Today the Obama Administration will propose its budget for 2011:
WASHINGTON—President Barack Obama will propose on Monday a $3.8 trillion budget for fiscal 2011 that projects the deficit will shoot up to a record $1.6 trillion this year, but would push the red ink down to about $700 billion, or 4% of the gross domestic product, by 2013, according to congressional aides.
The deficit for the current fiscal year, which ends on Sept. 30, would eclipse last year’s $1.4 trillion deficit, in part due to new spending on a proposed jobs package. The president also wants $25 billion for cash-strapped state governments, mainly to offset their funding of the Medicaid health program for the poor.
This brings a number of things to mind. First, I think it’s clear that President Obama has run afoul of the point that I’ve been making for some time: waging war in Afghanistan is expensive, more expensive on a per soldier basis than doing so in Iraq and it’s darned hard to cut military spending while you’re escalating efforts in Afghanistan.
Second, in recent, i.e. over the last couple of decades, Congresses increasing spending has been a lot easier than increasing taxes or decreasing spending. Maybe that’s been true for the entire history of the Republic. Hard choices are a lot easier when they’re between how much more you’ll spend on education and how much more you’ll spend on healthcare than when it’s how you’ll cut both of them or even which one you’ll cut and by how much.
Third, the budget appears to assume a whopping tax increase imposed without raising a hand by allowing the Bush tax cuts to expire. It’s a tax increase nonetheless. Perhaps popular soak the rich! sentiment will help blunt the criticisms of raising taxes during a recession. Or perhaps they’ve already decided that we’re not in a recession any more. I think they should be a little more cautious. Two months is not a robust trend.
Raising taxes and spending more will put wind in the sails of Republicans painting Democrats as being the party of tax and spend. In an election year in which voters appear to be increasingly concerned about a free-spending federal government will Congressional Democrats take that risk?
And the CBO has already assumed that the Bush tax cuts will be allowed to expire in their estimates of deficits for next year, already pushing $1.6T. I look forward, if that’s the right word for it, to their reactions to the proposed budget. If they’re lucky, no one will ask them for their opinion.
Finally, given that it’s an election year we might well get the crowd pleasing no taxes/more spending strategy. That’ll put us even deeper into the hole.