The new president, whoever he is, will start out facing a budget deficit of at least $1 trillion, possibly much more. Sen. Obama has nonetheless promised to devote another $1.32 trillion over the next 10 years to several new or expanded refundable tax credits and a special exemption for seniors, according to the Urban Institute and Brookings Institution’s Tax Policy Center (TPC). He calls this a “middle‐class tax cut,” while suggesting the middle class includes 95% of those who work.
Mr. Obama’s proposed income‐based health‐insurance subsidies, tax credits for tiny businesses, and expanded Medicaid eligibility would cost another $1.63 trillion, according to the TPC. Thus his tax rebates and health insurance subsidies alone would lift the undisclosed bill to future taxpayers by $2.95 trillion — roughly $295 billion a year by 2012.
But that’s not all. Mr. Obama has also promised to spend more on 176 other programs, according to an 85‐page list of campaign promises (actual quotations) compiled by the National Taxpayers Union Foundation. The NTUF was able to produce cost estimates for only 77 of the 176, so its estimate is low. Excluding the Obama health plan, the NTUF estimates that Mr. Obama would raise spending by $611.5 billion over the next five years; the 10‐year total (aside from health) would surely exceed $1.4 trillion, because spending typically grows at least as quickly as nominal GDP.
A trillion here, a trillion there, and pretty soon you’re talking about real money. Altogether, Mr. Obama is promising at least $4.3 trillion of increased spending and reduced tax revenue from 2009 to 2018 — roughly an extra $430 billion a year by 2012–2013.
How is he going to pay for it?
Raising the tax rates on the salaries, dividends and capital gains of those making more than $200,000-$250,000, and phasing out their exemptions and deductions, can raise only a small fraction of the amount. Even if we have a strong economy, Mr. Obama’s proposed tax hikes on the dwindling ranks of high earners would be unlikely to raise much more than $30 billion-$35 billion a year by 2012.
Besides, Mr. Obama does not claim he can finance his ambitious plans for tax credits, health insurance, etc. by taxing the rich. On the contrary, he has an even less likely revenue source in mind.
In his acceptance speech at the Democratic convention on Aug. 28, Mr. Obama said, “I’ve laid out how I’ll pay for every dime — by closing corporate loopholes and tax havens.” That comment refers to $924.1 billion over 10 years from what the TPC wisely labels “unverifiable revenue raisers.” To put that huge figure in perspective, the Congressional Budget Office optimistically expects a total of $3.7 trillion from corporate taxes over that period. In other words, Mr. Obama is counting on increasing corporate tax collections by more than 25% simply by closing “loopholes” and complaining about foreign “tax havens.”