The AP says President Obama’s new budget would impose a host of tax increases, amounting in total to $1.4 trillion over the next decade. Taxvox calls it a “mind numbing budget” in which not only taxes but total debt will go up in absolute terms.
Next year, according to Obama’s fiscal plan, spending would increase to more than $3.8 trillion. Revenues would rise by two full percentage points of GDP to almost $2.6 trillion. Thus the deficit as a share of GDP would shrink to 8.3 percent. After that, matters would improve somewhat more (thanks in part to a growing economy) but the deficit would never fall below 3.6 percent of GDP. And still, the total debt held by the public would grow from an already-troubling 63 percent this year to 77 percent by 2020.
Where’s the money going to come from? More taxes on wealthy individuals and business, the proposal says. The WSJ writes that tax deductions will decrease and tax rates will increase for those who are deemed able to do more.
The bulk of that increase comes as tax cuts enacted under President George W. Bush expire at the end of 2010. The top two income-tax rates, which affect people earning more than $200,000 a year, or $250,000 for married couples, will return to 36% and 39.6%, from 33% and 35% now. Under the budget plan, capital gains and dividends would be taxed at 20%, up from 15% now, for people at those income levels.
But as in last year’s budget, Mr. Obama proposed Monday to go further by limiting the value of those benefits, which include deductions for mortgage interest and some charitable contributions. The highest-income earners under current law can lower their taxes by up to 39.6% of those deductions; under Monday’s proposal, that would be reduced to 28%.
The Washington Post says the President declared “it’s time to save what we can, spend what we must and live within our means once again.” This basically means the government will tax more and spend more in order to stimulate the economy to eventually reduce the deficit. The WaPost is skeptical that it will work, but took pains to note that “it is Congress, and not the president, that sets spending and taxing levels. All the president can do is send up a budget blueprint and make it sound like his proposals are the final word.”
David Sanger at the NYT stops just short of saying that President’s Obama’s policies are an admission that America’s pre-eminence on the world stage is over. It is broke and has no prospect of ever getting level again. The question is whether the budget simply recognizes this possibility or actually constitutes a self-fulfilling prophecy. Sanger notes that the President’s budget contains two numbers. The first is a deficit percentage unseen since the Civil War, World War 1 and World War 2. It is a World War budget without a world war. But it is the second number that scares Sanger.
But the second number, buried deeper in the budget’s projections, is the one that really commands attention: By President Obama’s own optimistic projections, American deficits will not return to what are widely considered sustainable levels over the next 10 years. In fact, in 2019 and 2020 — years after Mr. Obama has left the political scene, even if he serves two terms — they start rising again sharply, to more than 5 percent of gross domestic product. His budget draws a picture of a nation that like many American homeowners simply cannot get above water.
He ends by saying that President Obama should get high marks for candor, unlike the Bush administration, which tried “sugarcoat” situation. Yet it is, as Sanger says, Obama’s deficit that we are talking about now.
Will this government-led recovery work? Or will this budget simply exacerbate the situation. Open thread.