Latest posts by Jim Lakely (see all)
- Dr. Richard Keen, R.I.P. - January 27, 2020
- And the Award for Media Hackery Goes to … The Weather Channel - April 18, 2019
- The Insanity Begins - February 13, 2019
[First posted at Forbes.]
Mitt Romney’s selection of House Budget Committee Chairman Paul Ryan to be his running mate perfectly reframes the campaign on grounds the Republicans should win easily, as long as they communicate the issues effectively. The central battleground of the campaign now is Paul Ryan’s 2013 budget versus Barack Obama’s 2013 budget.
Yes, that becomes the central focus of the whole Presidential election, because the two budgets would set America on radically different courses, and both tickets are personally committed to carrying out those courses if elected.
Contrast the two visions for federal spending. President Obama proposes in his 2013 budget to spend 47 trillion over the next 10 years, the highest government spending in world history. By 2022, the Obama budget proposes to spend $5.820 trillion in that one year alone, the highest government spending for one year in world history. That’s up from $2.983 trillion in 2008, an increase of 95%. Obama cannot say George Bush forced him to propose that record smashing, runaway spending.
This from the man who promised us when campaigning in 2008 that his spending plan involved “a net spending cut.” In fact, Obama promised exactly that during a nationally televised Presidential debate with John McCain. Given the dramatic departure from that promise Obama has now proposed, it is not too much to ask whether the President understands English.
In the nearly 70 years since the end of World War II, federal spending as a percent of GDP has been fairly stable at around 20%. But President Obama broke through that established consensus, increasing federal spending by almost one fourth to an average of 24.4% of GDP during the four years of his term, the most spent in any Presidential term in American history, except for World War II. Under Obama’s 2013 budget, with current policies continuing, CBO projects federal spending would soar to 30% of GDP by 2027, 40% by 2040, 50% by 2060, and 80% by 2080. Add in 10% to 15% for state and local spending, and the government would be taking and spending virtually everything the economy produces.
In sharp contrast, Ryan’s supposedly “radical” budget would simply restore federal spending to its long term, postwar, historical average of 20% of GDP, reducing federal spending to 20.1% of GDP after just 3 years, by 2015. Everyone making up horror stories about what Ryan’s budget would do must explain now why none of that happened during the last nearly 75 years when the federal government maintained that same level of federal spending.
Ryan’s budget proposes to cut Obama’s record smashing $47 trillion in spending over the next 10 years by $6.8 trillion. That still leaves $40 trillion in spending over that time, which you would think should be much more than enough. By 2022, Ryan’s budget would be spending nearly a trillion dollars less per year than President Obama’s budget.
So the American people can now decide. Do they want to maintain the level of government that has prevailed during the entire prosperous postwar era, or do they want to explode the government to eat up the entire economy?
Contrast the two visions on taxes. Obama’s budget proposes to increase federal taxes by nearly $2 trillion above the CBO baseline over the next 10 years. The budget projects that under Obama’s tax policies federal income tax revenues will double by 2020, federal corporate tax revenues will double by 2017, and federal payroll taxes will double by 2022.
That is because already enacted under current law for 2013 are increases in the top tax rates for virtually every major federal tax. In that year, the tax increases of Obamacare go into effect, and the Bush tax cuts expire, which Obama refuses to renew for the nation’s small businesses, job creators and investors. That is the English translation of individuals making over $200,000 a year, and couples making over $250,000 per year.
As a result, with the Bush tax cuts expiring for Obama’s targeted taxpayers, on Jan. 1 the top two income tax rates will climb by nearly 20%, the capital gains tax rate will soar by nearly 60%, the top tax rate on dividends will nearly triple, the Medicare payroll tax rate will rocket up by over 60% for Obama’s disfavored taxpayers, and the death tax will rise from the grave with a 57% rate increase.
This is all on top of the U.S. corporate income tax rate, which counting state corporate rates is nearly 40%, the highest in the world now under President Obama, except for the socialist one party state of Cameroon. American businesses are uncompetitive in the global economy with this tax burden. Yet, under President Obama, there is no relief in sight.
Instead, he continually barnstorms the country calling for still more tax increases on investors, business, and job creators. He has been proposing his so-called Buffett Rule, which would increase the capital gains tax rate by 100%, making it the fourth highest in the industrialized world, to go with his world highest corporate rates. Obama has also proposed to double tax the overseas earnings of American companies, raising $129 billion, impose $120 billion in new taxes on American energy companies, add $33 billion in new taxes on banks, raise unemployment payroll taxes, adopt tax increases for health insurance and life insurance companies, and further restrict deductions for higher income earners.
Obama’s tax increases are unlikely to raise anywhere near the revenue projected by CBO. Over the last 45 years, every time the capital gains tax rate has been raised, capital gains revenues have declined rather than increased. In 2003, when the tax rate on dividends was reduced to today’s rate, corporate dividends paid soared, and the revenues from the taxes on those dividends did as well. If that tax rate is now doubled, the result would be the opposite.
Moreover, if the combination of all of these tax rate increases throws the economy back into recession, as many argue is quite likely, then the overall result will be lower rather than higher federal revenues. Indeed, under President Obama’s tax, regulatory and monetary policies, the Coming Crash of 2013, as I have described it elsewhere, is effectively already legislated under current law.
In sharp contrast, Ryan’s budget proposes individual and corporate tax reform, which would reduce rates in return for eliminating loopholes. Ryan proposes to consolidate the current 6 individual income tax rates, ranging up to 35%, to just two rates, 10% applying to earnings up to $100,000 a year for families, and $50,000 a year for singles, and a 25% rate applying above that. His corporate reform would reduce the federal corporate tax rate from 35% to 25%, which is roughly the international average. How extreme and radical!
CBO scores these reforms, even with the rate cuts, as again restoring federal revenues to their long term, postwar, historical average of 18.3% of GDP by 2015. And that is with static scoring, failing to take into account the pro-growth incentive effects of the lower rates. But these timely rate cuts would free the economy to break out to its long overdue, booming, economic recovery, with experience more like the doubling of federal tax revenues that Reagan’s more dramatic tax rate cuts produced in the 1980s. That is why unlike President Obama’s tax policies, there is bipartisan support for tax reform along the lines of Ryan’s proposals, as seen in the Simpson-Bowles proposals, and elsewhere. But even though Simpson-Bowles was President Obama’s own deficit reduction Commission, Obama has displayed exactly zero leadership in promoting such tax reform.
So the American people can now decide. Do they want lower tax rates that will promote economic growth and recovery at last? Or do they want soaring tax rates in the name of social justice that will produce renewed recession and decline?
Contrast the two visions on the deficit. President Obama promised when he was running for office in 2008 that he would cut the budget deficit in half by the end of his first term. But the budget deficit projected for 2012 in his latest budget is $1.327 trillion, the fourth year in a row with deficits that high. Until President Obama, no federal deficit had ever been anywhere near $1 trillion. The previous all time record was $458.6 billion, less than half one trillion, in 2008 in the depths of the financial crisis.
In sharp contrast, under Ryan’s budget, even with CBO’s static scoring, the federal deficit would be reduced by at least 86% by 2017, in just 5 years, to $182 billion. That deficit under Ryan’s budget would be less than 1% of GDP by 2017, at 0.9%, where it stabilizes for 6 years to the end of the 10 year budget window. Most importantly, given the sharp tax rate cuts in Ryan’s budget, with dynamic scoring the budget would probably be balanced by that 5thyear, 2017. That is because in the real world the rate cuts will not lose nearly as much revenue as CBO scores.
So the American people can now decide. Do they want to move rapidly towards a balanced budget? Or do they want to maintain ongoing record deficits?
Finally, contrast the two visions on national debt. With four consecutive years of trillion dollar plus deficits under President Obama, the only trillion dollar deficits in world history, President Obama’s own budget projects the national debt held by the public to total $11.6 trillion for 2012, double the debt of $5.8 trillion in 2008. Consequently, by Election Day 2012, Obama will have doubled the national debt in just one term of office, adding as much to the national debt as all prior Presidents, from George Washington to George Bush, combined.
By 2022, Obama’s own budget projects the national debt held by the public to total nearly $20 trillion. That would be the highest national debt in world history. The gross federal debt, which includes the money the taxpayers owe in the Social Security trust fund and similar federal debts, which will also have to be paid, is projected in Obama’s own budget to total nearly $26 trillion by 2022, just over 100% of GDP that year.
On our current course, under present policies, CBO scores President Obama’s budget as rocketing federal debt held by the public to 140% of GDP by 2030, 220% by 2040, and 320% by 2050, on its way to over 700% by 2080. That would undoubtedly create a Grecian style sovereign debt crisis for America long before that point.
In sharp contrast, even under CBO’s horse and buggy static scoring, Ryan’s budget does serve to get federal debt under control, reducing federal debt held by the public from 77% of GDP in 2013 to 62% by 2022. That debt continues on a sharp decline from there, as the long term effects of Ryan’s structural entitlement reforms phase in. Debt held by the public is reduced to 53% of GDP by 2030, 38% by 2040, and 10% by 2050. That means the national debt is all but paid off by 2050, and would be soon thereafter. In fact, under dynamic scoring it probably would be paid off by then. Consequently, Ryan’s budget solves the looming sovereign debt crisis that Obama’s budget fosters.
So the American people can now decide. Do they want to stay on the path of exploding, unprecedented federal debt ultimately producing a sovereign debt crisis? Or do they want to gradually reduce federal debt over time, eventually paying it off entirely?
These results are achieved under the Ryan budget because the Congressman provides the leadership to address the nation’s exploding entitlement burdens, proposing fundamental, structural entitlement reforms that reduce federal spending more and more as time goes on. But these reforms are carefully crafted, so that Ryan’s modern Medicare reforms are actually better for seniors than Medicare under Obamacare, and Ryan’s modern Medicaid reforms are better for the poor than Medicaid under Obamacare, as I have discussed here and elsewhere. But as with tax reform, Obama disgracefully has failed to provide any leadership on essential entitlement reform at all.
These are the reasons that President Obama’s budget actually got zero votes on the floor of the House, with not a single vote even from any Democrat. Ryan’s budget, by contrast, was adopted by the House majority. Similarly, Obama’s budget got the Big Sombrero on the floor of the Senate as well, with no votes from any Senate Democrat either. While Ryan’s budget also did not pass the Democrat majority Senate, it got more votes there as well than Obama’s budget.
That indicates that the elected Congressional Representatives of both parties, the established political pros, inwardly think Ryan’s budget and solution to America’s rapidly developing fiscal crisis will ultimately have more appeal to the American people as well.