Barack Obama wants to cut the federal deficit in half by the end of his first term, mostly by scaling back Iraq war spending, raising taxes on the wealthiest and streamlining government, an administration official said Saturday as the president worked to finalize his first budget request.
Obama's proposal for the 2010 fiscal year that begins Oct. 1 projects that the estimated $1.3 trillion deficit he has inherited from former President Bush will be halved to $533 billion by 2013. That's a difference of 9.2 percent of the overall economy now vs. 3 percent in four years.
He's expected to outline some broad themes of his budget request Monday at a White House summit on fiscal policy and touch on it during his first speech to Congress on Tuesday evening. He is slated to officially send at least a summary of it to Congress on Thursday, barely a week after his $787 billion economic stimulus plan becoming law.
He has pledged to wind down the Iraq war by withdrawing most combat troops within 16 months of taking office. He also has said he would let the temporary Bush tax cuts expire in 2011 for people making more than $250,000 a year, effectively raising taxes on those people. And, he has vowed to scale back spending and improve government efficiency by eliminating programs that don't work.
Now, maybe in the world of President Obama 2+2=8, but that's not what it equals in reality. To say that ending the Iraq War, raising taxes on the wealthies Americans, and cutting "programs" that don't work will cut $500 billion from our budget eventually is to engage in fantasy, and dangerous, ludicrous, and unrealistic fantasy at that.
The Iraq War costs about $10 billion monthly or $120 billion yearly. That's with the current levels of troops at about 140,000. Tax cuts on the wealthiest would generate just less than $100 billion yearly, assuming they don't weaken the economy so much that it throws all projections out of whack. Furthermore, President Obama has already called for 17,000 troops increase to go to Afghanistan and its likely there will be more troops going there in the future.
A full troop withdrawal in sixteen months from Iraq is not only unrealistic but dangerous. It's likely that troop levels can be reduced dramatically in his first term, but there will likely need to be some residual force in Iraq for decades to insure that our gains are not reversed. Beyond this, the increased troop levels in Afghanistan won't be free. As such, it is unclear just how much we will save from our troop withdrawals in Iraq.
More dangerous still is President Obama's proposal to raise taxes on the wealthiest Americans. A sure fire way to prolong the recession, or to stunt any recovery, is to announce any sort of tax increase. While it may have a populist angle to raise taxes on the wealthiest, it is the wealthiest that primarily invest and create jobs. Most folks spend based on future expectations. As such, anyone facing a tax increase is not nearly as likely to take on any new "spending". Now, there are liberals that say that the wealthy wouldn't "spend" any tax increase anyway. Of course, this is where those liberals, and President Obama especially, fail to understand "spending". The wealthy don't merely buy stuff. The make investments in businesses, real estate, investments, and even just put extra money in the bank. All of these acts stimulate the economy. Facing a future tax increase, the wealthy are less likely to engage in any of this. All of this is contractionary. Watch for investment and small business expansion to contract even more as soon as this announcement spreads through the mainstream.
So, so far, we have at most a saving of $150 billion. The rest of it (almost $400 Billion), presumably, will come from the nebulous "eliminating programs that don't work." This is something that President Obama has been saying for over two years since the time when he was merely a candidate. He has still not once named even single program that doesn't work. Furthermore, government programs increase in spending, it is very difficult to reverse those programs. For instance, he has nearly doubled the budget of the Department of Education with the stimulus alone. Does anyone really believe that Department will suddenly go back to spending less now that he has given them all this money?The Department of Energy is receiving about $25 Billion for alternative energy and climate change research. HUD is receiving an extra $10 billion for various projects. Does anyone really believe that this money will suddenly stop flowing to each of these departments when it comes time for a new budget? So, while President promises to "eliminate programs that don't work", his stimulus will certainly also create permanent new base level spending in a plethora of new spending. So, the idea that he will cut the budget by "eliminating programs that don't work" is a fantasy that the President will create until an actual budget is proposed.
So, here is what we have. We may have a misguided attempt to wrap up a war too quickly and reverse gains. Either that, or more likely, we will have mild troop reductions that will be nearly offset, cost wise, by troop increases in another theater. Second, we have tax increases that will likely go into effect either while we are still in a recession or just experiencing a recovery. As such, we would likely be repeating the same mistakes of the Depression when Hoover similarly raised taxes only on the wealthiest Americans and perpetuated the Depression. Finally, we have vague allusions to cutting programs that don't work, while we will certainly have real new baseline spending amounts on all sorts of other programs created by the stimulus. In other words, this proposal to attack the deficit is nothing but ludicrous, dangerous and unrealistic.