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Press Release


Citizen Group Offers “10 Frightening Facts” on Obama’s Budget

For Immediate Release February 1, 2010
Pete Sepp, (703) 683-5700

(Alexandria, VA) – Even after warning that the federal government “cannot continue to borrow against our children’s future, or allow special interests to determine how public dollars are spent,” President Obama’s Fiscal Year 2011 budget released today fails on both counts, according to an analysis from the non-partisan National Taxpayers Union Foundation (NTUF).

“As hard as the White House tries to reassure Americans about the nation’s finances, taxpayers have many reasons to be afraid – very afraid – that President Obama’s team won’t fare any better at controlling deficit spending than the Bush Administration did,” said NTUF Senior Policy Analyst Demian Brady. “Combine this with the current President’s embrace of economy-killing tax policies, and the outlook is largely grim.” Here are NTUF’s 10 underreported facts about President Obama’s budget:

  • 1) Debts Arrive Sooner. Last year’s budget projected that Gross Federal Debt would hit 100 percent of Gross Domestic Product (GDP) in 2017. This year’s budget now predicts the mark will be reached in 2012.

  • 2) Budget Restraint: More Like a Toothpick than a Hatchet or a Scalpel. Outlays as a percentage of GDP are estimated to reach 25.1 percent in 2011, a slight improvement from 25.4 percent in 2010. The last two years when outlays as a percentage of GDP were higher than 25 percent in two successive years were 1944 and 1945; by 1950, it had dropped to 15.6 percent. By 2015, outlays are still forecast to reach 22.9 percent.

  • 3) Recycled Program Cuts. The budget lists cuts and reductions to 78 discretionary programs totaling $10.3 billion annually. Of these, 24 items (representing $4.5 billion in savings) were also included in last year’s list of savings and terminations, which means they’ve already been rejected by Congress. Twenty-five mandatory program changes are proposed, 15 of which were lifted straight out of last year’s budget. New cuts range from the commendable – $3.5 billion for NASA – to the paltry: $5 million by cutting grants to worsted wool manufacturers.

  • 4) Tax Hikes Masquerading as Spending Cuts. Of the 25 mandatory program changes mentioned above, claiming a “savings” of $47.2 billion over five years, $19.2 billion of the total comes from the repeal of 12 energy-related tax credits. These are more properly classified as revenue increases. Of the remaining actual cuts to mandatory outlays, about 90 percent of the savings ($25.1 billion) are attributable to one proposal: termination of lender subsidies in the Federal Family Education Loan Program, itself a holdover item from last year’s budget.

  • 5) Spending Hikes Masquerading as Tax Cuts. The budget shows that federal outlays will increase by $67.5 billion over 2011-2015 strictly because of proposed changes in tax policy (as opposed to foregone revenues). This includes $13.8 billion to “reform and extend Build America bonds” and $547 million to “extend COBRA health insurance premium assistance.” The rest is for “refundable” (i.e., in excess of an individual’s actual tax liability) credits. The largest share of this is $22.0 billion to extend “Making Work Pay” tax credit in 2011. The long- term costs could rise significantly if this “temporary” tax credit is extended in future years.

  • 6) Hidden Tax Increases on Consumers and Workers. Perhaps the hardest-hit sector in Obama’s budget is oil and gas – one of the few areas of the economy with decent short-term employment and growth prospects. Between the clawback of tax credits, repeal of deductions for domestic production available to others, and punitive changes in reporting rules, taxes on U.S. oil and gas producers will rise by $40 billion – which will ultimately be passed on to consumers.

    Meanwhile new fees for spectrum licenses (over and above auctions) as well as higher agricultural inspection charges could burden telecom customers and air travelers, respectively. The Administration is also planning on making a supposedly temporary 33 percent increase in the Federal Unemployment Tax permanent, making it costlier to hire new workers.

  • 7) Rosy Revenue Projections, Especially for Corporate Filers. Between 2010 and 2012, the Administration hopes that its personal income tax increases on upper brackets, combined with cuts for lower ones, will still lead to a 42 percent increase in individual income tax revenue. Over that same period, its business tax changes, consisting primarily of punitive, uncompetitive policies on U.S. firms’ earnings abroad, are supposed to lead to a 133 percent increase in corporation income tax revenue. Such a huge jump would be unprecedented in peacetime. The last time corporate income tax revenues increased by anywhere near this amount (111 percent) in any given three-year period was between 2003 and 2005 – during the Bush tax cuts!

  • 8) Stimulus Officially a Bust. In last year’s budget, unemployment at the end of President Obama’s first term was projected at 6.0 percent, assuming enactment of the so-called “stimulus” bill. The current budget puts the 2012 rate at 8.2 percent.

  • 9) More Bailouts for the Politically Connected. The Obama Administration proposes a new tax on financial institutions, in part to supposedly recover Troubled Asset Relief Program (TARP) funds for taxpayers. While the White House projects a drawdown in TARP equity fund purchases, from $106 billion in 2010 to $13 billion in 2020, Uncle Sam will own huge amounts of preferred stock from Government-Sponsored Enterprises like Fannie Mae and Freddie Mac in seeming perpetuity – climbing from $102 billion in 2010 to $115 billion in 2011, and remaining at that level through 2020. State governments, which have lobbied Washington hard for more cash, would win big under Obama’s budget: $25.5 billion for a six-month extension of relief from Medicaid’s joint federal-state program payments.

  • 10) Rhetoric vs. Reality. Despite pledges to bring troops home from overseas, defense outlays would rise by 3.4 percent next year, and even that assumes Congress will approve controversial reductions in programs such as the C-17 cargo aircraft. The Administration also recommends abandoning the Yucca Mountain nuclear waste repository, even as the Energy Department continues to pursue a license for the plan.

“Although there were bright spots in the Administration’s budget, including continuation of some Bush tax cuts, a permanent research and experimentation tax credit, bonus depreciation, reform to the taxpayer-backed Terrorism Risk Insurance Program, and removal of cell phones as listed property for tax purposes, Americans will find a mostly gloomy fiscal horizon ahead for their country if the President’s proposals become law,” Brady concluded.

NTUF is the research affiliate of the 362,000-member National Taxpayers Union, a non-profit advocacy group founded in 1969. Note: For additional budgetary analysis, visit www.ntu.org.

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