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Analysis: Obama's Limited Details in Economic Address Would Still Add Billions to Federal Budget Deficit

by Pete Sepp / /

(Alexandria, Va.) -- President Obama's address last night has been called a "State of the Union"-type speech without as many specifics, but according to the National Taxpayers Union Foundation (NTUF), even the few fiscal details he made clear would pile at least $62.7 billion onto the annual federal budget deficit -- and possibly much more. Since the 1990s, NTUF has conducted line-by-line analyses of State of the Union speeches as well as the platforms of Presidential candidates.

"It seems the cure prescribed by President Obama to bolster the nation's ailing economy is more taxpayer dollars," NTUF Senior Policy Analyst Demian Brady said. "His speech last night continued some of the main themes he discussed during the campaign, such as expanded access to health care and education. However, his more recent emphasis on stronger fiscal discipline still lacks a list of remedies to make a prognosis of lower budget deficits in the near future."

Brady has identified 14 items in Obama's speech that could have an impact on federal outlays: four that would definitely increase spending, two that would decrease spending, and six whose net effect is indeterminate. Brady noted that several of the "cost-unknown" items could become clearer once it is established whether or not the budget Obama is set to present later this week will scale back his campaign promises. If not, his health care and education plans could add more than $118 billion to the $62.7 billion annual total. Among Obama's proposals last night:

  • Health Care (unknown): The President announced his budget would make a "down payment" on universal access to health care. It is unclear what this will mean in terms of policy and cost, but the National Bureau of Economic Research's analysis of Obama's health care plan during the Presidential campaign put the price tag at $509.5 billion over five years ($101.9 billion per year). The Obama campaign itself estimated its plan would cost $325 billion over five years, which assumes a generous accounting of savings that might not be realized.
  • Education (unknown): The President promised to "ensure that every child has access to a complete and competitive education -- from the day they are born to the day they begin a career." During the campaign, Obama outlined an ambitious education reform plan that would cost $18 billion a year (this includes the incentives for teachers also mentioned during his address). He also promised to expand the government's commitment to charter schools, which could cost an additional $200 million.
  • Banking (indeterminate): Obama called for a new lending fund "to help provide auto loans, college loans, and small business loans." According to the Associated Press, this may be a reference to a Federal Reserve program "established in the Bush administration but never activated." He also promised to support the financial system, which could possibly lead to a sequel to last year's $700 billion Troubled Asset Relief Program (TARP) bailout.
  • Housing (indeterminate): He repeated his call for a $75 billion mortgage assistance effort, which would be carved out of existing TARP funds.
  • Environment (spending increase): Obama urged Congress to send him legislation with a market-based cap on carbon emissions. This plan would create a cap-and-trade system of emission allowances. The proceeds of the auction for the allowances will be used to administer the program, as well as provide funding for various new energy programs. In the 110th Congress, the Congressional Budget Office (CBO) estimated it would cost over $56 billion a year.
  • National Service (spending increase): Obama called for passage of the Kennedy-Hatch "Serve America Act" (S. 277). The text of the bill authorizes $210 million annually.
  • Universal Savings Account (spending increase): This was the major new proposal of the evening and revives a plan from the Clinton Administration and the Presidential campaign of Hillary Clinton. The plan would use refundable credits to encourage increased savings. Then-candidate Hillary Clinton said her American Retirement Accounts Plan would cost $20 billion to $25 billion a year, but a breakdown of the revenue and spending effects is not available.
  • Defense (spending increase): Obama vowed to increase the number of soldiers and marines. During the campaign, he called for an expansion of our ground forces by adding 65,000 soldiers to the Army and 27,000 Marines. Based on Defense Department information, this could cost $6.6 billion annually.

Obama also claims to have identified huge savings over the next decade, but only discussed four programs (it is unclear whether he is including the tax hikes as part of his savings):

  • Ineffective Education Programs (spending decrease): In his address, Obama vowed to eliminate education programs that do not work. During the campaign, Obama singled out the Reading First program for elimination ($464 million), but it is unknown what additional programs would face the axe.
  • Agribusiness (spending decrease): Obama also called for an end to direct payments to certain agribusinesses. Based on previous Bush Administration estimates, eliminating payments to wealthy farmers could save $169 million.
  • Medicare (savings unknown): He also vowed to root out waste and fraud in Medicare, which might actually require an increase in spending before savings are realized.
  • Iraq Troop Withdrawal (savings indeterminate): Obama outlined a plan to withdraw troops from Iraq, which could also lead to significant savings. In September 2008, CBO projected an estimate for a scenario under which the number of troops deployed for military operations in Iraq and Afghanistan and other activities related to the War on Terror are reduced to 30,000 by the beginning of 2011 for a savings of over $90 billion a year. Actual savings will depend on the timeline for removal from Iraq, and the number of forces that are redeployed to Afghanistan.

Throughout the Presidential primary season in early 2008 until the end of the campaign trail last fall, NTUF analyzed the platforms of then-candidate Obama and other major Democratic and Republican contenders. Cost calculations were based on a variety of sources, including the candidate's own projections; summaries from the Congressional Budget Office, Congressional Research Service, and the White House Office of Management and Budget; and results from equivalent legislation from NTUF's BillTally cost-accounting system.

"On the campaign trail, President Obama promised to cut more than he would spend -- a laudable goal, but one that involves a lot of catch-up work after signing the stimulus plan and SCHIP [State Children's Health Insurance Program] expansion," Brady concluded.

NTUF is the research arm of the 362,000-member National Taxpayers Union, nonprofit, nonpartisan citizen group founded in 1969 to work for lower taxes, smaller government, and economic freedom at all levels. Note: For more information, visit www.ntu.org.

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