Pres. Obama Releases Budget Plan

[Pangloss]

http://www.reuters.com/article/topNews/idUSTRE51G5X720090222

 

It is audacious, especially when you look at a key statistic that the reporters haven't calculated yet (more no that below). But I think it's what has to be done.

 

First, a key quote from the article above:

 

A second administration official confirmed a Washington Post story that said Obama would propose boosting tax collection from about 16 percent of the economy this year to 19 percent in 2013, while federal spending would drop from about 26 percent of the economy to 22 percent in the same period.

 

He said Obama would let tax cuts implemented by his predecessor George W. Bush for Americans earning more than $250,000 expire on schedule at the end of 2010, when the tax rate would rise from 35 percent to more than 39 percent.

 

Very clever of the president to phrase his statement around values based on "the economy" rather than the budget. The budget is only 3 trillion versus 14 trillion for the economy, so the figures look very small, when in fact they're quite large.

 

A cut from 26 to 22% of "the economy" represents 4% of $14 trillion. That's $560 billion. In other words, he's saying that he's going to cut spending by $560 billion. From a $3 trillion budget. That's, what, about 19%?

 

The article also talks about how some of the savings would come from ending the war in Iraq, but the problem with that statement is that that war spending, which the article states as $190 billion in 2008, wasn't on the budget. And it's unclear exactly how the deficit is being calculated -- the $1.5 trillion figure clearly does not include the new stimulus package, for example. (That starts to get really complicated, too, especially when you realize that the stimulus package included tax cuts, which affect next year's budget.)

 

At any rate, I guess the thing to really wonder is what it is that could be cut for a savings of $560 billion. Even if we subtract, say, $100 billion for reductions in Iraq (probably ridiculously optimistic, but what the heck), you've still got to find $460 billion to cut somewhere.

 

Discretionary spending is the usual target, which is basically spending that's not part of entitlement programs (where we guarantee certain spending because of a law that was passed). The king of that hill is Defense, which is something in the general neighborhood of the amount we need to cut ($613 billion this year) (casual reference).

 

Unfortunately Defense isn't as easy to cut as it sounds. People assume that it's all going to buy F-22s and Trident submarines, but in fact only something like 20% of the Defense budget goes to buying things (casual reference). Most of it typically goes to payroll and operations. So really the only way to make BIG cuts in Defense is to lay people off. And he'd be considering that at a time when unemployment is one of the chief economic concerns. Hm.

 

So let's say you cut a couple hundred billion from Defense anyway, and consequences be damned. That's still going to leave you with a shortfall of several hundred billion dollars that you need to cut.

 

Where would those cuts come from? And here I come to my key point, so I'll go ahead and bold it for clarity: Other discretionary spending in the current budget came to $520 billion. This is basically the budget of the Executive branch -- all those Departments of This and Agencies of That. So this includes homeland security, the war on terror, the war on drugs, and so forth. It also includes Education, the EPA, funding for scientific research, NASA, and so forth.

 

So we spend about $520 billion in that department, and we're looking to cut about $300 billion from it. Not a pretty picture, is it?

 

My my, it's going to be an interesting year for politics!

[jackson33]

The entire plan is a misrepresentation of facts and double talk...

 

Actual 2009 Budget and estimated incomes, based on GWB Budget, from last Oct. to Oct. 2009.

 

Estimated;

Revenue to Federal Government 2.7 Trillion

Expenses, both mandated and discretionary 3.1 Trillion

2009 GDP 15.007 Trillion this means taxes are based on 18% of GDP NOW.

 

 

He is basing figures on the remaining time from Jan. 20th 2009 to Oct., yet holding to an entire 2009 estimated GDP. No year in the past 60 years have tax collections been less than 18-19% of GDP...The main reason collections have held, in the first place is the increase in GDP of 50% from 2002 to 2008.

 

GDP, cannot possibly hold at 15T in 2009 or in 2010 IMO. Revenues certainly are not going to increase, probably dropping 10% (or more) as most those that pay the majority of taxes including Income Taxes, Capital Gains, and Corporate Taxes,have been planning on this Administration since November and others (including business) since Obama overtook Ms. Clinton in in August 2008. Then SS/Medicare, which makes up a good share of revenue will be well down. Corporate profits have been tanking for two quarters and the big payers (oil related) will be well off their recent highs. I fully expect, based on this lack of revenue, between Congress and Obama 2009 Tax codes will be enacted and back to 1/1/2009 incomes. Keep in mind the Interest due on just the programs enacted from Oct. 2008 to date (at least 2T and growing) the Interest due will add to Mandatory spending.

 

 

Boring stuff, but had to give my 2 cents....

[bascule]

Very clever of the president to phrase his statement around values based on "the economy" rather than the budget

 

...except taxes are levied in proportion to "the economy", whereas "the budget" describes how taxes are spent.

 

Given the context, I think the comparison is appropriate.

[Pangloss]

Now that's interesting. I thought taxes were based on MY income? Does that come from the language that states what the tax level should be? Do you know where that language comes from, by any chance? I'd be interested in hearing more about it.

 

You're right, that would be appropriate, although it was clearly also used for the effect I described.

[Cap'n Refsmmat]

Your income is part of the GDP, which is "the economy."

 

(If you look at GDP from the income perspective, of course. You could model it in terms of consumption as well.)

[Pangloss]

Oh of course, that does make sense -- when people are making more money, tax collection goes up, and vice-versa, right alongside GDP. Thanks.

[blike]

Obama's first budget predicts the deficit for this year will soar to a whopping $1.75 trillion, according to administration officials who spoke on condition of anonymity before the public unveiling of the budget Thursday.

 

As part of the effort to end the nation's financial crisis, the administration will propose boosting the budget deficit by an additional $250 billion this year - to the record $1.75 trillion - enough to support as much as $750 billion more in spending under the government's rescue program for financial institutions. That would more than double the $700 billion bailout effort passed by Congress last October.

He needs to spend more now to spend less in the long run, or something like that.

[jackson33]

Your income is part of the GDP, which is "the economy."

 

(If you look at GDP from the income perspective, of course. You could model it in terms of consumption as well.)

 

Actually, Incomes have nothing to do with GDP. GDP, whether based on per capita or the total is simply the value of goods and services produced and sold (factory inventories, another topic do not count). Disposable incomes, what your talking about, can be increased by borrowing (from bank/credit cards) and another problem. Under GNP (Gross National Product) a different and rarely used measure for an economy, is based on income/per capita...

[iNow]

In line with the calls for a transparent government by the Obama administration, the full 2010 budget is available for viewing here:

 

http://www.whitehouse.gov/omb/budget/

[Pangloss]

Yes, and it's a doozie. A massive expansion, and fully FIFTY PERCENT of it paid for by deficit spending. Holy mother of god.

[ecoli]

By this rough estimate, the only way to pay for it (if Obama keeps his word about his tax plan) is by doubling taxes on the upper 2% of earners (in dollars, not marginal rates). That would, of course, stifle investments so we're just going to sweep it under the rug for now.

 

This doesn't matter if the spending multiplier can boost aggregate demand so that we can keep up the apparent GDP. Of course, we'd just using more deficit spending to keep up consumption of goods we could no longer sustain with personal debt any longer.

 

What Obama should be trying to do (if he really insisted on doing something) is reducing the tax burden as much as possible and maybe finding new sectors where there is sustainable growth.

 

Either way the GDP is largely based on debt-fueled consumption. It was only a matter of time before the economy shrank to the real amount of money in the economy. The question is, how long before federal deficit spending turns into apparent growth and how long before that crashes again?

[Cap'n Refsmmat]

Actually, Incomes have nothing to do with GDP. GDP, whether based on per capita or the total is simply the value of goods and services produced and sold (factory inventories, another topic do not count). Disposable incomes, what your talking about, can be increased by borrowing (from bank/credit cards) and another problem. Under GNP (Gross National Product) a different and rarely used measure for an economy, is based on income/per capita...

http://en.wikipedia.org/wiki/Gross_Domestic_Product#GDP_income_account

 

GDP can be measured by consumption of final goods or by looking at incomes. The numbers should be about the same.

 

It's the business cycle: if you buy something with money, you must have gotten that money as income at some point.

[Pangloss]

According to ABC News last night, taxes will be raised in three categories:

 

- As previously discussed, the Bush tax cuts will be allowed to expire, raising the income tax for earners over $250k/yr from 35% to a bit over 39%. Ugly though it may be, this is consistent with the president's campaign promises.

 

- Capital gains taxes will be increased to the extend that they will produce an additional revenue of up to something like $180 billion/year. In spite of the President's promises, this would affect all Americans who own homes, including those who earn less than $250,000/yr.

 

- A reduction in the tax deduction for charitable contributions, also intended to increase revenue by somewhere between 100 and 200 billion dollars per year.

 

The last point was a bit surprising but I think it makes sense. I haven't seen a lot of analysis yet of how deep that cut would be in terms of its affect on the average contributor.

[jackson33]

http://en.wikipedia.org/wiki/Gross_Domestic_Product#GDP_income_account

 

GDP can be measured by consumption of final goods or by looking at incomes. The numbers should be about the same.

 

It's the business cycle: if you buy something with money, you must have gotten that money as income at some point.

 

Yes, but it's a wild guess and the reason GDP has been used in recent years to evaluate an economy. Estimated GNP/GNI were used and still are where accurate record keeping is a problem...

 

A couple for instances; Inheritance Money (not earned income), Underground economy, usually associated with illegals (not earned income) and so on, sale of property (farm/home business) or any Capital Gains (not earned income) and of course refinanceing a home, borrowing or use of credit cards (Are not earned incomes. If you argue and some do, that it was at some point a wage to someone, that would be fine, but you cannot determine an annual evaluation of an economy with so many variable. What is sold or bought (goods/service) and in one year, has been the determining factor for some time...Think you'll find the arguments for a National Sales or any Fair Tax, opposed to graduated income taxes, employs the same reasoning.