THE CENTER CANNOT HOLD
July 27, 2009
The illusion that Barack Obama will lead from the economic center has quickly come to an end. His policies are designed to radically re-engineer the market-based U.S. economy, not just mitigate the recession and financial crisis, says economist Michael J. Boskin, a senior fellow at the Hoover Institution.
The President's $3.6 trillion budget blueprint, by his own admission, redefines the role of government in our economy and society. Obama claims that his budget will:
- Reduce the deficit by half.
- Shave $2 trillion off the debt (the cumulative deficit over his ten-year budget horizon).
- Will not raise taxes on anyone making less than $250,000 a year.
However, according to Boskin, Obama's budget will:
- Almost triple the deficit.
- Add $6.5 trillion to the national debt.
- Leave future U.S. taxpayers (many of whom will make far less than $250,000) with the tab.
The estimated deficits and debt projections have been tallied by the Congressional Budget Office (CBO). Looking at these numbers allows us to calculate what Obama has already added and proposes to add by his policies and compare it to a "do nothing" baseline, says Boskin:
- The CBO baseline cumulative deficit for the Obama 2010-19 budget is $9.3 trillion.
- How much additional deficit and debt does Obama add relative to a do-nothing budget with none of his programs?
- Obama's "debt difference" turns out to be $4.829 trillion -- that is, his tax and spending proposals add that much to the do-nothing baseline.
The claim to reduce the deficit by half compares this year's immense projected, mostly inherited, $1.8 trillion deficit -- 13 percent of gross domestic product (GDP) -- to the projected fiscal year 2013 deficit, the last of Obama's current term. While it is technically correct that the 2013 deficit would be less than half this year's engorged level, a do-nothing budget would reduce it by 84 percent. Compared to the do-nothing option, Obama's deficit is more than 2.5 times larger in fiscal year 2013, says Boskin. And the 2013 deficit presumes that:
- There will have been several years of economic recovery.
- The funds will be returned from the financial bailouts.
- U.S. forces will have withdrawn from Iraq.
Source: Michael J. Boskin, "The Center Cannot Hold," Hoover Institution, Summer 2009.
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