On Monday, February 1, President Obama unveiled his proposed budget for FY 2011. The budget contains $3.8 trillion in spending and a record $1.3 trillion deficit. Let me get this right; you only have $2.5 trillion to spend but you are going to spend $3.8 trillion. First off, how can $2.5 trillion not be enough? That is $7,467 for every man, woman and child in the U.S. Second, a deficit of $1.3 trillion means you are 41% over budget! I guess I've been working in the business world too long. In this world you can't be 5% or even 2% over budget. To do so will find you standing on the carpet of the boss's office. Forty-one percent over will find you cleaning out your desk.
Let's put this in numbers we can better understand. This would be like a family that brings in $50,000 per year, but proposes to spend $70,500 next year. Where are you going to get the other twenty large? I suppose you could talk to a couple of guys named Rocco and Vinny but their penalties for late payment are kind of on the stiff side. No, we all learn to live within our means. Even President Obama admitted that families cannot handle their budgets the way Washington does. We know our expenses can't outstrip our income. If we have to keep a reign on our own spending; we should expect no less from Washington.
In his budget, Obama proposed a $5,000 tax credit for businesses to hire an employee. Far be it for me to disparage any sort of tax deduction but by proposing this Obama shows his lack of economic understanding. Businesses do not exist simply to provide jobs to people; they exist to provide a good or service and make a profit. Employees are hired to perform tasks; increasing productivity and reaping greater profits. If a business owner sees no increase in business he will not hire any employees no matter how many tax credits are offered to them.
Obama wants to let some Bush era tax cuts expire raising the top income tax rate from 36% to 39.6% for individuals making more than $ 200,000 and families making more than $ 250,000. Further he wants to raise the capital gains tax rate from 15% to 20% for this same group (AP). This is exactly what you don't want to do if you want to create jobs. Most people in this group are small business owners who file their taxes as an individual. In addition, this idea of raising the capital gains tax would cut investments limiting the capital available for business expansion.
Obama wishes to limit the itemized tax deductions high earners can claim for charitable donations, mortgage interest and state and local taxes. This idea has a twofold purpose. First, of course, raise money for the Federal Government but also to hurt charitable organizations. You may ask, "Why would he want to do that?" The answer is to make government the charity of first resort, furthering the dependence on the Federal Government and the government's control of peoples' lives.
Obama has proposed a spending freeze. He thinks this would save $ 250 billion over 10 years. This works out to about 0.66% of his FY 2011 budget. Even if you believe that the spending freeze is legitimate; it is nickel and dime stuff. We are nibbling around the edges when we need to be taking big bites.
His "freeze," however, does not extend to entitlements. At some time, sooner, rather than later we must look at entitlements. This is where the majority of Federal spending goes and our present level of spending is unsustainable. We have no choice; the spending will end eventually, one way or the other. Either we start making serious cuts in our entitlement programs and look for ways to phase them out or they will collapse our economy. As Derek Thompson of The Atlantic said, "Our deficit crisis in an entitlement crisis, and the solution won't be pretty."
In the end, this is less a budget and more a big government manifesto. I'll leave you with the words of Representative Paul Ryan, the Ranking Republican on the House Budget Committee, after reading Obama's budget, "Make no mistake: This is a budget aimed to advance the administration's philosophy and ideology. By increasing taxes and letting the country spiral into debt, this budget is a firm step toward transforming America into a collectivist society overseen by a social-welfare state."