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Tuesday, February 15, 2011

Barrak Obama’s Budget Proposal

Government's view of the economy could be summed up in a few short phrases: if it moves, tax it. If it keeps moving, regulate it, and if it stops moving, subsidize it." — President Ronald Reagan

President Obama sent Congress a $3.73 trillion budget Monday, a spending plan for 2012 that projects $1.1 trillion in deficit savings over the next decade but also continues adding to the national debt for years to come.

Republicans, who are still trying to cut billions out of this year's budget, slammed the proposal after giving it a quick analysis Monday morning. The top Republicans on the House and Senate budget committees said it would push $8.7 trillion in new spending while piling another $13 trillion onto the debt over the next 10 years.  "It would be better to do nothing than to pass this budget," House Budget Committee Chairman Paul Ryan, R-Wis., said Monday.

The president, visiting a school in Baltimore, said his budget reflects "tough choices and sacrifices." Obama said more will need to be done to address long-term shortfalls but described his spending plan as a "down payment" toward that effort.  "If we're going to walk the walk when it comes to fiscal discipline, these kinds of cuts will be necessary," he said.

The Obama budget recommendation, which is certain to be changed by Congress, would spend $3.73 trillion in the 2012 budget year, which begins Oct. 1, a reduction of 2.4 percent from what Obama projects will be spent in the current budget year.

The Obama plan would fall far short of the $4 trillion in deficit cuts recommended in a December report by his blue-ribbon deficit commission. That panel said that real progress on the deficit cannot be made without tackling the government's big three entitlement programs — Medicare, Medicaid and Social Security — and defense spending.

Obama concentrated his cuts in the one-tenth of the budget that covers most domestic agencies, projecting $400 billion in savings from a five-year freeze in this area. Some programs would not just see spending frozen at 2010 spending levels but would be targeted for sizable cuts.

The budget proposes program terminations or spending reductions for more than 200 programs at an estimated savings of $33 billion in 2012. Programs targeted for large cuts included Community Development Block Grants, trimmed by $300 million, while a program that helps pay heating bills for low-income families would be cut in half for a savings of $2.5 billion while a program supporting environmental restoration of the Great Lakes would be reduced by one-fourth for $125 million in savings.

The biggest tax hike would come from a proposal to trim the deductions the wealthiest Americans can claim for charitable contributions, mortgage interest and state and local tax payments. The administration proposed this tax hike last year but it was a nonstarter in Congress. Obama's budget would also raise $46 billion over 10 years by eliminating various tax breaks to oil, gas and coal companies.

Obama’s proposed cuts of $54 billon are peanuts compared to the $1.3 trillion dollar deficit. He makes this sound like he is batting the bullet of his liberal spending policies and really proposing some tough choices like cutting grants for his beloved community development programs. What he did not address, however, was his proposed tax hikes, not jut on oil companies, but on Mr. and Mrs. Main Street.

Rather than focusing on Washington’s over-spending problem, the budget calls for higher taxes on families and small businesses to pay for even more government spending.  Under the Obama budget, tax revenues will grow from 14.4% of GDP in 2011 to 20% of GDP in 2021.  By comparison, the historical average is only 18% of GDP.

Tax hike lowlights include:
  • 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 phaseout 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. [Source: Americans for Tax Reform]
Add it all together, and this budget is a ten-year, $1.5 trillion tax hike over present law. That’s $1.5 trillion taken out of the economy and spent on government instead of being used to create jobs.

Some of the items Obama did not mention were cuts or elimination of:
  • $53 billion for Joe Biden’s choo-choo trains
  • Cuts in federal education spending
  • Cuts in farm subsidies or subsidies to energy companies like GE
  • Cuts in the massive pile of regulations that cost consumers billions each year, like treating a Minnesota dairy farmer’s milk spill like an oil spill with ensuing fines.
  • A real reduction in the federal work force — at least by 10%
  • Another round of military base closings (BRAC) and selling of the land
  • Subsidies to auto companies
  • Bail outs to states that have spent unwisely
  • Restructuring of Social Security and Medicare
  • Payments to the UN
  • Foreign aid
Two years ago today, Barack Obama was inaugurated as president of the United States. Are you better off today than you were two years ago? Numbers don't lie, and here are the data on the impact he has had on the lives of Americans:

January 2009 — TODAY — % change — Source
  • Avg. retail price/gallon gas in U.S. $1.83 $3.104 69.6% (1)
  • Crude oil, European Brent (barrel) $43.48 $99.02 127.7% (2)
  • Crude oil, West TX Inter. (barrel) $38.74 $91.38 135.9% (3)
  • Gold: London (per troy oz.) $853.25 $1,369.50 60.5% (2)
  • Corn, No.2 yellow, Central IL $3.56 $6.33 78.1% (2)
  • Soybeans, No. 1 yellow, IL $9.66 $13.75 42.3% 2
  • Sugar, cane, raw, world, lb. fob $13.37 $35.39 164.7% (2)
  • Unemployment rate, non-farm, overall 7.6% 9.4% 23.7%(3)
  • Unemployment rate, blacks 12.6% 15.8% 25.4% (3)
  • Number of unemployed 11,616,000 14,485,000 24.7% (3)
  • Number of fed. employees, ex. military (current = 12/10 prelim) 2,779,000 2,840,000 2.2% (3)
  • Real median household income (2008 v 2009) $50,112 $49,777 -0.7% (4)
  • Number of food stamp recipients (current = 10/10) 31,983,716 43,200,878 35.1% (5)
  • Number of unemployment benefit recipients (current = 12/10) 7,526,598 9,193,838 22.2% (6)
  • Number of long-term unemployed 2,600,000 6,400,000 146.2% (3)
  • Poverty rate, individuals (2008 v 2009) 13.2% 14.3% 8.3% (4)
  • People in poverty in U.S. (2008 v 2009) 39,800,000 43,600,000 9.5% (4)
  • U.S. rank in Economic Freedom World Rankings 5 9 n/a (10)
  • Present Situation Index (current = 12/10) 29.9 23.5 -21.4% (11)
  • Failed banks (current = 2010 + 2011 to date) 140 164 17.1% (12)
  • U.S. dollar versus Japanese yen exchange rate 89.76 82.03 -8.6% (2)
  • U.S. money supply, M1, in billions (current = 12/10 prelim) 1,575.1 1,865.7 18.4% (13)
  • U.S. money supply, M2, in billions (current = 12/10 prelim) 8,310.9 8,852.3 6.5% (13)
  • National debt, in trillions $10.627 $14.052 32.2% (14)
Just take this last item: In the last two years we have accumulated national debt at a rate more than 27 times as fast as during the rest of our entire nation's history. Over 27 times as fast! Metaphorically, speaking, if you are driving in the right lane doing 65 MPH and a car rockets past you in the left lane 27 times faster . . . it would be doing 1,755 MPH! This is a disaster!


(1) U.S. Energy Information Administration; (2) Wall Street Journal; (3) Bureau of Labor Statistics; (4) Census Bureau; (5) USDA; (6) U.S. Dept. of Labor; (7) FHFA; (8) Standard & Poor's/Case-Shiller; (9) RealtyTrac; (10) Heritage Foundation and WSJ; (11) The Conference Board; (12) FDIC; (13) Federal Reserve; (14) U.S. Treasury

Can we afford another six years of Barak Obama?

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