Sixty days ago President Obama submitted a fiscal year 2012 budget to Congress.
Today, candidate Barack Obama gave a nice talk about “hope and change” commenting on the passing scene in Washington and bemoaning the overspending and debt and runaway spending that have somehow gotten much worse over the past two years.
Obama’s FY 2012 budget called for $2 trillion in higher spending by the end of this decade. It increased taxes by about $1 trillion dollars. There were no real reforms in entitlements or rollbacks of the one trillion dollar increase over the decade in increased domestic discretionary spending enacted in 2009. Its goal was to lock in the vast spending increase of 2009 and 2010 that brought federal spending up from the traditional 20% of GDP to 25% of GDP. He hoped to be a moderate because after the spending binge he would stabilize the spending at his “new normal. “
The speech today seemed to endorse the handiwork a commission appointed by Obama a year or so ago. Sort of. You can read the whole speech and remain unclear about where the president plans to cut spending and which and how much taxes will go up.
But if he means to enact his original budget and mesh it with the Simpson-Bowles Commission proposals, it results in the following:
-- The tax revenue target will rise from 18-19 percent of the economy (historical) to 21 percent of the economy.
-- Net taxes will be raised by $1 - $3 trillion over the next decade. (According to Simpson-Bowles itself, their proposal is a net tax hike of $1 trillion. Paul Ryan believed the actual tax hike was closer to $2 trillion. The Heritage Foundation said $3 trillion.)
--A tax hike “trigger” will take effect to pay for higher levels of government spending.
-- The rate at which two-thirds of small business profits face taxation will rise from 35% to 39.6%. You can’t raise the tax rate on households making more than $250,000 per year without also raising the tax rate at which most small business profits face taxation.
-- The tax rate on capital gains and dividends will rise from 15% to 23.8%. The combination of the Obama budget tax hike and the Obamacare “surtax” on investment results in the highest capital gains tax in a generation.
-- The death tax rate will rise from 35% to 45%, and the exemption will be cut from $10 million to $3.5 million. This is the result of Obama’s budget, and would certainly be needed to raise taxes by as much as he would like to.
-- The higher taxes of Obamacare will be kept in place. By cementing Obamacare in place, President Obama’s plan keeps the 20 new or higher taxes in that jobs-killing law.
What else did we learn from the speech?
First, Obama the candidate is back. The President has gone into hibernation. This speech was about what he would do if he was President, not what he will actually do. The hard decisions are put off until, conveniently, after 2012 and 2014. Tax hikes will be automatically triggered if the budget is not kept down. Imagine. All congress and the president have to do is keep spending and an automatic tax hike will hit Americans. No fingerprints on a tax hike vote. The perfect zipless tax hike. This goes into the politician Hall of Fame.
Second, the President’s advisors are scared of the Paul Ryan budget proposal that will be voted through the House of Representatives this Friday. Congressman Paul Ryan of Wisconsin has actually gone to the work of writing down a budget. The President’s speech today was an endorsement of sorts of a series of essays written by retired politicians Simpson and Bowles. The White House had told itself for months that the Republicans would come up with a budget that would be a political liability for all Republicans in 2012. The Democrats hoped that Ryan would rush to balance the budget by cutting and slashing programs. Instead Ryan put forward a well thought out series of reforms that slash nothing in the short run, but instead reform spending programs to slow growth and reduce overall spending over time.
The Ryan budget takes the lessons of welfare reform and applies them to Medicaid, food stamps and almost all means-tested welfare programs. How does the Democrat party attack the very strategy that Bill Clinton signed into law to reform welfare? (Yes, Bill Clinton vetoed the welfare reform plan twice, but that has been written out of the Democrat narrative that praises welfare reform as a Clinton victory.
If Obama hoped to attack Republicans for reforming Medicare, they are on thin ice. Obama’s own health care legislation slashed $500 billion from Medicare. Ryan’s reforms will not affect anyone over the age of 55. Those near or at retirement will see no change….except the threat of Obama’s budget slash without reforms. How can the Democrats scare older voters when there is no real “threat”?
Third, Obama and the Democrats are desperate to create a new concept—“spending in the tax code” that is the new phrase for Teddy Kennedy’s “tax expenditures”. This is the theory that if the government fails to take a dollar from you it has in fact given you the dollar. In Obama’s world he owns all your income and if through a tax credit or deduction he deigns to let you keep some he has just “spent” that money.
Tax increases then become “spending cuts”.
So now when you read an Obama speech you never know if he intends to raise your taxes or actually cut the federal budget when he promises to “reduce spending.” But you have a pretty good idea he intends to eliminate a tax credit or deduction—the largest four being 1.charitable deductions, 2. the deductibility of your home mortgage interest, 3. the deductibility of state and local taxes you pay and 4. the deductibility of your employer-provided health insurance.
With Obama’s reasoning no one will ever raise your taxes again. The government will simply reduce “spending through the tax code” by slashing your personal exemption or child deduction and call it a spending cut. Don’t you feel better already?
Grover Norquist is president of Americans for Tax Reform. Follow him on Twitter @GroverNorquist.