As we watch balance sheets fall to pieces on Wall Street, now is probably a good time to examine the fiscal agenda of the man who promises change: Barack Obama. The next President will deal with some difficult fiscal issues, and Obama wants us to believe that he is somehow different than your typical politician, but he is not.
Barack Obama has made some big promises over the past year, but none is more astonishing than his pledge to cut taxes, balance budgets and increase government spending. While he is surely capable of fulfilling any of one of his fiscal pledges, Obama cannot do all three at the same time. This is probably why Obama has started breaking these promises before Election Day and will continue to break these promises should he find himself elected.
One the more underreported stories this cycle is the effect Obama’s tax plan will have on the deficit. His tax plan will raise taxes on the wealthiest 5% of families. He also proposes a variety of new tax credits and enhancements. The estimated cost according to the Tax Policy Center is $2.9 trillion over 10 years.
Unfortunately, the Obama plan will widen the projected deficit. According to the Tax Policy Center (TPC), Obama's tax plan “would substantially increase the deficit compared with current law and would add nearly $3.3 trillion to the national debt over ten years”
Obama’s deficit presents a big problem, because it runs contrary to his promise to balance the budget. Obama’s website writes that he supports pay-go budgeting, which to most Democrats, means that he must offset the costs of his tax plan with new revenue (e.g. taxes), or additional spending cuts. In this case, Obama’s tax plan, would require $2.9 trillion tax increase, or a $2.9 trillion cut in spending.
Given that Obama has already laid out his tax plan, and that it does not appear to include an additional $2.9 trillion tax increase, he must be planning to cut spending. He is not.
Obama wants to increase spending, by at least a trillion dollars over ten years. Because Obama has been speaking guilefully for so long, estimates vary widely on the exact costs of his spending. A Republican analysis puts his total spending at $1.4 trillion over five years (that’s roughly $2.8 trillion over ten). Two reasonable analyses, one by the TPC and another by the National Taxpayer's Union Foundation (NTUF) put his new spending estimates at between $1.6 trillion and $3.4 trillion over 10 years respectively. The TPC analysis is significant because it appears to be limited to the costs of Obama’s health care plan. Even the liberal Paul Krugman doubts that the Obama tax plan will deliver enough revenue to pay for universal health.
Depending on the math you choose to believe, Obama will need to cough up at least $4.5 trillion and as much as $6.3 trillion to pay for the costs of his spending and tax cuts.
Given that Obama has yet to identify $4 -6 trillion in unnecessary government spending, he will be forced by standard Democratic pay-go rules to break his promise to provide tax cuts for 95% of families. According to one Republican analysis, Obama will need to raise taxes 61% on those earning over $62,000 if he expects to balance the budget while keeping his promise to increase spending.
Clearly, Obama cannot keep his fiscal promises because he cannot cut taxes, increase spending and balance the budget. To cut taxes, he will have to abandon either his plans to increase spending and/or balance the budget. To provide universal health care, he will need to break his promise to provide middle class tax cuts and/or balance the budget. To balance the budget, he will probably need to abandon his tax plan and/or his promise for universal health.
Obviously confronted with the illogic of his campaign rhetoric, Obama is now retreating from his promise to balance the budget. He has adopted a clever accounting trick that eliminates the costs of his tax cuts, even though the TPC says that these cuts will cost trillions, increase the deficit and enlarge our national debt. So much for pay-go budgeting.
My guess is that Obama will have no option but to continue breaking his fiscal pledges. Working with what should be Democratic Congress, Obama will probably let the Bush tax cuts expire, without much modification except for the very lowest brackets. He will also permit deficit spending, which could hit record highs in light of recent government bailouts. This environment will force Obama to abandon his health care schemes faster than Bill Clinton did in the 1990’s.
With what are we voters left? Not change, just a politician making promises that that he knows he cannot possibly keep without taking our current fiscal difficulties and making them worse. Either way, by act of commission or omission, Obama will probably leave our national balance sheet in worse shape than some financial firms. That is of course, if he succeeds in getting elected.
Christopher Coffey is a Republican consultant, veteran of numerous political campaigns and contributor to AndreaTantaros.com.