Research Briefing

OBAMA’S “UNSUSTAINABLE” BUDGET A “RUNAWAY RECORD” OF DEFICITS, TAX INCREASES

The Associated Press: Obama Proposes Record-Breaking $1.56 Trillion Deficit “Topping Last Year’s Then-Unprecedented $1.41 Trillion Gap.” “President Barack Obama unveiled a multitrillion-dollar spending plan Monday … The deficit for this year would surge to a record-breaking $1.56 trillion, topping last year’s then-unprecedented $1.41 trillion gap, a number which had dwarfed the previous record of $454.8 billion set in 2008 under former President George W. Bush. (Martin Crutsinger, “Obama’s $3.8 Trillion Budget Includes Record Deficit,” The Associated Press 2/1/10)

AP: “Obama Budget Would Impost Host Of Tax Increases.” (Stephen Ohlemacher, “Obama Budget Would Impose Host Of Tax Increases,” The Associated Press, 2/1/10)

• Tax Increases Would Total To $1.4 Trillion Over Next Decade. “The budget includes $1.4 trillion in new taxes over the next decade, including the expiration of Bush administration tax breaks that benefit families making more than $250,000 a year. The budget would also increase taxes on international corporations by more than $120 billion over the next decade, impose $90 billion in new fees on large financial institutions that benefited from the federal bank bailout, and collect another $60 billion by changing rules for taxing inventory. But those ideas, too, have gone nowhere in Congress and may be even less appealing in an election year.” (Lori Montgomery and William Branigin, “Obama Unveils $3.8T Federal Budget Blueprint,” The Washington Post, 2/1/10)

The Los Angeles Times Calls Obama’s Deficit Spending A “Runaway Record.” “Although the Congressional Budget Office has estimated the level of the current year’s federal deficit at $1.35 trillion, the Office of Management and Budget pegs the existing 2010 deficit at $1.56 trillion, a runaway record.” (Mark Silva and Richard Simon, “Obama’s Budget Proposes $100-Billion Jobs Plan, Higher Taxes On Wealthy,” The Los Angeles Times, 2/1/10)

The New York Times: Obama’s Budget “Unsustainable,” Deficits As Share Of GDP Highest Since World War II. “A $1.6 trillion deficit for this fiscal year, which ends Sept. 30, would be about $150 billion greater than the shortfall in 2009, which was the highest since World War II. It would equal almost 11 percent of the gross domestic product. Economists generally consider anything above 3 percent to be unsustainable over the long haul, although many say it is a necessary evil at a time of deep economic distress.” (Jackie Calmes And Jeff Zeleny, “In $3.8 Trillion Budget, Obama Pivots to Trim Future Deficits,” The New York Times, 2/1/10)

President Of National Bureau Of Economic Research Says Budget Enters Into “Uncharted Waters.” “‘We’re in territory that’s essentially uncharted waters,’ James Poterba, president of the National Bureau of Economic Research, said in a Bloomberg Radio interview … ‘The long-term prospects in U.S. fiscal policy is rather daunting,’ said Poterba ... (Roger Runningen and Brian Faler, “Obama Proposes $3.8 Trillion Budget Focused On Jobs,” Bloomberg, 2/1/10)

Nancy Van Den Houten, Economist, Stone & McCarthy: Obama’s Budget A “Political Document” That “Does Little To Solve Longer Term Problems.” “[I]t’s very much a political document that contains the administration’s agenda… These proposals would have many hurdles to clear, but that doesn’t mean that we’re not going to see a large deficit… The spending freeze does little to solve longer term problems but is something.” (“Analysts View: 2010 Budget Deficit To Hit Record,” Reuters, 2/1/10)

• Robert Brusca, Chief Economist, Fact And Opinion Economics, New York: “[T]he President Is Very Confused. He Wants To Speak About Austerity But There Is This Budget Bulge. I’m Very Skeptical …” (“Analysts View: 2010 Budget Deficit To Hit Record,” Reuters, 2/1/10)

• Peter Boockvar, Equity Strategist, Miller Tabak & Co.: “I Don’t Have Much Confidence That Some Of The Spending Cuts Will Actually Happen … It’s Going To Be Large, It’s Going To Be Big And That’s What’s The Most Disappointing Thing And This Doesn’t Change That.” (“Analysts View: 2010 Budget Deficit To Hit Record,” Reuters, 2/1/10)

OBAMA’S PROPOSALS TO REDUCE DEFICIT “LAUGHABLE,” “UNSERIOUS”

Financial Expert John Mauldin Says Obama’s Deficits Are “Long-Term Losing Proposition.” “So should we, as Paul Krugman suggests, spend another trillion in stimulus if it helps growth? No, because, as I have written for a very long time, and will focus on in future weeks, increased deficits and rising debt-to-GDP is a long-term losing proposition. It simply puts off what will be a reckoning that will be even worse, with yet higher debt levels. You cannot borrow your way out of a debt crisis.” (John Mauldin, “This Time Is Different,” Front Line Thoughts, 1/29/10)

• And Obama Spending Freeze Is “Laughable.” Obama offering to freeze spending by 17% in US discretionary-spending programs, after he ran them up over 20% in just one year, is laughable. Greece is an object lesson for the world, as Japan soon will be. You cannot cure too much debt with more debt. (John Mauldin, “This Time Is Different,” Front Line Thoughts, 1/29/10)

The Associated Press: President Obama’s Fiscal Commission Lacks Teeth And “Would Stand Almost No Chance Of Success.” “President Barack Obama told Americans the bipartisan deficit commission he will appoint won’t just be ‘one of those Washington gimmicks.’ Left unspoken in that assurance was the fact that the commission won’t have any teeth… Any commission that Obama creates would be a weak substitute for what he really wanted… Any commission set up by Obama alone would lack authority to force its recommendations before Congress, and would stand almost no chance of success.” (Calvin Woodward, “FACT CHECK: Obama And A Toothless Commission,” The Associated Press, 1/28/10)

Brookings Institution Budget Expert Isabel Sawhill Says PAYGO And Other Obama Proposals “Will Still Leave Us With Unsustainable Deficits As Far As The Eye Can See.” “Isabel Sawhill, a budget expert at the Brookings Institution, criticized the president’s goal— a deficit of 3% of GDP long after the recession has ended—saying it amounted to ‘defining deficits down.’… ‘The pay-go rules will make it more difficult for Congress to dig the hole deeper but won’t affect currently projected red ink; and the commission will likely be a paper tiger,’ she wrote on Friday. ‘In short, these proposals will still leave us with unsustainable deficits as far as the eye can see. It is depressing to discover that we can no longer even aspire to balance the budget once the recession is over.’” (Jonathan Weisman, “U.S. Budget Aims To Cut Deficit,” The Wall Street Journal, 2/1/10)

Former CEA Chairman Edward Lazear Says Spending Freeze Is About Appearances Not Substance. “In last night’s State of the Union address President Obama proposed a three-year ‘spending freeze’ on what amounts to one-sixth of the federal budget. Our biggest entitlement programs, Social Security and Medicare, would be excluded. These changes are optical rather than substantive.” (Edward P. Lazear, Op-Ed, “The Spending ‘Freeze’ That Isn’t,” The Wall Street Journal, 1/28/10)

Liberal Economist Brad Delong Says Obama’s Proposal To Freeze Discretionary Spending “Is A Perfect Example Of Fundamental Unseriousness.” “[T]his is a perfect example of fundamental unseriousness: rather than make proposals that will actually tackle the long-term deficit … come up with a proposal that does short-term harm to the economy without tackling the deficit in any serious and significant way.” (Brad Delong, “Barack Herbert Hoover Grover Cleveland Obama?” Brad Delong’s “Grasping Reality With Opposable Thumbs” Blog, 1/25/10)

• And Says Defending Deficit Spending In Stimulus And Then Calling For A Spending Freeze “Does Not Pass The Coherence Test.” “Barack Obama: No wonder there’s so much cynicism out there... Brad Delong: Add me to the cynical: To defend deficit spending in the ARRA and then call for a spending freeze ten minutes later does not pass the coherence test...” (Brad Delong, “PBS Annotated State Of The Union, Excerpted,” Brad Delong’s “Grasping With Reality With Opposable Thumbs” Blog, 1/28/10)

Economist Pete Davis Says Obama’s Freeze Is “Barely A Budgetary Fig Leaf.” “This evening, the White House leaked President Obama’s proposed three year freeze on non-defense discretionary spending not including certain Homeland Security, Veterans’ Affairs, and International Affairs programs. That spending would be capped for the next three years at its current level of $447 billion, saving $250 billion over the next 10 years. That sounds like at lot of money, but it’s not much when compared to the roughly $6 trillion of non-defense discretionary spending in the current services baseline budget. …  Every little bit helps, but this is barely a budgetary fig leaf.” (Pete Davis, “Obama’s Spending Freeze Is A Budgetary Fig Leaf,” Capital Gains And Games, 1/25/10)

AND JUST LIKE LAST YEAR, OBAMA’S BINGE SPENDING WILL FAIL TO CREATE JOBS THIS YEAR

Economist David Rosenberg Says Jobs Plan Out Of “Jimmy Carter’s Economic Playbook.” “As for this new job-focused fiscal plan out of Washington, there’s really nothing quite like using the quick fixes from Jimmy Carter’s economic playbook in the late 1970s — after all, they worked so well. We have a record of over 6 million Americans who have been unemployed and looking for work without success for at least six months and another 9 million working part-time because they have no choice, and over 6 folks who are jobless competing for every job opening out there and somehow a $33 billion tax credit is the solution to the jobs crisis.” (David Rosenberg, “Breakfast With Dave,” Gluskin Sheff, 2/1/10)

• Rosenberg: Jobs Plan “Like Putting A Band-Aid On A Knife Wound.” “It’s like putting a band-aid on a knife wound. The liberal think tanks that authored the plan (this is in the Saturday NYT) estimates that the proposal will create one million jobs. Considering that the U.S. economy is now 20 million jobs shy of being at full employment (and at least five years away), this is what is otherwise referred to as rounding error.” (David Rosenberg, “Breakfast With Dave,” Gluskin Sheff, 2/1/10)

• Rosenberg Points Out Obama’s Hypocricy In Pushing Stimulus II, After Claiming Fiscal Integrity. “[A]s for the State of the Union Address, it is interesting to be talking about fiscal probity and then offer even more stimulus. And in that offer, it is interesting to see how small the amount of new money is — $38 billion of tax breaks over a two-year period is going to do what exactly in a $14 trillion economy? Perhaps the Administration is going for the psychological effect and perhaps responding to polls showing that the fiscal largesse is losing its appeal with the general public.” (David Rosenberg, “Breakfast With Dave,” 1/28/10)

University Of Maryland Economist Peter Morici Says Obama’s Binge Spending “Grasping At Straws,” Blasts Stimulus II Just “An Extention” Of Stimulus I. “While Obama’s emphasis on small business is new, many economists see the overall package as simply an extension of the $787 billion stimulus bill passed last year — and not a robust one, at that. ‘He’s trying to turn his microeconomic policies into some macroeconomic solution. He’s grasping at straws,’ said Peter Morici, an economist at the University of Maryland. ‘We are just going to have to ride this out over the next six months. If things don’t get better in trade with China, we aren’t getting out of this,’ he added.” (Jeanne Cummings, “Economists: Jobs Fix Won’t Be Quick,” Politico, 1/27/10)

Moody’s Macroeconomist Gus Faucher Says We Cannot Count On Obama’s Binge Spending “To Spur Significant Job Growth.” “Gus Faucher, director of macroeconomics at Moody’s Economy.com, is not so negative, but he’s not exuberant either. ‘I think the package will make a difference around the edges,’ Faucher said. ‘But, at the end of the day, it will take a strong economic expansion to get job growth going again.’…But Faucher said ‘green jobs are a small piece of the puzzle. We can’t count on that to spur significant job growth.’” (Jeanne Cummings, “Economists: Jobs Fix Won’t Be Quick,” Politico, 1/27/10)