In fact, the president claimed that a combination of spending cuts and tax hikes cut our deficit by more than $2.5 trillion, more than half of the sum that he believes is necessary to “stabilize” our debt. But, even setting aside the sad shift in target from balancing the budget to temporarily stabilizing the debt, the president’s version of events is fundamentally flawed.
The President’s Miracle‐Gro Government
Just add taxes to increase spending while shrinking the deficit.
This article appeared in National Review (Online) on February 13, 2013.
Of course he believes that we have a spending problem, President Obama assured us, immediately before a State of the Union address in which he called for — you guessed it — more spending. Like Saint Augustine praying “Lord grant me chastity and continence … but not yet,” President Obama paid lip service to the idea of debt reduction but ruled out any real effort to reduce it.
Let’s be clear: There have been no spending cuts since Obama became president. In 2010, the first year that President Obama was fully responsible for federal spending (President Obama signed the 2009 budget, but it’s fair to blame most of the spending in it on President Bush, who essentially proposed it), the federal government spent $3.45 trillion. Last year, we spent $3.54 trillion, nearly $100 billion more. And, outlays for the first four months of FY 2013 are $39.3 billion more than in the first four months of FY 2012. If we have seen a slight reduction in budget deficits, it is due exclusively to tax hikes and additional increased revenue as the economy comes out of recession.
And given the presidential wish list, we aren’t going to see any spending cuts anytime soon. The president wants to spend more money on education, infrastructure, “green energy,” manufacturing subsidies, universal preschool, and pretty much everything else. At the same time, the president warned that the upcoming sequester, a 2.4 percent reduction in projected future federal spending, would return us to something akin to the Dark Ages.
In some ways, though, President Obama looks like a model of fiscal rectitude next to congressional Democrats. On Sunday, House Minority Leader Nancy Pelosi said, “It is almost a false argument to say we have a spending problem.” And lest anyone think that Pelosi misspoke, her whip, Representative Steny Hoyer, followed Pelosi’s remarks by declaring that we don’t have a spending problem: “The country has a paying‐for problem. We haven’t paid for what we’ve bought.”
Yet, despite the president’s rhetorical nod to cuts in spending, he, like Pelosi and Hoyer, apparently believes that our real problem is not spending, but the deficit that results from insufficient taxes to pay for that spending — as Hoyer says, “a paying‐for problem.”
That’s how the president can propose so much new spending while confidently decreeing, “Nothing I’m proposing tonight should increase our deficit by a single dime.” If you raise taxes, then poof — the deficit (and therefore the problem) goes away.
This misses the point. Deficits are merely the symptom of the disease, which is an ever‐growing government. Consider that the Congressional Budget Office estimates that, even if we never add another new government program, existing commitments will drive federal‐government spending to 43 percent of GDP by 2050. With state and local government spending, government at all levels will consume roughly two‐thirds of all the goods and services produced in this country.
Pelosi, Hoyer, and Obama respond to this by suggesting that the only problem is finding enough taxes to pay for all this government. In fairness, if one uses a purely static analysis, eliminating deficit spending and thereby reducing future interest payments would reduce projected future federal spending to just 30 percent of GDP. With state and local government spending, that’s still 45 to 50 percent of GDP.
One wonders, of course, whether even President Obama can raise taxes enough to pay for all this spending. Obama wants to close tax loopholes for the rich, but the two changes that Pelosi mentioned on Sunday — imposing the Buffett Rule (a 30 percent minimum tax on the wealthy who earn their income primarily from investments) and eliminating tax subsidies for the oil‐and‐gas industry — would raise a grand total of $85 billion over the next ten years. The president’s favored plan — to cap deductions for couples earning more than $250,000 per year — does somewhat better, generating an additional $584 billion over ten years. On the other hand, that’s less than 10 percent of the cumulative $6.3 trillion in deficits expected over that period.
More important, the president and his allies ignore the dangers that such a gargantuan government poses to both liberty and economic growth. As economists James Gwartney, Robert Lawson, and Randall Holcombe argue:
As governments move beyond these core functions [of protecting people and property], they will adversely affect economic growth because of a) the disincentive effects of higher taxes and crowding‐out effect of public investment in relation to private investment, b) diminishing returns as governments undertake activities for which they are ill‐suited, and c) an interference with the wealth creation process, because governments are not as good as markets in adjusting to changing circumstances and finding innovative new ways of increasing the value of resources.
Economists debate the exact tipping point — at what point does the government become so large that it harms the economy more than it helps it? — but few would argue that government can consume an unlimited proportion of the national economy without its having a significant impact on that economy. That is true even if big government is “paid for.”
In the coming weeks, we are headed for a series of budget battles that will have far more impact on our lives than last night’s lofty phrases. But President Obama has clearly sketched out his vision for the future. It is vision of a growing state, with greater control over our lives, financed by ever‐higher taxes. The need to resist that vision is what makes the budget fights ahead so vitally important.