Obama Administration Budget and Its Effects on Americas Economy - Essay Example

Obama Administration Budget and Its Effects on America’s Economy In defense of President Obama’s $3.6T budget, which has been criticized for its enormous cost, he stated that the proposed plan is "inseparable" from the general approach for the country’s economic recovery. The president stressed that what America cannot allow is to sacrifice long-term growth and investments that are important to the country’s future, Obama administration budget focuses on health care, energy, education, and matters that can build a foundation for long-term economic growth. This statement openly opposes the short-lived prosperity that America has witnessed over the last several years." President Obama also reiterated his pledge to cut the deficit in half over the next five years. (Keck, et. al., 2009). The economic recession that America is presently experiencing is being suffered from coast to coast.  Families, small businesses, and family farmers are struggling to make ends meet.  People are tightening their belts and making difficult budget decisions In order to survive,. Likewise, Americans expect their government to do the same.  Sadly, the recent budget plan released by the Obama administration failed to meet the citizens’ expectations.  In this time of widespread unemployment and the budgets of families and small businesses are tight, Obama’s outrageous budget outlines a $1.4 trillion tax raise in order to pay for enormous new government spending.  Some Americans believe that this budget is not the answer.  The tax increases it calls for would hurt small businesses, kill jobs, and further prolong our economic downturn (Wicker, 2009). Universal Tax Hike: Obama’s budget plan aims to expand the size and scope of the federal government in every phase of our economy.  Under this plan, spending would be maximized.  Before the country entered this recession, our national debt was about 40 percent of our gross domestic product (GDP).  Drastic increase in government spending and nationalizing things like healthcare and student loans, this budget blueprint would deliver the biggest European-style Socialism that we have ever seen in the country. Instead of guiding our country out of this recession by outlining a plan that would put more money into the hands of taxpayers and job creators, Obama’s budget would increase taxes on every American, stifling investment and job creation at a time when our country greatly needs both. The budget asserts to increase taxes only on “the rich,” but in reality the burden would fall on the small businesses that create 70 percent of the new employments in our country.  Moreover, investment income would be taxed at a higher income, hurting families and retirees.  Certain homeowners would also be targeted by having their home mortgage interest deduction limited. If this happens, it would place an additional drag on our struggling housing market (Wicker, 2009).   Decreased Economic Activity: Now that our country is in a recession, America is concerned with the depressing consequences this budget’s tax increases would have on our already slow-moving economy.  Recently, some small business owners were opting to limit productivity in order to escape the planned Obama tax hike. Responsible Blueprint Needed: In a period of only two months this year, the Obama administration have spent more money than the combined cost of the Iraq and Afghanistan wars and the response to Hurricane Katrina.  Limits should be applied if a temporary increase in expenditure is needed to help our economy.  The administration must show financial discipline.    America is encountering severe economic challenges, and the president and Congress must be able to make the sturdy financial alternatives necessary for the nation’s recovery.  The proposed budget is far from its goal if it would only rely on tax increases and massive new spending (Wicker, 2009). Moreover, an additional multibillion-dollar bailout for banks and other financial institutions, which the administration will soon propose, is expected to add more pressure to the federal governments finances (Hook, 2009). Administration Budget Changes From President Bush to President Obama After eight years of Bush administration budget practices that often cover-up federal spending, President Obama is planning a new strategy of putting on the books as many costs as possible to demonstrate the extent of the nations economic dilemmas. Obamas first budget will consist of money at the outset for the Iraq war, the military buildup in Afghanistan and other military expenses. The strategy is in contrast to Bush administration, which often tucked such costly commitments into separate spending requests that would go to Congress later. Bush would release a budget that would show declining deficits into the future. However that budget would leave out most war costs and use several unworkable assumptions, including over-confident predictions of economic growth and rising federal revenues. There were significant costs that were excluded from the budget because the Bush administration pretended that certain policies that everyone knew would continue would not continue. One practice was to incorporate revenues from the alternative minimum tax in the projections. Congress passed the Alternative Minimum Tax four decades ago to prevent millionaires from escaping taxes. But lawmakers neglected to index the income levels for inflation, so the higher tax rate would hit a large part of middle-income taxpayers unless lawmakers passed Alternative Minimum Tax relief. But for budget reasons, the Bush administration continuously believed that the AMT would succeed in future years, impractically increasing tax-revenue assumptions by nearly $1 trillion over 10 years. Similarly, every year the Bush administration issued an initial deficit projection that was much higher than other economists projections. That way, when the final deficit count was released, the administration could claim it had brought the deficit down. Deficits accumulated each year that President Bush was in office, from $158 billion in fiscal 2002 to $455 billion in 2008, totaling roughly $2.5 trillion. The legacy of Bushs federal deficits leaves Obama in a difficult position, in that in the short term he has to make deficits worse (Parsons & Reynolds, 2009). According to some critics, President Obama has structured his budget as a break from the "failed policies" of the Bush Admin­istration. In fact, his budget doubles down on President George W. Bushs borrow, spend, and bail­out policies. For example: - President Bush inflated the federal budget by a historic $700 billion through 2008. President Obama would add another $1 trillion. - President Bush began a string of expensive finan­cial bailouts. President Obama is accelerating that course. - President Bush made a Medicare drug entitle­ment that will outlay an estimated $800 billion in its first decade. President Obama has proposed a $634 billion down payment on a new govern­ment health care fund. - President Bush augmented federal education spending 58 percent faster than inflation. Presi­dent Obama would double it. - President Bush became the first President to spend 3 percent of GDP on federal antipoverty programs. President Obama has already in­creased this spending by 20 percent (“Keeping an Eye on ‘The One’ Barack Obama,” 2009). How Will Obama’s Administration Budget Help or Hinder Our Economy? President Obama’s budget predicts almost unbelievably strong economic growth over the next decade. The administration itself projects massive budget insufficiencies. The soon-to-be-soaring economy presumed by the Obama administration would generate record tax revenues, then reducing deficits should not be so difficult. When times are good and the economy matures quickly, everything goes well for the federal budget. Income tax revenues rise as wages increase, capital gains taxes ride a wave of stock-market returns, and unemployment, welfare, and disability costs drop as employment goes up. Simultaneously, these tend to move the budget toward surpluses. When times are bad, by contrast, tax revenue drops and social spending mounts. Since the Kennedy administration, high economic growth has drawn a parallel with lower budget deficits. The Obama budget would be the exception to this rule: his administration predicts high economic growth, considerably higher than estimated by the nonpartisan Congressional Budget Office and the private-sector projections. President Obama would also run the highest budget deficits of any peacetime administration in the past. But in all fairness to President Obama, he inherited the current recession and much of the motivation spending would have taken place even under a Republican president. From 2010 onward, Obama’s administration projects that the economy will grow at an average rate of 3.2 percent. Nevertheless, by his own hopeful projections, Obama would run budget deficits, averaging 3.9 percent of Gross Domestic Product. If President Obama’s higher economic growth materializes or disappears, Americans can be confident that his budget deficits are not underestimated. Big government may be back, but balanced-budget liberalism is not. Disbursing more taxes to steady the budget at least presents a balance: while higher tax rates decrease incentives to work, lower budget deficits could increase national saving, boosting future productivity and wages. But higher taxes and increasing budget deficits together are completely another matter. President Obama’s tax plans increase marginal rates at all income levels, hurting incentives to work. Similarly, big budget deficits will waste away the economy of capital and trim down future investment. This forecasts lower future standards of living for Americans (Biggs, 2009). For fiscal year 2010, Obama’s topline budget projections allocate $534 billion to the Department of Defense, the biggest allocation of any department. The amount represents roughly a 4-percent increase over the $513 billion allocated to the Pentagon in 2009 under the Bush administration, and $6.7 billion more than the outgoing administration’s projections for 2010. Supporters of a hugely increased defense budget, as well as those who support the Pentagon’s internal request for $584 billion for FY2010, have argued that Obama’s baseline represents a budget cut in a time of war. They opposed that this so-called cutback will unnerve our allies, embolden our enemies and, by ending programs like the Future Combat Systems, will not only weaken defense but hurt our economy (Korb, 2009). References Biggs, A.G. (2009). Obama’s Truly Exceptional Budget and Tax Plans. The American, A Magazine of Ideas. Retrieved 6 May 2009 from http://www.american.com/.../obama2019s-truly-exceptional-budget-and-tax-plans Hook, J. (2009). Obama Budget Faces New Hurdles. Los Angeles Times. Retrieved 6 May 2009 from http://www. latimes.com/.../nation/la-na-obama-budget20- 2009mar20,0,1486768.story Keck, K., et. al. (2009). Obama Defends his Budget as Essential to Recovery. CNN Politics. Retrieved 6 May 2009 from http://www. cnn.com/2009/POLITICS/03/24/obama.news.conference/index.html Keeping an Eye on ‘The One’ Barack Obama. (2009). Nobama Zone. Retrieved 6 May 2009 from http://www.nobamazone.com Korb, L. (2009). Obama’s Defense Budget is on Target. Center for American Progress. Retrieved 6 May 2009 from http://www.americanprogress.org/issues/2009/02/defense_budget.html Parsons, C. & Reynolds, M. (2009). Obama’s ‘Straight-up’ Budget. Philadelphia Inquirer. Retrieved 6 May 2009 from http://www. philly.com/inquirer/.../20090224_Obama_s__straight- up__budget.html Wicker, R.F. (2009). Obama’s Budget Plan Will Hurt Citizens and Recovery. Gulf Coast News. Retrieved 6 May 2009 from http://www.gulfcoastnews.com/GCNnewsWickerObamasBudgetHurts030709.htm Read More