Is Obama Spending Too Much?

According to the New York Times, President Obama has proposed a "stunning deficit" for 2009 that is expected to reach $1.75 trillion - nearly four times last year's budget deficit. (New York Times, February 26, 2009)

As the Wall Street Journal noted, the President's proposed deficit for 2009 (as a share of the gross domestic product) is a "level not seen since 1942 as the U.S. plunged into World War II." (Wall Street Journal, February 27, 2009)

Over the next ten years, President Obama has proposed deficits that remain above $500 billion every year, rising to $712 billion by 2019 - doubling our national debt over the same period of time.

And the President's estimates are based on more "optimistic" assumptions of the health of our national economy. Using the same logic President Obama has used to "stress test" the stability of financial institutions - the President's actual deficits could be more than $1 trillion HIGHER over the next five years. (Committee on Budget, Republican Office, March 5, 2009)

The American Recovery and Reinvestment Act is an unprecedented effort to jumpstart our economy, create or save millions of jobs, and put a down payment on addressing long-neglected challenges so our country can thrive in the 21st century. The Recovery and Reinvestment Act is an extraordinary response to a crisis unlike any since the Great Depression. With much at stake, the Act provides for unprecedented levels of transparency and accountability so that you will be able to know how, when, and where your tax dollars are being spent. Spearheaded by a new Recovery Board, this Act contains built-in measures to root out waste, inefficiency, and unnecessary spending. This website, Recovery.gov, will be the main vehicle to provide each and every citizen with the ability to monitor the progress of the recovery.

Obama's Trillion-Dollar Spending Plan
February 14, 2008 01:37 PM ET | James Pethokoukis | Permanent Link | Print

What does "change" cost? About a quarter of a trillion bucks a year, according to Barack Obama. But first, this: "I wish Obama would go further than that, but it's a start," was the reaction of one DailyKos poster to Barack Obama's economic plan unveiled yesterday in a campaign appearance in Janesville, Wis. Some hard-core liberals may be underwhelmed by the scope of Obama's agenda-after all, there's no single-payer healthcare plan or Scandinavian-style "flexicurity" worker benefits program in the mix-but my guess is that the average person would find it all pretty aggressive. Here are the priciest parts:

* A $65 billion-a-year health plan
* $15 billion in green energy spending
* $85 billion in tax cuts and credits
* A $25 billion-a-year increase in foreign aid
* $18 billion a year in education spending
* $3.5 billion for a national service plan

Put it all together, and we are talking about a $200 billon plan, $800 billion over four years. And that does not even include fixing the alternative minimum tax, a $50 billion-a-year item that will assuredly get passed. A few thoughts:

1) Let's put aside for a moment whether the Obama plan will actually increase our standard of living, enhance productivity, or encourage innovation. As a matter of accounting, I don't get how Obama will pay for his plan. Now he claims he's paid "for every element of this economic agenda-by ending a war that's costing us billions, closing tax loopholes for corporations, putting a price on carbon pollution, and ending George Bush's tax cuts for the wealthiest 2 percent of Americans."

But I don't think that adds up. Take, for instance, eliminating those Bush tax cuts on top earners. That might gain $50 billion a year, assuming no negative economic effect. But Congressional Budget Office estimates already assume that the Bush tax cuts expire at the end of 2010. So Obama gains nothing beyond, perhaps, a one-year bump in 2010 if he repeals the tax cuts a year earlier.

2) Obama clearly advocates jacking up payroll taxes as a way of creating long-term solvency for Social Security. Check out this chunk from his campaign press release:

Obama will be honest with the American people about the long-term solvency of Social Security and the ways we can address the shortfall. Obama will protect Social Security benefits for current and future beneficiaries alike. And he does not believe it is necessary or fair to hardworking seniors to raise the retirement age. Obama is strongly opposed to privatizing Social Security. Currently, the Social Security payroll tax applies to only the first $97,500 a worker makes. Obama has consistently said that we may want to include a "doughnut hole" to ensure that lifting the payroll tax cap does not ensnare any middle-class Americans. Obama supports increasing the maximum amount of earnings covered by Social Security, and he will work with Congress and the American people to choose a payroll tax reform package that will keep Social Security solvent for at least the next half century.

Taken at face value, Obama is proposing no benefit cuts at all. None. He won't cut future benefit increases by linking them to the inflation rate rather than wages, nor will he extend the retirement age even as life expectancy increases. Retirement accounts, a way to make Social Security a better deal for younger workers but not a way to directly deal with the solvency issue, are also out of the question. I will update all this after I chat with Team Obama about its candidate's ideas.