argument to support my feelings, what do you think would happen to our economy if oil prices rose again, and we had to pay $4.00+ for a gallon of gasoline (btw, that was the catalyst to our current meltdown)? Now look at the deficit spending by Reagan and wonder why in the heck he discontinued all funding into the research of alternative energy?

    Peace.
    Rick Beagle

  10. Rick Beagle says:

    Master Po,

    I have seen the budget and like you, coughed a lot. But here is something we need to remember, spending like this has been going on for eight years, but through some accounting tricks by the Bush administration, they have been able to hide it through supplemental funding. The Obama administration has an uphill battle because many people were not aware of this little trick, so Obama’s numbers look out of whack comparatively speaking.

    Please note, most supplemental funding, including funding for disaster relief is already included in the budget. They have budgeted funds based on an aggregate for the last few years. I am sorry, I will have to look through it again to find those funds, but bleh, it’s there.
    Funding for the wars are also there, which were also big ticket supplemental spending items under Bush.

    Finally, many of the items that have been ignored over the last fifty years are being addressed. The Obama administration is signaling its willingness to resolve these issues. Let me put it another way, let’s imagine that you refused to do any maintenance to your house for twenty fifty years. Your son/daughter comes into your house and finds themselves in a house surrounded by really nice things, but the roof is leaking, the walls are termite infested, and the foundation has a few major cracks. Rather than ignoring these problems, your children decide to fix them, and guess what, it’s a huge bill. The house is collapsing, and these bills are due.

    It sucks, but it was inevitable hence my rant above.

  11. MasterPo says:

    IF we had the money to spend I *might* agree. But we don’t!

    To use your house example, you can’t fix the roof if you don’t have the money. And you can only borrow so much.

  12. Rick Beagle says:

    MasterPo,

    Actually, I don’t disagree with you, but still using our example, why are we are for caviar for dinner (with our credit card), instead of fixing the roof?

    We do have to spend money on infrastructure, and in items that propel us forward (green energy). But I do not think we need to keep throwing money at our wasteful military (4% GDP seems excessive, as does the 25-33% wasteful spending within the context of their budget). Don’t get me wrong, I love the military (old sailor), but dang it, those boys could use some fiscal restraint.

    I also think states that have negative federal tax flow should have been cut off a long time ago. And states that are making us money such as California should not have been allowed to accept rolling blackouts as the norm (federal infusion into the seventh largest economy in the world to help improve their electric infrastructure would have been a good investment imho).

    We have states that for every dollar they put in they get thirty-three cents back (California), while others get two-dollars back (Alaska). In the case of Alaska, this is particularly insane when you consider that each resident gets money from the state every year for oil residuals.

    I also don’t think the gap between the wealthy and the poor needs to continue growing unabated. I realize that taxes are not popular, but honestly, until another mechanism presents itself we need to temper that growth.

    Finally, looking over the expenditures of the last fifty years and the priorities of those leaders, we see significant abuse, lack of foresight, and disregard for the long term welfare (financial and other) of its citizens. To hear the opposition scream about deficit spending to repair those things long neglected, screams about touching the military budget, and the sobbing over higher taxes is just too much…. At what point is their opinion of such little worth that they just should be ignored? I mean its not like they are offering any alternatives… okay, back to our running example, we are going to eat hamburger helper instead of caviar so that we can get the money to pay for that roof.

    Peace.
    Rick Beagle

  13. Rick Beagle says:

    Hey peeps, here is the link to Zfacts.com that I keep referring to…. Sometimes a picture is worth a million words and in my case help drive home the genesis of my complaints:

    From ZFacts

    Peace.
    Rick Beagle

  14. MasterPo says:

    Rick,

    While I don’t necessarily disagree that *some* of Obama’s ‘investment’ goals are worth exploring, it’s going to take YEARS, maybe even DECADES for thr work to bear fruit – if at all.

    Not the kind of stuff to be put into a budget right after you passed a $1.2 trillion dollar ‘stimulus’, a mortgage bailout, a bank bailout, and there’s already talk of stimulus-2 this year.

    BTW, how do you reconcile your position with the fact that the CBO itself forcasts little to no benefit for the stimulus?

  15. Rick Beagle says:

    MasterPo,

    Let us assume that we agree that it will take years for some of these efforts to bear fruit, but does that mean we shouldn’t do them? A little forward thinking is a good thing imho and has been sorely lacking in the last fifty years…. Plus, given the governance of the last fifty years, President Obama has very little time to bring his ideas to the table and get them started.

    You know its funny, but I absolutely disagree with Obama with regards to the bank bailouts. The zombie institutions either need to be nationalized or allowed to fail (which in essence would be the same thing). Unfortunately, with the Right screaming socialism at every corner, I am not sure he has the political capital to do what needs to be done, so he goes back to the bailout play book. I detest this course of action, but bow to the inevitability of it. Personally, I think the Right needs to calm down and help do the right thing.

    I love the CBO, but in all honesty they are somewhat limited, and why wouldn’t they be, economics is a tricky thing. I do not doubt their numbers, but some of this has nothing to do with numbers. It has to do with giving people hope, and the belief that if they work hard we can get out of this mess.
    Many economists believe that FDR was right on track with his own stimulus package, but it was too small. There are many people who think Obama’s stimulus was similarly too small, and I think the current POTUS is on board with these economists – despite the CBO’s comments.

    For my part, I think FDR had it right too hence my support of Obama’s efforts.

    Regards,
    Rick Beagle

  16. MasterPo says:

    Rick,

    First I don’t think government (regardless of the party in control) is the right entity to be deciding what technologies get advanced and what don’t.

    Second, what does any of that have to do with an immediate stimulus plan? Promoting something that can take 10+ years to be developed isn’t going to help the unemployed person today.

  17. Rick Beagle says:

    MasterPo,

    I could not disagree more on either issue.

    Your second question is kind of ridiculous to be honest. Just because something won’t come to fruition in less than ten years does not mean we aren’t working on it now. The Hoover dam is a perfect example of this.

    In so far as the government driving technology, where have you been? They are VERY good at driving forward technology and have been doing this for years. And in matters that directly affect our national security, there is no excuse not to.

  18. MasterPo says:

    Rick,

    This will be my final post on this topic. So I leave you with this thought.

    What government program developed the xbox? The texting cell phone? The digital picture frame? The plasma TV?

    Some items developed for gov use may also have application in some form for civilian use. But the governemtn doesn’t cherry pick technologies and sectors to promote and advance over others for the good of the consumer. Not in America at least.

  19. Rick Beagle says:

    MasterPo,
    And this will be my last post on this as well. I do not disagree with your assessment that the private sector has created some wonderful technologies. But in all the examples you provided, not one of them has national security as its primary motivation for creation.

    The question I suppose in front of us with regards to “green energy” is whether you think its a national security issue or not. I, strongly, believe that it is. And as a result, I believe the federal government needs to inject research capital to create opportunities for the private sector in these areas.

    Why, shouldn’t we just allow the private sector to do this on their own? Because some times the Return On Investment (ROI) is in anticipation of an event that if it came to fruition would cause difficulties for our country. In this case, working on alternative fuels (as an example) before fuel prices spin out of control (again) would be preferable to starting research on new products when we are at our most desperate. Hopefully that mush of a sentence made sense.

    Nice conversation.
    Rick Beagle

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