The Budget as Class Warfare

The Budget as Class Warfare

By FrontPage Magazine | 2/27/2009

From the moment he launched his presidential campaign, it was clear that Barack Obama had big plans for the country he proposed to lead. Barely a month into his tenure, President Obama has put a price on that transformational vision: $3.5 trillion.


That is the projected cost of the 2010 budget that the Obama administration unveiled yesterday in a sprawling, 134-page blueprint. Echoing the soaring rhetoric that is the president’s trademark, the budget heralds “a new era of responsibility,” vows to restore “America’s promise,” and outlines a fulsome list of spending priorities that spans everything from education, health care, infrastructure, and defense to “alternative energy,” while making room for subsidies like, for instance, a “Nurse Home Visitation” program that will pay trained nurses to visit low-income and expecting mothers.


All of which compels the question: How to finance the president’s pricey wish list – particularly in the midst of an economic slowdown that shows no immediate sign of reversal? Here is where the administration’s lavish budget becomes something other than the much-needed medicine for the nation’s ills that it affects to be.

Although the words “tax increase” appear nowhere in the draft budget, that seems to be the administration’s preferred method of payment. To be exact, the president is proposing to raise taxes on families making over $250,000, who make up approximately 2 percent of the top income earners, in the process repealing two of the tax cuts passed under President Bush. Starting in 2011, the administration would raise the top two income-tax rates from 33 to 36 percent and from 35 to 39.6 percent. Overall, the president’s budget features $1 trillion in tax increases on higher earners over the next decade. According to President Obama, these increases “restore a basic sense of fairness to the tax code.”


But there is another, less generous way to describe them: class warfare. Under the administration’s scheme, two percent of income earners will be forced to subsidize what the budget calls “95 percent of working families,” including the 40 percent of Americans who pay no income taxes whatsoever – a redistributionist power grab in all but name. As it applies to politics, one definition of fairness holds that the government should be neutral between its citizens, regardless of the size of their paycheck. Plainly, that is not the definition favored by the Obama administration. And that’s just of one the flaws of the administration’s two-percent solution.


Supposing this soak-the-rich policy was justified, would it be sufficient to cover the costs of the administration’s budget? The answer, it seems, is “No.” After crunching the numbers, the Wall Street Journal concluded that even after increasing taxes on the top two percent of Americans, the administration would still fall far short of its funding ambitions. Indeed, using statistics from 2006, the latest year from which tax figures are available and one that preceded the economic downturn, the Journal concluded that even a “tax policy that confiscated 100% of the taxable income of everyone in America earning over $500,000 in 2006 would only have given Congress an extra $1.3 trillion in revenue. That’s less than half the 2006 federal budget of $2.7 trillion and looks tiny compared to the more than $4 trillion Congress will spend in fiscal 2010.”


In other words, raising taxes on the highest earners won’t pay for the Obama budget. Either the administration will have to scale back its spending proposals or it will have to seek money from taxpayers making less than $250,000. In all the thoroughness of its hundred-plus pages, the budget released yesterday somehow neglected to mention that little detail.


In its defense, the administration assures that its tax increases will be supplemented by future economic growth, which will allow for the reduction of some spending. Unfortunately for this theory, the administration’s projections of 3.2 percent growth are almost certainly exaggerated; private sector forecasters suggest that decidedly less vigorous growth, around 2 percent, is more likely. All the more reason to think that the administration will elect to increase taxes to meet its budget aims.


The administration’s preference for raising taxes is nevertheless curious, conflicting as it does with its pledge create jobs in dire economic times. As the conservative Heritage Foundation points out, allowing the Bush tax cuts to expire, as the administration intends, will mean that 709,000 fewer jobs will be created between 2011 and 2016. Similarly, Heritage estimates that there would be 270,000 fewer job opportunities in 2011 if President Obama increases taxes on capital gains and dividends. Yet, according to the proposed budget, he intends to do just that. With so many Americans looking to the new president as a savior in a time of crisis, it would be a dark irony indeed if it turned out that his tax policies were stalling economic recovery.


The best that can be said for the administration’s budget is that it is not a political fait accompli. As a nonbinding recommendation to Congress, it will be revised, redrafted and repeatedly dueled over in the months ahead. On the other hand, Democratic majorities in Congress are unlikely to temper the administration’s excesses – House Speaker Nancy Pelosi’s biggest gripe against the White House is that it didn’t move to raise taxes fast enough – and the resulting spending plan may well prove worse than the one released this week. In a worst-case scenario, the administration’s bloated $3.5 trillion budget – tax hikes and all – may yet be recalled as model of fiscal responsibility in the Obama years.

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