President Barack Obama’s first budget request would provide as much as $750 billion in new aid to the financial industry, as well as overhaul the U.S. health-care system and launch a program to cut carbon-dioxide emissions by implementing a cap and trade system.
The spending blueprint, being sent to Congress today, anticipates the government will run a deficit totaling $1.75 trillion in the year ending Sept. 30, equivalent to about 12 percent of the nation’s gross domestic product. Obama has promised to cut the shortfall -- the biggest since World War II - - in half by the end of his first term.
A senior administration official, in a briefing yesterday with reporters, declined to say how large the White House forecasts the fiscal year 2010 deficit will be or provide the total budget figure.
The administration proposes to finance the budget in part by limiting tax deductions for couples earning more than $250,000 a year, raising taxes on hedge-fund managers, cutting defense spending and paring subsidies to insurance companies participating in the government’s Medicare health-care system.
The White House sees growth domestic product growth snapping back by 3.2% next year and then 4% or higher the three years after that.
The last time the economy preformed that well was the New Economy heyday of the late 1990s.
The 2010-2013 forecasts are slightly more optimistic than Congressional Budget Office but much rosier — in some cases by well over one percentage point — than what the Blue Chip Consensus calls for. A separate private-sector gauge, the Survey of Professional Forecasts, also projects a much weaker economy this year and next.
Mr. Obama left the impression during his speech on Tuesday night that we need merely end tax breaks for the wealthiest 2% of Americans, in order to pay for his agenda, and he promised that households earning less than $250,000 won't see their taxes increased by one single dime. However, even the most basic inspection of the IRS income tax statistics shows that raising taxes on the salaries, dividends and capital gains of those making more than $250,000 can't possibly raise enough revenue to fund Mr. Obama's new spending ambitions.
The President is proposing to raise the top tax rate only to 39.6%, plus another two percentage points in hidden deduction phase-outs, for the wealthiest 2% of Americans. But a tax policy that confiscated 100% of the taxable income of everyone in America earning over $500,000 in 2006 would only have given Congress an extra $1.3 trillion in revenue, less than half the 2006 federal budget of $2.7 trillion.
Given the fact that there will likely be fewer people earning over $250,000 in the next few years, it would seem that the only way to pay for Mr. Obama's ambitions is to reach ever deeper into the pockets of the American middle class.