Business Ethos Blog

President Obama’s Budget: DOA?

Dr. David Mielke, Retired Dean of the College of Business at Eastern Michigan University

Dr. David MielkePresident Obama called for sweeping tax increases last Monday in a budget proposal that dropped any quest for fiscal grand bargains with Congress.  Is his proposal for more than $1 trillion in new tax measures over the next decade dead on arrival in Congress?  Why were there no new measures to curtail entitlement spending?  No mention of trimming the deficit?  Nothing to reduce the national debt?  Are these issues no longer important for the economy?  Will the Republican Congress pass the proposed budget?  What is the “Right Thing to do?”  Let’s look at the issues:

1.  The President’s budget calls for $3.99 trillion in spending for the fiscal year starting October 1, 2014, up 6.4% from the current year.  It is expected that revenues will total $3.53 trillion, resulting in a $474 billion deficit.

2. The predicted revenues will boom in 2016 to a new federal record of $3.53 trillion, which is a 16.7% increase over 2014 and a 67.5% increase above 2009.  How many people expect a 16.7% increase in income in 2016—or a 67.5% increase since 2009?

3. As a share of the economy, tax receipts will climb to 18.7% of GDP in 2016 from 17.5% in 2014 and then settle in at a 19.4% average through 2025.  That’s 2 percentage points above the 30 year average of 17.2%.

4. The $3.99 trillion in spending is a 7% increase from 2014 and about $1 trillion more than the feds spent in 2008 for an increase of over 30%.

5. The average budget deficit with the proposed budget over the next 10 years is $567 billion, higher than any administration since World War II.  The total national debt will be 75% of GDP this year, the highest level since 1950 and up from only 39% in 2008.

6. The President proposes a 14% tax on foreign profits, and 19% in the future, if companies repatriate any of the more than $2 trillion in profits they hold overseas.  This is down from the current 35%, but other countries do not tax foreign earnings.  The Treasury expects to collect $268 billion over 10 years.  In 2014 the entire corporate income tax raised $321 billion.

7. There is a new tax on capital gains, increasing to 28% from 23.8%.  The rate was 15% when PresidentObama took office.

8. Other examples of tax increases include a minimum 30% tax rate for high income individuals, limitations on income tax deductions, limits on retirement accounts and limiting corporate interest deductions.

9. President Obama’s domestic priorities or so called investments range from billions more for non-fossil fuel energy programs to free community college tuition to a new $478 billion program for public works labeled infrastructure.  There is also more spending through the tax code to increase transfer payments through low income tax credits and other benefits.

10. Entitlements remain untouched.  The share of the budget that is mandatory, not part of annual budgeting such as social security, Medicaid and Medicare will be 15.1% of GDP in 2016 and jumps to 16.6% in 2020, gradually crowding out everything else the government is supposed to do.  Medicaid will jump to $567 billion in 2025 from $301 billion in 2014.  The social security so called surplus is shrinking and goes negative in 2017, meaning that senior benefits will soon have to be paid out of general tax revenues.

11. Interest on the US debt will be $200 billion, benefiting from historically low interest rates and could balloon to $600 billion or more as interest rates climb to historical norms.


Is it just a coincidence that the proposed budget is just short of $4 trillion?  Is the Obama budget another example of tax and spend?  Can the Republicans force budget restraint?  Will the Republican budget set off a dueling budget fight that will result in another stalemate?  Will we once again have a continuing resolution budget on September 30, because a budget agreement can’t be reached?  What is the “Right Thing to do?”  The Republicans must force spending constraint and pass as promised, a budget that will balance the federal budget within 10 years.  As has been shown historically, tax increases do not improve the economy.  President Obama’s terms in office have produced the largest deficits and increases in national debt in history while economic growth has averaged over 1% below historical averages.  The recovery after the recession has been the worst in history.  Isn’t it time for the President to look at what he has done to the economy and its poor performance and start to do just the opposite of what he has done in the past?  His budget is DOA.