- The White House's proposed 2011 budget would spend $3.8 trillion and increase the deficit to $1.6 trillion.
- A new $100 billion stimulus package is one culprit behind the bigger number, though a large part of the first stimulus remains unspent.
- To control future deficit growth, the administration proposed raising taxes on individuals and businesses over the next decade and cutting spending.
- This year's budget will change much before it's approved—and anything further out is nearly impossible to predict.
President Obama released the White House's budget blueprint Monday—and it's a doozy. With $3.8 trillion in total spending, the deficit would increase to $1.6 trillion—$100 billion more than last year's.
A new $100 billion "jobs" package is just one culprit behind the bigger number. Not a "stimulus" bill, mind you. "Stimulus" is touchy, politically, but everyone loves "jobs"! Never mind that it's all six of one, half a dozen, etc. (And are we to understand the stimulus bill wasn't about jobs?) Any rate, the House passed its "jobs" bill last year (bigger than the president's), and the Senate is debating its version now (smaller than the president's). All this despite the fact the first $787 billion is still being doled out, and its effects will naturally lag its dispersal.
Fiscal stimulus can indeed help spur economic growth (already turning higher), but it can't change the natural order of economic recovery. Unemployment will improve—but later, after firms see a serious uptick in sales. And even then, hiring may start gradually—just as it's done in every past US recession we can measure. That in no way means more spending is required in the meantime—unless you're worried about reelection and need a few stump speech bullet points come November.
The budget proposal only gets more wily from there. Attempting to toe the line between job and deficit worries, the White House would rein in deficits by raising taxes over the next decade. Specifically, the Bush tax cuts would be allowed to expire for top bracket earners (individuals making over $200,000 or joint filers making over $250,000). Big businesses (banks, multinationals, and oil firms) would see their rates rise also.
Of course, the feds will cut spending too, right? Well, sure—politicians wouldn't ask for more without a few (completely sincere) austerity measures of their own. The White House proposes a "surgical spending freeze" starting next year. In other words, they may take a scalpel to the low-hanging fruit of an already bulging budget. But we'll have to wait until next year to see that happen. Not to mention, any "freeze" would exempt the fastest growing (and biggest) portions of government spending—entitlements (Medicare, Medicaid, etc.).
Spend today and cut tomorrow is a classic political ploy to kick the can down the road. But this year's budget (or any other future spending plans) is anything but set in stone. What the president wants is rarely what he gets in the budget process.
Fierce debate will slice and dice the White House's proposal in the coming months. Always been that way. Like last year's proposals to limit charitable deductions, tax fund managers' profits as income not capital gains, and pay for spending increases by selling carbon credits—all axed in the legislative process. (And incidentally a few were added back in again this year. If at first you don't succeed...)
Beyond this year, you may hear speculation on spending in 2012, taxes in 2015, or deficits in 2020. But tax hikes, tax receipts, and spending (even just a few years out) depend on the future ins and outs of economic growth and political power. If the wonks in the White House could predict the economy with even reasonable accuracy, they wouldn't be in politics. And political winds are even more fickle—just a month ago the priority was health care. See how fast that faded?
While the administration budget proposal reveals much about what the president hopes will be popular politically, it tells us little about the ultimate market impact. Whatever its final form, this year's deficit is likely to be bigger than last year's—maybe much bigger. And while that may leave you a touch sour, remember last year's deficit was much larger than the year before too—yet the stock market rose dramatically.