DEBT ROULETTE

July 16, 2010

The Obama budget represents the biggest gamble in our entire fiscal history, says Michael J. Boskin, a senior fellow at the Hoover Institution and the T. M. Friedman Professor of Economics at Stanford University. 

In addition to the proposed increase from today's levels in capital gains, dividend, payroll, income and energy taxes, the enormous deficits and endless accumulation of debt by the Obama Administration will eventually force growth-inhibiting income tax hikes, a national value-added tax similar to those in Europe, or severe inflation, says Boskin. 

How bad is President Obama's budget? 

  • In the first three years of Obama's term, federal spending rises by an average of 4.4 percent of gross domestic product (GDP); that is far more than during President Johnson's Great Society and Vietnam War buildup and President Reagan's defense buildup combined.
  • Spending is to hit the highest level in American history (25.1 percent of GDP) save for the peak of World War II.
  • The deficit of $1.4 trillion (9.6 percent of GDP) is more than three times the previous record in 2008.
  • Remarkably, Obama will add more red ink in his first two years than President George W. Bush -- berated by conservatives for his failure to control domestic spending and by liberals for the explosion of military spending in Iraq and Afghanistan -- added in eight.
  • In his first 15 months, Obama will raise the debt burden -- the ratio of the national debt to GDP -- by more than President Reagan did in eight years. 

Two other factors greatly compound the risk from Obama's budget plan, says Boskin: 

  • He is running up this debt and current and future taxes just as the baby boomers are retiring and the entitlement cost problems are growing, which will necessitate major reform.
  • The president's programs increase the fraction of people getting more money back from the government than they pay in taxes to almost 50 percent, just as demography will drive it up further.  

Source: Michael J. Boskin, "Debt Roulette," Hoover Digest, July 2, 2010. 

For text:

http://www.hoover.org/publications/hoover-digest/article/34986

 

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