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Monday, February 13, 2012

Highlights of Obama’s 2013 Budget Plan: Flat spending, Higher Taxes

On February 13, 2012, by Reason Magazine

Go here for the full document (pdf). This is the budget "blueprint" or what the president would like to see spent, raised, etc. for the fiscal year that starts on October 1, 2012 and runs through September 2013.


The most important stuff - that is often maddeningly left out of articles about government spending - is the basic breakdown of overall outlays and revenues.


My first thought is that I'm glad to see spending (outlays) up by just a few nickels from last year: Obama is proposing spending $3.803 trillion dollars in the next year, up from $3.796 trillion this year. If we keep spending $3.8 trillion a year for the next 10 years, the budget would basically be balanced without having to change any current revenue streams (a.k.a. taxes). (For more on this, see "The 19 Percent Solution.")
Keeping 2013 spending flat still means the feds would be spending 23.3 percent of GDP, down as a percentage from the past two years but it's a number that would have been virtually unthinkable even five years ago. 
For much of the post-World War II era, the feds rarely cracked the 20 percent-of-GDP figure when it came to spending (check table 1.3 here). Then came the 1970s and the 1980s and part of the 1990s. But between 1997 and 2005, spending didn't crack the 20 percent figure. The normalizing of such high levels of expenditures ain't good - government spending crowds out private spending and restricts the choices of supposedly free people. Big spending is especially bad when it's financed by debt, which is easy to get into and tough to get out of, both as an individual and as a country. As I've noted elsewhere, the best five-year-run of revenue (1997-2001) in the post-war era averaged receipts of 19.8 percent of GDP; the typical year came in around 18 percent. Look at the estimates above and you'll see that through 2022 even Obama is estimating nothing but big gaps between receipts and outlays. As a percentage of GDP, debt held by the public will be higher than it is right now. And these are under the rosiest projections imaginable.
In the budget, Obama proposes increasing revenue through a variety of measures that are already in play, including end the current tax rates on high-income earners (i.e. the Bush "tax cuts" that have been in place for a decade), employing "the Buffet rule" (which will force millionaires to pay effective rates of at least 30 percent), some changes in tax expenditures, tax breaks, and eligibility requirements for some other spending. None of that gets us close to balancing the budget because, as the table above shows, spending goes up in each year. And its increase outpaces the growth in receipts.
Yesterday, Obama chief of staff Jack Lew said that "the time for austerity is not today." He's right in at least one way: The time for austerity was yesterday. We've witnessed gratuitous increases in spending by the federal government for at least the past decade.
That was a mistake that will continue to have big consequences for years to come. But Obama's budget makes it clear that despite the president campaigning back in 2008 on a "net spending cut" and telling us all that we were going to have to stop spending like drunken sailors, we're not going to have to make any seriously tough choices for the next decade. Spending will continue above 22 percent of GDP for the foreseeable future with no way to pay for it, other than taxing future generations. Or getting lucky in Powerball.

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