Obama Unchained
The budget promises a revenue increase of 11% for the political class.
Feb. 2, 2015 7:45 p.m. ET
President Obama ’s allies are cheering the fiscal 2016 budget he released on Monday as an expression of his liberated liberal self. We’re trying to recall when he wasn’t so liberated. But the exercise is still useful as a warning about the tax-and-spending trajectory of liberal governance absent reform or Congressional restraint.
Mr. Obama’s guiding principle seems to be “never enough.” The White House budget office expects federal outlays and revenues to rise to altitudes well above historical norms, yet the average estimated deficit over 10 years of $567 billion is higher than in any Administration since World War II. Mr. Obama has to keep raising taxes because it’s the only way he can keep the deficit from exploding given his spending demands.
The budget shop predicts revenues will boom in 2016 to a new federal record of $3.53 trillion, which is a 16.7% increase over $3.02 trillion in 2014 and 67.5% (!) more than 2009. The one-year revenue increase alone is 11%. How many people do you know who are getting an 11% raise this year? Mr. Obama wants that much more for the political class to redistribute.
As a share of the economy, tax receipts will climb to 18.7% of GDP in 2016 from 17.5% in 2014 and then settle in at a 19.3% average through 2025. That’s two percentage points above the 30-year average of 17.2%.
Mr. Obama needs all this cash because he is proposing to spend $3.99 trillion in 2016. The budget gnomes must have been told that, whatever you do, keep the top line below $4 trillion.
The $3.99 trillion is a 7% increase from 2014 and about $1 trillion more than the feds spent in 2008. Outlays would be 20.9% of GDP and jump to 22.2% by 2025, again outstripping the 30-year average of 20.4%.
Mr. Obama’s immediate goal is to reverse the modicum of restraint enforced by the post-Pelosi GOP House. The document derides as “mindless austerity” the statutory spending caps—which he proposed and then signed—of the Budget Control Act of 2011, and proposes to burst through them for both defense and domestic discretionary spending.
For the Pentagon, Mr. Obama’s budget of $612 billion represents a 4.5% increase over 2015.
This boost is overdue in a world of proliferating national-security threats from the Islamic State to Vladimir Putin to China.
But the President is bidding for that classic Washington compromise in which Democrats spend more on social welfare in return for Republicans spending more on defense. Mr. Obama’s implicit threat is that if the GOP won’t let him spend more on domestic accounts, he’ll further weaken U.S. security. Thank you, Commander in Chief.
Mr. Obama’s domestic priorities include new “investments” ranging from more cash for non-fossil fuel energy to a free community college entitlement to a new $478 billion program for public works. He also favors more spending through the tax code, featuring the refundable tax transfer payments that are the core of his new pitch for “middle-class economics.”
Mr. Obama is also trying to entice Republicans with an opening bid on taxing corporate foreign profits, suggesting that the $2.12 trillion U.S. companies currently have parked overseas could be repatriated at a 14% rate, and 19% on future overseas profits. That’s an improvement on the 35% statutory rate if Apple or Intel bring those profits home.
This net tax increase is supposed to be an overture to Republicans like Rand Paul who support a one-time overseas corporate tax holiday to fund roads and bridges. But such a temporary fix would do little to change the long-term incentives to keep profits abroad or help U.S. tax competitiveness. The revenue windfall would be better used to support a larger corporate tax reform that permanently lowers rates.
The great unmentionables in Mr. Obama’s budget are entitlements, which roll on largely untouched. The share of the budget that is “mandatory”—not part of annual appropriations—is 15.1% of GDP in 2016 and jumps to 16.6% by 2020, gradually crowding out everything else the government is supposed to do.
Medicaid spending will nearly double to $567 billion in 2025 from $301 billion in 2014. Most of that is ObamaCare. Meanwhile, the Social Security “off-budget surplus” that has long financed current spending on everything except retirement is shrinking and goes negative in 2017. This means senior benefits will soon have to be paid out of general tax revenues.
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These trends explain why deficits are lower for now but start to widen after 2018 despite Mr. Obama’s tax increases and economic growth projections of 2.6% on average for the next five years. The Congressional Budget Office predicts 2.4% growth, which means even less revenue.Oh, and even with lower deficits, debt held by the public will be 75% of GDP this year, the highest level since 1950, and up from only 39.3% as recently as 2008.
Mr. Obama’s previous budgets at least pretended to care about these long-term fiscal problems, so in that sense this effort is more honest. Republicans can block Mr. Obama’s revival of tax and spend politics, but they still need his signature to arrest America’s coming fiscal crackup. On the evidence of this budget, they’re unlikely to get even the back of his hand.
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