This column by ACRU General Counsel and Policy Director for the Carleson Center for Public Policy (CCPP) Peter Ferrara was published June 1, 2011 on The American Spectator website.
Historic battle lines are being drawn in the budget battle in Washington that too few understand. The Democrats are supporting an unprecedented breakout of Big Government taxes and spending. The Republicans are trying to draw the line at the stable level of federal taxes and spending relative to the economy that has prevailed throughout the postwar era up until now, and provided the foundation for the dominating postwar American prosperity.
At stake is whether the prosperity of the American Dream that has drawn millions to these shores over the years will endure. Or whether America will settle into permanent decline, a fading shadow of its former self. Is that the future you want to raise your family in? Is that the legacy you want to leave your children or grandchildren?
President Obama’s Bankruptcy Budget Proposals
Under President Obama’s own budget projections released in February, by next year the national debt will have doubled in only 4 years since 2008. By 2021 it will have more than tripled. Indeed, the national debt has been rocketing upwards so fast that under current policies more debt will be run up in one term under President Obama than under all other Presidents in history — from George Washington to George Bush — combined.
On our current course, indeed, our national debt as a percentage of GDP will soar past the level that triggered bankruptcy for Greece, when the financial markets refused to lend the government enough to cover its enormous annual deficit. The European Union tried to end that crisis with a trillion dollar bailout financed by its taxpayers. But who will bail out America? Who even could?
Those same President Obama February projections estimated the federal deficit for 2011 at $1.645 trillion, the highest in world history. That comes after unprecedented trillion dollar deficits of $1.3 trillion in 2010 and $1.4 trillion in 2009, adding $4.35 trillion to the national debt in just three years. For context, the highest deficit in history previously was $458 billion in 2008, President Bush’s last year. The highest deficit during the Reagan years was $221 billion. The federal deficit for the last year in which the budget was adopted by Republican Congressional majorities (FY2007) was $161 billion, one-tenth the size of President Obama’s deficit today.
Those deficits came about because from 2008 to 2011 President Obama’s spending spree increased federal spending by 28%. In President Obama’s 2011 budget, for every dollar spent, 43 cents will be borrowed. Spending for Social Security, Medicare, Medicaid, and the income security programs (mostly welfare), will consume 95% of all federal revenues. What is left will not even be enough to pay interest on the national debt, equal to 10% of federal revenues, leaving half of that to be borrowed. All the money for everything else the federal government does, including all of national defense, law enforcement, transportation, agriculture, indeed, for every cabinet department outside of spending for the above entitlements, all will have to be borrowed.
In this context, President Obama proposed his 2012 budget in February that would send federal spending soaring even more, increasing it by another 57% by 2021. Instead of proposing to reduce the deficits, that budget actually proposed to increase them and the national debt above current law baseline projections, by $26 billion for 2011, $83 billion for 2012, and about $2.8 trillion through 2021. This was President Obama’s encore to Obamacare last year, which adopted or sharply expanded three entitlement programs ostensibly to cover the few million uninsured who actually can’t afford to buy essential coverage on their own.
These are the reasons that Rush Limbaugh has long been saying that President Obama deliberately wants to trash the economy, thereby creating more dependents on his political machine.
Senate No Shows — Send Them Home Without Pay
These are also the reasons that Senate Democrats thought they were clever in joining with Republicans to vote down the President’s proposed 2012 budget 97-0. They said that budget was superseded anyway by President Obama’s April 13 budget speech at George Washington University.
But a rhetorical speech is not a federal budget plan that can be voted on and implemented. Congressional budgets involve hundreds of pages of details that provide for the spending for every federal agency and program. The Republican budget proposed by House Budget Committee Chairman Paul Ryan adopted by the House is precisely that. President Obama’s April 13 speech is not anywhere near that. It is not a budget blueprint. It is a rhetorical sham and a dodge.
But this continues a long-standing pattern of Senate Democrats not even showing up for work. They never got around in 2010 to even adopting a budget for 2011. That is why we almost had a federal shutdown earlier this year. Now the Senate Democrat Majority has failed to even propose a budget this year for 2012.
The law requires Congress to adopt a budget. If Senate Democrats do not have to comply with the law, why do I have to?
And if Senate Democrats are not going to do their job, why are we paying them? Dock their pay and send them home. Someone in Nevada should file with the Secretary of State a call for a new election to fill Harry Reid’s seat, on the grounds that he is a no-show for work.
In this context, with no budget, and no plan to get federal spending, deficits, and debt under control, the Democrats are demanding what they call a “clean” increase in the federal debt limit, so they can continue unimpeded to spend the entire nation into bankruptcy, like they are doing in the state and local jurisdictions they control.
What the Democrats Are Hiding
Here is what the Democrats are trying to hide by refusing to even adopt a budget. Under the spending levels they have already adopted in current law, federal spending in the short run would continue at about one-fourth above the postwar, historical average of 19% to 20% of GDP. Over the long run, federal spending would soar further to more than double those levels, primarily because of the entitlement programs Democrats refuse to change in any way. With state and local spending, government would eat up more than half of GDP. That means politicians and bureaucrats will primarily decide what is done with what you produce, rather than you and your family. If GDP sputters below expectations under that burden, as it no doubt will, then the government’s relative share would be even higher.
It is a fundamental breakout of Big Government rivaling the neo-socialist governments of Europe, and beyond actually, as those countries are finally waking up and starting to shed government burdens.
Senate Democrats insist that they have a secret plan for $2 trillion in spending cuts over the next 10 years. That is in the context of proposed federal spending of $46 trillion over those 10 years. But the Democrats have failed to publicly identify any of those supposed cuts. House Republicans, by contrast, have already adopted the Ryan budget blueprint providing for $6.2 trillion in spending cuts over the next 10 years. Democrat response: attack the Republicans.
In return for their vague rhetoric and secret budget plan, the Democrats demand their so-called “clean” increase in the debt limit, and Republican agreement to increased taxes. That tax increase strategy fails to recognize that sweeping, across the board tax increases are already scheduled for 2013 under current law. That is when the Obamacare tax increases go into effect, and the Bush tax cuts expire, which President Obama insists he will not renew for the nation’s small businesses, job creators, and investors.
They would see their income tax rates jump by nearly 20%, the capital gains tax rate increase by nearly 60%, the total tax rate on corporate dividends increase by nearly three times, their Medicare payroll tax rate increase by 62%, and the death tax rise from the grave with a 55% rate.
President Obama has long fooled the gullible with the claim that he just wants to return to the Clinton era tax rates, with a top income tax rate of 39.6%. But the above tax increases already scheduled under current law already add up to a top federal tax rate of 44.8% on wage income. Counting state income taxes, the top tax rate in President Obama’s Amerika would already reach nearly 50%. What that means for average working people is don’t expect those jobs to show up anytime soon, not to mention rising rather than falling wages. In fact, you can fugetaboutit.
On top of that, Obama’s EPA is also busily implementing his cap and trade tax by bureaucratic dictat, which will only further smother the economy with higher energy costs. Moreover, President Obama’s 2012 budget proposed further tax increases limiting and phasing out deductions for those he deems to be excessive earners for mortgage interest, charitable contributions, property taxes, sales taxes, state and local income taxes, medical expenses, and employee business expenses, for an additional $321 billion tax increase.
Moreover, in that now ballyhooed April 13 budget speech, President Obama called for raising taxes even more by denying still more regular deductions to these taxpayers, saying, “But to reduce the deficit, I believe we should go further.” He indicated that involves another tax increase of $1 trillion beyond what was already proposed in his budget.
President Obama, however, was still not done raising taxes in that April 13 speech embraced by Senate Democrats. He called as well for an automatic tax increase trigger that would raise taxes still further in 2014 if “our debt is not projected to fall as a share of the economy.”
Senate Democrats have discussed adding in addition a 3% surtax on incomes over $1 million. President Obama recently discussed eliminating the ceiling on the Social Security payroll tax, which would add another 10 points to the top tax rate. These are the reasons that Steve Moore estimated in the Wall Street Journal on May 26 that the President Obama/Democrat tax plans would take the top tax rate all the way up to 62%. In fact, all of these tax increases would take that rate even higher, virtually all the way back to Jimmy Carter’s top rate of 70%.
Yet, these tax increases still wouldn’t balance the budget. Rather, with the tax rate increases already scheduled under current law for 2013, we are on track for another, double-dip recession that year. With the deficit already at $1.65 trillion, another recession would be the perfect Grecian formula for the bankruptcy of America.
The Ryan Alternative
In contrast, Ryan’s House Republican budget would provide for federal tax revenues equal to the long run, postwar, historical average of about 18% of GDP. Any tax increase beyond that would just fund the Democrats’ Big Government Breakout, and further shake the economy.
So this is the issue presented by the budget battle. Do the American people want the much bigger federal government with much higher taxes and much higher federal spending than the long-term trend over the past 60 years, supported by President Obama and the Democrats? Or do they want the Paul Ryan/GOP traditional, limited, American government of the postwar era, with the traditional American prosperity we have enjoyed during that time?
The fact that Ryan is able to achieve that long-term tax level with tax reform involving lower tax rates does not involve “tax cuts for the rich,” in the crass, pirate terminology of left-wing Democrats. One of the biggest problems holding our economy down today is that America suffers from virtually the highest corporate tax rate in the industrialized world, with a federal rate of 35%, and the states pushing it to close to 40% on average. Yet, much of the rest of the world, ironically, has learned the lessons of Reaganomics. The average corporate tax rate in the European Union has been slashed from 38% in 1996 to 24% today. Canada’s rate has been cut to 16%, scheduled to decline to 15% next year. Lower corporate tax rates prevail among our major competitors in Germany, China and India as well. Ireland prospered with a 12.5% corporate tax rate that our own Treasury Department said raised more revenue as a percent of GDP than our much higher rate.
How are American companies supposed to compete in the global marketplace with such a disadvantage? Ryan’s budget would reduce the federal corporate tax rate to 25%, which arguably is still not competitive. Individual income tax reform would reduce the top individual income tax rate to 25% as well. But the full plan includes a 10% rate for the middle class, with no federal income taxes for low and moderate income families below that. Yet, this would still maintain the long-run, postwar, historical average of federal taxes. It would also provide for the breathing room for a real recovery with real job creation and rising wages, unlike what we are suffering with under Obamanomics.
Ryan’s Medicare reforms in the budget don’t even apply to anyone over 55 today. Yet somehow brain-dead liberals attack it with commercials showing senior citizens being thrown off a cliff. If the proposal involved simply terminating Medicare, that would at least be relevant commentary. But since no one is remotely proposing that, it is simply infantile, dishonorable abuse of the public debate which shames anyone associated with the Democrat party.
Quite to the contrary, Ryan’s Medicare reforms would be much better for future seniors than Medicare under Obamacare. Under the now current law, by the end of the decade Medicare payments to doctors and hospitals will be even less than under Medicaid, where the poor can’t get timely, top level care and suffer worse health outcomes as a result. As a result, without change, seniors under Obamacare will not be able to get the high quality health care they are used to today. The Chief Actuary of Medicare and the Government Accountability Office (GAO) have been sounding the alarm trying to tell us that.
Under Ryan’s Medicare reforms, seniors would be protected from this through the competitive market insurance so many have already chosen under Medicare Advantage, and under the Medicare Part D drug plans, proven to reduce costs through incentives and competition. That insurance would pay sufficient market compensation rates to doctors and hospitals to maintain the current, cutting edge, world leading health care America’s seniors now expect. Seniors will also need that market insurance to save them from the arbitrary rationing and denials of health care imposed by President Obama’s democratically unaccountable Independent Payment Advisory Board, with broad authority over Medicare which Obamacare exempts from democratic control precisely because of the menace it poses to seniors.
Congressional Democrats have no understanding of what they have really done to seniors under Medicare, or how the Ryan reforms really work. By all indications, their thinking does not go beyond the politics of trashing the Republicans. That is why the current budget battle is actually the ultimate test of whether our very democracy is still functional.