Senate majority Leader Harry Reid is now willing to make a debt ceiling deal without tax increases just to avoid another debt ceiling deadline before the election. 

The final week before the debt ceiling deadline begins with two new debt ceiling plans.  These plans are not yet available on line so all we know about them is what their authors say about them.

House Speaker John Boehner presented his latest debt ceiling proposal, a two step plan. 

• Step I would raise the debt ceiling by about $1 trillion and cut discretionary spending by $1.2 trillion over 10 years.  That would be enough to support current spending until March.
• Step II would set up a committee of 12 Senators and Congressmen, 3 members of each party from the house and from the Senate, to identify $1.8 trillion more in savings, again over ten years.  The debt ceiling would go up again, enough to support spending until the end of 2012, if Congress voted to adopt the additional savings savings.
• Both House and Senate would hold votes on a Constitutional Amendment requiring a balanced budget.
  
• No tax increases
  

Senate Majority Leader Harry Reid introduced his separate plan that would:

• Immediately raise the debt limit by $2.7 trillion, enough to fund the government beyond the 2012 Presidential election.
  
• Cut spending by $2.7 trillion over ten years
• Set up a committee to recommend more cuts

• No tax increases, a major concession from the Reid/Obama camp.
  

The most politically significant difference between the competing plans is that Boehner’s includes another debt ceiling deadline in March, requiring another public debate in the midst of the Presidential campaign.  President Obama does not want that to happen.  In fact he said in a news conference last week:

The only bottom line I have is that we have to extend this debt ceiling through the next election, into 2013.

In an earlier press conference he said:

…if the only thing we’re talking about over the next year, two years, five years, is debt and deficits, then it’s very hard to start talking about how do we make investments in community colleges…about making investments in our kids… investments in our infrastructure… investments in basic research…

Obama claims 80% of us are on his side, in favor of tax increases which he calls “balance.” But if he really believed that, he would welcome another episode of debt-ceiling theater.  It appears the Democrats’ internal polling predicts voter backlash against the President and their party if there is another stand-off, with principled Republicans resisting their demands for tax hikes.

Obama wants to be able to campaign on generous promises of “investments” in more government.  He knows we won’t appreciate his benevolence if the daily headlines are about the titanic debt he’s accumulating for us, our children, and our grandchildren to pay off.

In his third debt-ceiling press conference President Obama called for a “balanced approach” or “balanced package” seven times.  By this he meant immediate tax rate increases and spending cuts to be spread out over ten years.

Now, what [deficit reduction] would require would be some shared sacrifice and a balanced approach…that millionaires and billionaires can afford to do a little bit more…

Obama knows that there are too few “millionaires and billionaires” to make a dint in his yawning deficits.  Based on IRS statistics a whopping 50% increase in revenue from millionaires and billionaires would add up to about $125 billion per year, or about 7% of this year’s deficit.

Obama talks about millionaires and billionaires, but his real goal is to raise income tax bracket rates on all income over $200,000, a policy that would diminish the after-tax resources of small businesses with the potential to create the most jobs.

Government debt reached crisis level because of a breathtaking increase in spending that began with the bank bailouts of President Bush’s final year, and continued through Obama’s first three years.

Spending in 2011 will be a stunning 40% higher than it was in 2007.

President Obama and the Democrats made sure these higher levels of spending became the new “baseline” from which spending will increase every year unless Congress acts to correct it.  The trillions of dollars in “cuts” we’re hearing about would be reductions in the rate of increase already scheduled via baseline budgeting.  Unless Congress takes more dramatic action than is now contemplated by either party future spending will not be less than 2011 spending.

But even the cuts in the rate of increase might not happen.  The current Congress cannot force a future Congress to abide by its budget plan.  Ronald Reagan agreed to a package of excise tax increases because Congress promised spending cuts that never happened.  George HW Bush broke his no-new-taxes pledge in exchange for future spending cuts that weren’t enacted.

Obama’s offer is an unenforceable promise of  reductions in the rate of growth in spending – reductions that he would most likely attempt to undo – in exchange for real tax increases that would be enacted into law immediately.  Thus his public statements are about a “big package.”  If spending cuts won’t happen anyway, why not tell us that he’s on our side, trying to get drag those recalcitrant Republicans into “the biggest deal possible”?

Toward the end of his press conference, as he answered a reporter’s question, Obama cracked opened a window to what he really thinks:

…if you are a progressive, you should be concerned about debt and deficit just as much as if you’re a conservative.   And the reason is because if the only thing we’re talking about over the next year, two years, five years, is debt and deficits, then it’s very hard to start talking about how do we make investments in community colleges so that our kids are trained, how do we actually rebuild $2 trillion worth of crumbling infrastructure.

If you care about making investments in our kids and making investments in our infrastructure and making investments in basic research, then you should want our fiscal house in order, so that every time we propose a new initiative somebody doesn’t just throw up their hands and say, “Ah, more big spending, more government.” It would be very helpful for us to be able to say to the American people, our fiscal house is in order.

Barack Obama reminds us of the TV sitcom husband who pretends to care what his wife wants and tries to manipulate her perceptions and emotions in order to deceive her into cooperating with his priority of the moment.  To Obama, deficits and the soaring debt are other people’s concerns.  Those people annoy him by talking.  Their talk is a barrier to his priority, growing government and concentrating power in Washinton.  He will promise anything he thinks will stop others from talking about deficits so he can put his “investments” back on the national agenda.

We posted this graph two weeks ago but so far the media seem not to have caught on.  The current income tax rates generated more tax revenue than any previous year since the tax began in 1917 – after adjusting for inflation.  Tax revenue declined for two years due to the recession, but it has come back up in 2011.  Income tax revenue is on track to equal the all time record high of 2007 without the destructive rate increases Obama demands.

With the (2nd) debt ceiling deadline looming, and secret, high-level negotiations on-going, President Obama appears and reappears, playing the role of wise observer, dismayed by deficits and debt piled up by someone else, and urging those irresponsible miscreants to at long last do something about it.  Here’s a sample from his Weekend Address:

Republicans and Democrats don’t see eye to eye on a number of issues…We agree that after a decade of racking up deficits and debt, we finally need to get our fiscal house in order.

In his press conference Monday morning Obama said:

What I emphasized to congressional leaders yesterday is now is the time to deal with these issues. If not now, when?

One who had not paid attention for several years might get the impression that Barack Obama is the sober, sensible, frugal one who shares our disgust with the wild spending of others.  This is exactly the impression he wishes to plant in the minds of the uninformed.  His “decade of racking up deficits and debt” is a slightly more subtle version of it’s-Bush’s-fault.

Yes, there were deficits in seven of Bush’s eight years.   Perhaps they were justified as tax revenue declined in the wake of the the stock market crash and the 9-11 terrorist attacks.

But after falling for three years Tax revenue increased rapidly from 2004 through 2007 and with a modicum of discipline Congress could easily have produced a surpluses in 2006 and 2007.  Those deficits were a big part of the reason fiscally conservative voters sat out the 2006 election, allowing the Democrats to take over Congress in 2007.

But the spending increases and deficits during the Bush years, as irresponsible as they were, look like small change compared to the audacious spending torrent of the first three Obama years.

Obama took office in January, 2009 the fourth month of the 2009 fiscal year.  He claimed to have “inherited” the 2009 deficit but within his first thirty days in office he:

• Doubled the size of the bank bail out program begun by the Bush administration.
  
• Signed hundreds of billions of spending increases enacted by the new Democratic majority in Congress, and
  
• Jammed through his $800 billion stimulus with such urgency that the final version of the legislation had not even been printed the day Congress voted to pass it.

Four months ago President Obama submitted a proposed ten year budget so brimming with red ink the US Senate rejected it by a vote of 97 to zero.  Since then the President has failed to offer anything in writing – no spending cuts or tax increases.  Nothing.

As the chart below shows, Obama’s unprecedented deficits have driven up the total debt from levels that were manageable during the Bush years to alarming now.

Wall Street rating agencies have warned that they will have to downgrade their ratings for U.S. Treasury debt.  Predictably, progressives have called them fear mongers and agents of the rich, betraying “working” Americans, etc.  But their credibility would be in doubt if they didn’t react to what every investor on the planet knows, the US Government is accumulating debt at a rapid rate that cannot continue much longer.

Mr. Obama is right about one thing: now is the time to act.

In what has become his campaign stump speech he makes a series of assertions that upon scrutiny prove to be baseless and to contradict publicly available data from his own Office of Management and Budget (OMB).  He claims that during the Bush years:

…we made the [deficit] problem worse with trillions of dollars in unpaid-for tax cuts – tax cuts that went to every millionaire and billionaire in the country; tax cuts that will force us to borrow an average of $500 billion every year over the next decade.

We’ll deal with “unpaid-for tax cuts.”  But first, Obama simply ignores the elephant in the room, the enormous spending increases of the past decade.

No serious attempt to assess the cause of government’s catastrophic debt could simply ignore such breathtaking spending increases.

Obama and his supporters often talk about “paying for” tax cuts.  But they never explain how that would work.  When taxation is the source of government’s money how could it “pay for” a tax cut?  It makes even less sense when applied to the current situation because as the next chart shows, after the 2003 tax rate reductions that established the rates that are still in effect today tax revenue increased.

From 2003 to 2007 income tax revenue rose a whopping 47%!

In 2007 the current tax rates generated more revenue for the government than in any previous year since the income tax began in 1918, after adjusting for inflation.

The severe recession drove down taxable income and tax revenue for two years but it was still above the 2003 low, even after adjusting for inflation.  This year, as the economy begins to recover from recession income tax revenue is increasing and 2011 is on track to be the third highest revenue year ever – without the increases in tax rates Obama and much of the media demand.

But what about those millionaires and billionaires?From 2003 to 2007 revenue from the super rich increased 134% before declining due to the recession.  The IRS hasn’t published a breakdown by income group for 2009 or 2010 yet, but based on the totals that have been reported, it’s safe to assume that revenue from the rich remained substantially higher than it was in 2002, before the current tax rates were enacted.

One more excerpt from Obama’s speech:

To give you an idea of how much damage this caused to our national checkbook, consider this:  in the last decade, if we had simply found a way to pay for the tax cuts and the prescription drug benefit, our deficit would currently be at low historical levels in the coming years.

Not only is it impossible to “pay for” a tax cut, as the chart above shows the current tax rates, enacted in 2003, generated more, not less revenue – record breaking revenue.

The chart to the right shows that the Medicare prescription drug benefit is a tiny fraction of total spending – 1.7% in 2010.

Obama’s “economic analysis” is about as serious as a campaign slogan on a bumper sticker and has the same purpose, to stir the emotions of people who don’t have the time to do the research and verify the claims of politicians.

He contradicts mathematical reality with the absurd claim that the whole debt crisis was caused by the current tax rates and the Medicare prescription drug benefit only because they were both initiatives of the President Obama’s leftist base loves to hate, George W. Bush.

In his speech on government debt last week President Obama sought to exploit the complexity of the tax system to deceive The People.  Our previous post debunks his implication that President Bush caused the current debt crisis.  Further into his speech he implied that “millionaires and billionaires” were to blame:

In December, I agreed to extend the tax cuts for the wealthiest Americans because it was the only way I could prevent a tax hike on middle-class Americans.  But we cannot afford a trillion worth of tax cuts for every millionaire and billionaire in our society.  And I refuse to renew them again.

He hopes to plant the perception in the minds of people who are too busy to research the facts that  “millionaires and billionaires” are under-taxed, and are to blame for the massive debt he has accumulated since his administration began.

Here are some facts:

• The tax rates currently in effect were enacted eight years ago.
• The only thing that happened in December was an agreement to continue those same rates for two more years.  There were no new “tax breaks for millionaires.”
  
• While Obama wants to plant in the mind of the public the perception that millionaires and billionaires are under-taxed the numbers, displayed in the pie charts tell a different story.  There aren’t very many millionaires and billionaires and they already pay an enormous share of the total tax bill.
  
• Based on the latest IRS statistics 320,000 taxpayers who earn more than $1 million, will pay about $260 Billion in income tax this year at current tax rates.  Obama’s plan to raise the top two tax brackets to the pre-Bush rates would increase tax revenue from millionaires and billionaires by about $50 billion, or 3% of his yawning deficit of $1.65 trillion.

Class-envy tax hikes impose costs on everyone, not just the high income folks who directly pay the tax bill. High income people are the business owners and investors who risk the capital necessary to expand businesses and create jobs.

As the chart shows most millionaires and billionaires are small business owners.

These are the larger “small businesses” that traditionally create the most jobs.  They create new jobs by  reinvesting after-tax profits. Every dollar of increased taxation, is one less dollar available to reinvest in expansion and job creation.

The Bottom Line

• More small business expansion is funded by reinvesting after-tax profits than by borrowing.  Since the banking crisis began in 2008 small businesses have suffered dramatically reduced access to credit.  Therefore, as these businesses recover from the recession their after-tax profits are even more critical if they are to expand and hire more people.

• Government has no system to identify and count the jobs that won’t be created because of tax hikes on “the rich.”

• If Obama’s tax increases become reality government will seize from the private sector some of the resources that empower free people to use their liberty to create prosperity.   Politicians will use these resources to support expanded political power and reward special interest constituencies with political connections.

The critics are right that $38 billion in cuts is only about a third of what Republican candidates promised before the election and a tiny, almost insignificant fraction of this year’s projected deficit of $1.65 Trillion.  And, we have a right to be disappointed after Speaker Boehner slapped some audacious demands on the table – including the outright repeal of ObamaCare – only to negotiate them away.

But, at Liberty Works we find reason to be cautiously optimistic.  On the positive side:

• These are real cuts.  There are scores of specific budget line items where 2011 spending will be less than 2010.  These are not the typical, illusory “deficit reduction” achieved only on paper by entering smaller numbers into the spreadsheet columns for future years, numbers that a future Congress would increase with a single sentence buried in a thousand page appropriations bill.
• Usually when “cuts” are reported the numbers are the sum of “projected” cuts over ten years.  this time the cuts are real because they all come from 2011 spending.

America is at the very beginning of a long debate over the proper size and functions of government.  If The People continue to support Senators and Congressmen who are determined to reduce and restrict the size, cost, and power of the federal government The Deal will turn out in hindsight to have been the first small step toward that end.

On Sunday Obama’s spokesman David Plouffe telegraphed the Administration’s belief that it is losing public support and momentum when he announced the President’s intention to unveil a “plan” of his own to reduce the catastrophic deficit.  This comes only eight weeks after the White House delivered it’s 2012 budget, an exhaustively detailed document of over a thousand pages with virtually no spending cuts, projecting trillion dollar annual deficits forever!

Apparently Obama’s “plan” will include raising the top two tax brackets to the pre-Bush rates, which would be yet another reversal of his previous position, that he and the Congress did a great thing when they “came together for the American people” last December and agreed to extend those Bush tax rates for two more years.  As we reported here, the pre-Bush tax rates would further curtail economic growth and job creation while reducing the deficit by less than 5%.

For decades The Left relentlessly expanded government by proposing initiative after initiative to regulate, to subsidize, to control state and local governments and to muster a mind numbing constellation of social welfare programs.  Republican opposition, always pushing against the momentum, was largely ineffective, at best a mild restraint.

The Deal confirms that momentum has turned against government expansion and the roles of Left and Right have switched.  The evidence is the spectacle of Obama and Reid boasting of “historic” budget cuts.  Democrats are no longer able to initiate more expansions of government and are now reduced to attempting to negotiate smaller spending cuts and smaller reductions in government power than demanded by conservatives.

Is victory in sight?  Can we see a balanced budget in the near future?  Of course not.  Not yet, anyway.  But it’s way too soon to be cynically defeatist.

It took most of a century to get here.  We won’t dismantle the most mammoth, most complex, most entrenched bureaucratic superstructure in human history with one, high stakes, Friday night budget battle, or one legislative session or even one eight year Presidency.

If the Republicans manage to maintain their newly formed spines and the rest of us continue to support them through a long, tough battle with tactical wins and a few tactical losses, we can make progress every year and eventually reach the vision of a Constitutionally limited government that spends no more than it collects in low, less burdensome taxes.

Congress has been arm wrestling over BOTH the 2011 and the 2012 annual budgets at the same time.  The media, apparently oblivious to historic events are immersed in petty speculation over the possibility of a government shut down and which party voters would blame.  People who lack the time or inclination to pore over budget details will be the targets of deceptive, emotional appeals by politicians and the media. There will soon be a continuous barrage of self-serving propaganda from the beneficiaries of government spending programs.

The 2011 Budget should have been passed last summer, well in advance of the October 1 start of the government’s fiscal year.  But President Obama and the Democrats, with commanding majorities in both the House and Senate that empowered them to spend any amount they wished, failed to pass a budget or any of the 13 appropriations bills that allocate funds to the government’s departments and authorize them to function.

Since October 1, 2010 the government has run without a budget or appropriations bills, on a series of temporary “Continuing Resolutions” or CRs.

Back in January the new Republican majority in the House of Representatives passed HR1 a CR that would have prevented all this angst and drama by funding the government for the remainder of the fiscal year.  But the Senate, controlled by Democrats rejected HR1 because it would make tiny, almost insignificant cuts, spending $61 Billion less than projected by the Obama Administration.

Had they followed normal legislative process the Senators would have passed an alternative CR or an amended version of HR1.  Then the House and Senate would have sent representatives to a conference committee to negotiate a compromise between the two bills.  But the Democrats have been unable or unwilling to pass any alternative to HR1 in the Senate.  Their only response so far has been to attack HR1 as “extreme.”

The latest temporary CR expires at the end of the week.  Without another CR parts of the government will shut down.

The 2012 budget debate opens as Representative Paul Ryan, Chairman of the House Budget Committee publishes his ten-year plan, proposing to spend $6.2 Trillion less than President Obama’s budget plan.  Unlike the trifling cuts Republicans proposed for 2011, the Ryan 2012 plan is a blueprint for substantial, long term reduction in the power, scope and cost of the federal government and will drive the historic debate that is certain to continue through the next election.  Media commentators are already calling the Ryan budget cruel, inhumane, draconian, extreme, radical, etc.

Liberty Works will analyze the Ryan budget plan, which includes an overhaul of the federal income tax, one piece at a time.  Stay tuned!

On february 20 The Republican House of Representatives passed a bill that would cut a mere $61 Billion from the Obama’s $3.5 Trillion spending plan for 2011. My first reaction was disappointment after such big talk during the campaign.  

I was considering a scornful critique of the GOP when the Democrats distracted me with hysterical language that was even more out of touch with reality than the the GOP’s timorous spending cuts.  Senator John Kerry was typical.  Appearing on Face the Nation he bellowed:

I don’t believe what we have from the House is a serious economic plan. I think it’s a ideological extremist reckless statement. If– if that were to be in fact, put in place, it would– it would contribute to the reversal of our recovery. It might even destroy our recovery. It will certainly deny us the competitiveness that we need to go– to– to move with China, India and other countries into the future. I think it’s a very dangerous plan.

On the floor of the Senate Majority Leader Harry Reid called the trifling cuts mean-spirited and actually defended an annual appropriation for the “Cowboy Poetry Festival” in his home state of Nevada.

President Obama and Senate Democrats placed a counter offer on the table: $6 billion in cuts, a number so small it must have been meant as a joke.

To reduce the government’s fiscal position to more easily grasped numbers imagine a family with an income of $6,000 per month after taxes.  Imagine that by continuously borrowing they have managed to spend

$10,000 every month for years.  Finally Mom & Dad begin to think maybe they should cut back a little.

Mom suggests they cut one of dinners the family eats in fine restaurants each month, saving about $160 or 1.6% of their spending, as the Republicans proposed.  They would still be borrowing $3,840 every month.

But Dad says that’s just too much to handle right now.  He would rather commit to one less family outing to the ice cream store each month, saving $20 or 0.2% as the Democrats propose.

Congress is no less absurd and irresponsible than this family.  It’s time for mass emailing.

Since the House of Representatives passed a bill that would reduce 2011 spending by about 3% we’ve heard dire job loss predictions from politically motivated “economists,”  including high profile Moody’s analyst Mark Zandi who said that the spending cuts would cost 700,000 jobs.

If you thought these “economists” have been immersed in scholarly analysis of the programs that would be cut to identify any jobs associated with each one, you’d be wrong.  That would be too much trouble when the real goal is political, to plant a vague perception in the mind of the public that something bad will happen if the year-over-year growth in government spending is “only” 8.8%, Vs the 10.5% demanded by Obama and the Democrats.

The prediction of job losses is based on the Keynesian economic theory that if government borrows and spends more the private sector creates jobs, and if government borrows and spends less private sector jobs will be lost.

The same theory was the basis of a report issued by the Obama economic team two years ago to sell the $800 billion stimulus.  Mr. Zandi endorsed that report and agreed with it’s predictions.

As the table shows, the largest Keynesian stimulus ever attempted was a spectacular failure and decisively discredited the theory that government can drive job creation and prosperity by borrowing and spending.  Yet the same economists now predict an economic slowdown and job losses based on reverse application of the same theory.

In fact, historical data demonstrate an inverse correlation between government spending and job growth.  The chart below tracks the rate of job creation during  the largest spending cut in US history.

Because of the war, government spending had exploded from  $9 billion to $91 billion in four years.  Millions of civilians were employed manufacturing guns, tanks, ships, aircraft, uniforms, boots, etc. When the war was over in 1945 the government immediately ceased buying war material and quickly discharged millions from military service.

If today’s political-media “economists” had been there in 1945 they would have warned that any spending cuts would spell disaster for the economy, that unemployment would skyrocket.  They would have been wrong.

Federal spending dropped 68% in three years.  The number of jobs increased by 21% over the same three years.   Never before or since have workers enjoyed such a sudden increase in demand for their services.

Progressives like President Obama and the Democrats in Congress love Keynesian economic theory because it helps them justify what they would do anyway, expand government.  But our actual experience doesn’t validate Keynes’ notion that government, by gobbling up an ever larger share of GDP, and wielding ever more control over the private sector, can create jobs and prosperity.

When the President delivered his 2012 budget to Congress the media shouted “$1.1 trillion in cuts!”  Did this mean the government would spend $1.1 Trillion less?  Nope.  As the chart at the bottom of this article shows, Obama’s own budget calls for ten years of continuous spending increases.

Decoding the “information” in the media starts with understanding two key words in government budgeting:

• “baseline” and,

• “assumptions.”

The baseline is projected spending over the next ten years.  The baseline numbers result from a set of assumptions, starting with the assumption that almost every government department, agency and program will receive an automatic budget increase every year.  The size of those increases is based on additional assumptions.

Often, when a President or Senator speaks of “deficit reduction,” he does not mean the total, bottom line deficit will be less in the future than it is today.  His precise meaning is that the 2 or 5 or 10 year deficit prediction on the latest piece of paper from the White House is less than on the previous piece of paper.  Or, he means the amount a particular department or program will contribute to the deficit is predicted to be less on the new piece of paper.

A perfect example of this deception can be found in Obama’s budget numbers for “overseas contingency operations,” code for Iraq and Afghanistan.

• The most expensive year for Iraq and Afghanistan combined was $185 billion in 2008.
• In 2010 the cost was $167 billion.
• The Administration has budgeted $165 billion for 2011 and $127 billion for 2012.

The Iraq operation is scheduled to end, with all US troops leaving this year, 2011. The Afghanistan operation has never been as large or expensive as Iraq and reductions in troop strength and cost are now scheduled to begin in 2014.  If all goes according to plan there will be virtually no US troops left in Afghanistan after 2016.

Yet, as the table to the right shows the Obama budget, under Overseas Contingency Operations, projects more than a trillion in “deficit reduction” for years 2012 – 2021.  This is because they first asserted a baseline assumption that the cost of Iraq and Afghanistan would increase every year from now through 2021, even though they knew it would not.  Then, they subtracted what they believe will be real, declining cost each year, probably reaching near zero by 2016.

Thus, they can now magically report “deficit reduction” of $136 billion in 2021, ten years after the last American soldier will have left Iraq and five years after the end of the Afghanistan operation.

Through repetition in the zombie media they can plant in the mind of the public a perception that there will be some sort of “cut” in spending.

As the chart below shows, the Obama budget document shows continuous annual increases in total government spending at the same time war spending winds down.

Obama’s budget projects declining deficits in 2012 through 2015 only by also projecting enormous tax increases.

Remember the arrogance and contempt toward those of us who knew the stimulus would fail to create jobs while running up catastrophic debt?   Scroll down to see a 20 second video segment of the President’s sneering victory speech at a meeting of euphoric Democrats a few days after he they enacted it without a single GOP vote.

The stimulus, or “recovery act” was the massive, $864 billion spending package the President promised would, in his words, “immediately jumpstart job creation.”

Enactment of the stimulus came at the end of several weeks of hype by politicians and the establishment media claiming there were thousands of “shovel-ready” projects that would immediately employ millions.   Last October President Obama told the New York Times that he realized too late “there’s no such thing as a shovel-ready project.”

The record breaking increase in tax revenue is fantasy.

At his press conference Tuesday President Obama hoped to plant the perception in the mind of the public that his 2012 budget was an exercise in frugality.  Here’s one of his responses to budget questions:

…this is my third budget. The first two budgets were in the midst of the worst recession since the Great Depression, so we had a different set of priorities. And I said it at the time — in each of those budgets, what I said was, the deficit’s going up and we are compiling some additional debt, but the reason is because it is so important for us to avoid going into a depression or having a longer recession than is necessary…

This third budget reflects a change in focus. The economy is now growing again. People are more hopeful. And we’ve created more than a million jobs over the last year. Employers are starting to hire again, and businesses are starting to invest again.

Are we to believe this budget is “a change in focus” to cuts in spending and deficits?  Indeed the projected 2012 deficit of $1.1 trillion, while still alarmingly high would be a third less than the deficit now projected for 2011.  So how was this deficit reduction achieved?  Spending Flimflam coupled tax revenue fantasy!

First, there are token, insignificant spending cuts of $90 billion, or 2.4% less spending than projected for the current year, 2011.  But, as the chart shows 2012 spending would still be 25% more than 2008 and a whopping 36% more than 2007!

Second, the budget projects astounding increases in tax revenue, adding up to $454 Billion or 21% greater than the current year, 2011.  Individual income tax revenue is projected to increase by most in 4 decades. President Obama bases all his budget comments and promises on something he knows isn’t going to happen.

During the press conference he held to defend his 2012 budget President Obama claimed:

As a start, [my budget] freezes domestic discretionary spending over the next five years, which would cut the deficit by more than $400 billion over the next decade, and bring annual domestic spending to its lowest share of the economy since [President] Dwight Eisenhower.

As with so much of Obama Administration communication, the Eisenhower reference was contrived to deceive people who are too busy to do the research and and pry out the truth.  Obama hopes to plant the vague perception that in some way he’s more frugal than Eisenhower was back in the 50s.  He isn’t.

The Administration’s budget office does predict that if the economy grows as much as they optimistically predict over the next five years, selected budget line items they call “non-security discretionary funding,” that are, in someone’s opinion, not “critical for growth and job creation” will be a lower percentage of GDP than a similar list was at some point during the Eisenhower era.

It’s not possible to verify or refute this claim because the budget document doesn’t disclose enough information.   But the comparison of a small portion of the budget is irrelevant because as the chart shows total government spending is now and will continue to be a much larger percentage of GDP.

Unemployment is twice as high now as it was in the 50s largely because Government recklessly consumes so much more of the economy’s resources.

What about military spending and the wars in Iraq and Afghanistan? We anticipate the usual, kneejerk response from The Left that current spending is high because of “Bush’s wars.”  Without the growth in military expenses, they’ll assert, total spending would not be a larger percentage of GDP

We have two part answer:

• Part One: 1953, the first year of the Eisenhower Administration was also the last year of the Korean War, which is why spending was a little higher than in subsequent years.

• Part Two: The chart below tracks military spending as a fraction of GDP.  Today, it’s less than half what it was during the Eisenhower era.  This means the real cause of higher total spending is the Left’s constellation of social programs and alphabet agencies, most of which did not exist during the 1950s.

a;sldf

When I took office, I pledged to cut the deficit in half by the end of my first term. Our budget meets that pledge…

None of the assembled reporters disputed or asked for clarification.    This chart helps tell the real story.

2012 will be the last year of Obama’s first term.  His pledge to cut the deficit in half begs the clarification: half of what? Which deficit is the benchmark against which 2012 is measured?

• The 2008 deficit of $455 billion?  That was the most recently completed fiscal year when he made the pledge. Half would be $227.5 billion
  
• The 2009 deficit would have been about $700 billion had he and the Democrats not added hundreds of billions in new spending.  Half would be $350 billion.
  
• The actual 2009 deficit, including all the extra spending was $1.4 trillion.  Half would be $700 billion.
• Or maybe he means half of the gargantuan deficit he now projects for the current fiscal year, $1.6 trillion.  Half would be $800 billion.
  

There is uncertainty about how much 2011 spending and deficit will be because the Democratic Congress simply declined to complete it’s most basic function, required by the Constitution, passing a budget.

As the chart shows, the President’s own budget projects a 2012 deficit of $1.1 Trillion, a lot more than half of any of the possible benchmarks.  Thus his assertion in the press conference is simply false.

• Pass a budget for fiscal year 2011, which began October 1, 2010.
• Pass 12 appropriations bills that break the budget down to more manageable pieces and grant each department and agency the budget authority to continue operations.

Thus, Congress has given us another of its infamous crises.  Without appropriations the government’s various departments and agencies have no authority to do anything and the government “shuts down.”  Congress passed a “Continuing Appropriations Act” in September that authorized the government to continue operating at 2010 budget levels.  The September bill was “clean” in that it was only ten pages and not packed with special interest subsidies and earmarks.  But it expires Saturday and the government will shut down if Congress does not act.

Senate Majority Leader Reid sought to exploit the crisis to the advantage of Democratic constituencies with a two thousand page “Omnibus” bill.  Described in the previous post the Omnibus combines 12 appropriations into one, incomprehensible monstrosity.

Today Senator McConnell offered a common sense alternative to Reid’s 2,000 page obscenity: A single page that extends the September Continuing Appropriations Act until February 18, giving the new Congress time to enact a proper budget and proper appropriations.  Here it is: