President Obama’s proposed budget for fiscal year 2012 has been released and there is lots of rhetoric in Washington about “budget cuts.”
At first glance, this seems warranted. According to the just‐released fiscal blueprint, the federal government is spending about $3.8 trillion this year and the President is proposing to spending a bit more than $3.7 trillion next year. In other words, the White House is going beyond a budget freeze and is actually proposing to spend $90 billion less next year than is being spent this year.
That certainly seems consistent with my proposal to solve America’s fiscal problems by restraining the growth of spending.
But you won’t find a smile on my face. This new budget may be better than Obama’s first two fiscal blueprints, but that’s damning with faint praise. The absence of big initiatives such as the so‐called stimulus scheme or a government‐run healthcare plan simply means that there’s no major new proposal to accelerate America’s fiscal decline.
But neither is there any plan to undo the damage of the past 10 years, which resulted in a doubling in the burden of government spending during a period when inflation was less than 30 percent.
Moreover, many of the supposed budget savings (such as nearly $40 billion of lower jobless benefits) are dependent on better economic performance. I certainly hope the White House is correct about faster growth and more job creation, but they’ve been radically wrong for the past two years and it might not be wise to rely on optimistic assumptions.
Some of the fine print in the budget also is troubling, such as Table 4.1 of OMB’s Historical Tables of the Budget, which shows that some agencies are getting huge increases, including:
- 17 percent more money for International Assistance Programs;
- 24 percent more money for the Executive Office of the President;
- 13 percent for the Department of Transportation; and
- 12 percent more for the Department of State.
But these one‐year changes in outlays are dwarfed by the 10‐year trend. Since 2001, spending has skyrocketed in almost every part of the budget. Even with the supposed “cuts” in Obama’s budget, there will be:
- 112 percent more spending for the Department of Agriculture;
- 100 percent more spending for the Department of Education;
- 154 percent more spending for the Department of Energy;
- 110 percent more spending for the Department of Health and Human Services;
- 175 percent more spending for the Department of Labor; and
- 82 percent for the Department of Transportation.
And remember that inflation was less than 30 percent during this period.
The budget needs to be dramatically downsized, yet the President has proposed that we tread water.
But even that’s too optimistic. America’s real fiscal challenge is that the burden of government spending will dramatically increase in coming decades, thanks largely to an aging population and poorly designed entitlement programs. Barring some sort of change, the United States will suffer the same problems that are now afflicting failed welfare states such as Greece and Portugal.
On the issue of entitlement reform, however, the President is missing in action. He’s not even willing to embrace the timid proposals of his own Fiscal Commission.
Tomorrow, we’ll look at the tax side of the President’s budget.