The Obama Budget: "Scoring" a Direct Hit on Taxpayers

Introduction

As Congress continues to grapple over legislation to radically reform our nation's health care system, there has been much debate over each bill's "score:" the estimate of its cost over the next ten years to the American taxpayer. For better or worse, many Members of Congress rely heavily upon these reports the Congressional Budget Office (CBO) or similar agencies release to determine their vote on a given piece of legislation.

Earlier this month, Senate Finance Committee Chairman Max Baucus (D-MT) sketched out a health care reform package which the CBO estimated to cost $829 billion over the next ten years. By anyone's measure, this bill is extraordinarily costly. It would also dramatically expand the size and scope of the federal government, a continuing escalation of recent trends.     

But what if we calculated a similar "score" for the cost of financing the staggering budget deficits contained in President Obama's budget outline? According to our calculations, Americans will pay between $296 billion and $834 billion for the debt that we will accumulate in the next ten years alone under Obama's plan.

The Obama Budget's Debt "Score"

Rapidly approaching $12 trillion, the debt will have more than doubled in just the last eight years.[1] Recent efforts like the $700 billion Wall Street bailout and the $787 billion "stimulus" package have heaped on record amounts to our obligations with no end in sight. To many, the debt is an incomprehensible, incalculable number with no effect on one's daily life. The reality, however, is that it imposes significant costs on taxpayers every day, and those costs will skyrocket if Congress doesn't rein in out-of-control spending.

Over the next decade alone, the Congressional Budget Office has estimated that President Obama's budget would spend nearly $9.3 trillion more than what is expected in revenue.[2] For a little perspective, that's roughly equal to the total amount of debt we accumulated from 1791 through the beginning of February 2008.[3] Chart 1 shows how that will affect our cumulative national debt over the next ten years.

With such huge deficits in our immediate future, the cost to taxpayers of paying the associated interest is likewise going to skyrocket. If interest payments on the "Obama debt" of $9.3 trillion alone were subjected to the legislative process in the form of an individual bill with a 10-year estimate, we calculate that the "score" would be nearly $296 billion at the current average interest of 3.19%. Chart 2 breaks down those payments by year.

But as real estate investor Lawrence Kadish notes in a recent Wall Street Journal article[4], a 3.19% interest rate is actually quite low by historical standards. As recently as the mid-1980s, interest rates were well into the double digits.[5] In order to account for likely rises in the average interest we must pay out for the privilege of borrowing money, the following chart shows how much interest we would pay over 10 years on the "Obama debt" at several higher rates: 4%, 5%, 6%, and 9%. At the highest rate, the 10-year interest payment "score" on the "Obama debt" alone would be more than $834 billion, as Chart 3 illustrates.

But Americans will have to pay interest on more than just the $9.3 trillion in debt we would rack up under Obama's budget outline. The estimated annual deficits, the lowest of which is $658 billion in 2012, will all be tacked on to the nearly $12 trillion in debt that we've already incurred up to this point, which cost taxpayers $383 billion to service in fiscal year 2009.[6] That amounts to 40 cents out of every dollar raised through income taxes. Adding the debt we'll incur over the next ten years to that pile yields a disturbing picture.

If we subjected the total national debt (which will reach more than $21 billion in 2019), rather than just the "Obama debt," to the legislative process in the form of an individual bill with a 10-year estimate, Chart 4 shows that the "score" would be within a range of more than $5.4 trillion at the current average interest rate of 3.19% to nearly $15.3 trillion at an average interest rate of 9%.

While the recent economic recession has clearly exacerbated the challenges we face, the underlying cause is obvious: far too much spending. This data clearly shows that taxpayers will be taking it on the chin in coming years if Congress doesn't immediately start reining in our wildly out-of-control federal budget.

About the Author

Andrew Moylan is Director of Government Affairs for the 362,000-member National Taxpayers Union, a non-profit, non-partisan organization founded in 1969 to work for lower taxes, smaller government, and economic freedom at all levels. For more information, visit www.ntu.org or text the word "FIGHT" to 67292.

Notes

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