Saturday, 16 April 2011

President Obama's U.S.$4 Trillion Deficit Reduction

"This is my approach to reduce the deficit by $4 trillion over the next twelve years. It’s an approach that achieves about $2 trillion in spending cuts across the budget. It will lower our interest payments on the debt by $1 trillion. It calls for tax reform to cut about $1 trillion in spending from the tax code."
Do those numbers add up, even by the President's own words? Let's see...
"The first step in our approach is to keep annual domestic spending low by building on the savings that both parties agreed to last week – a step that will save us about $750 billion over twelve years."
The agreement he refers to was reported as amounting to U.S.$37.8 billion in spending cuts for the remainder of 2011. That U.S.$37.8 billion figure over twelve years will only get him to U.S.$454 billion. So how much would those spending cuts have amounted to were they to have been agreed last year and began from January 1st 2011? In order to reach U.S.$750 billion over twelve years, they'll have to be at least 65% larger than that at U.S.$62.5 billion per year. What next...?
"The second step in our approach is to find additional savings in our defense budget... Secretary Gates has courageously taken on wasteful spending, saving $400 billion in current and future spending. I believe we can do that again. We need to not only eliminate waste and improve efficiency and effectiveness, but conduct a fundamental review of America’s missions, capabilities, and our role in a changing world. I intend to work with Secretary Gates and the Joint Chiefs on this review, and I will make specific decisions about spending after it’s complete."
U.S.$400 billion in "current and future spending" will get him nowhere - he'll be looking for other cuts on top of this.
"The third step in our approach is to further reduce health care spending in our budget. Here, the difference with the House Republican plan could not be clearer: their plan lowers the government’s health care bills by asking seniors and poor families to pay them instead. Our approach lowers the government’s health care bills by reducing the cost of health care itself."
I cut this section short because, despite being the longest of his four steps, it contains no specific figures. So I cannot give him anything more than a zero for this - but he'll need somewhere in the order of U.S.$2 trillion.
"The fourth step in our approach is to reduce spending in the tax code. In December, I agreed to extend the tax cuts for the wealthiest Americans because it was the only way I could prevent a tax hike on middle-class Americans. But we cannot afford $1 trillion worth of tax cuts for every millionaire and billionaire in our society. And I refuse to renew them again."
"Spending in the tax code"? To equate a tax cut with spending presupposes that that money belongs to the State in the first place, which means that the value of other people's labour and property belongs to the State - which is undiluted collectivism, to which I say this:

Other people's values are not the property of the State to dispose of as it sees fit, Mr President.

That aside, he is talking about raising taxes on the "wealthy" (loosely defined here as "millionaires and billionaires", although I suspect it will be defined so as to encompass a lot of small business owners) to the value of U.S.$1 trillion. That's not a spending cut; that's just taking more of other people's money to pay for things.

So on a strict reading of the President's own speech, he can see his way to cuts of U.S.$854 billion in spending, plus a U.S.$1 trillion tax rake, for a government that is more than U.S.$14 trillion in debt. Yet that only accounts for less than half of the U.S.$4 trillion he claims to be committed to "cutting". If the President is to reach his U.S.$4 trillion reduction target, then a further, unspecified U.S.$2 trillion will have to come from either further tax rakes and/or cuts to the Medicare, Medicaid and Social Security programs.

As it stands, the President's spending "cuts" amount to only U.S. $1.854 trillion, which is at most 13% of the total >U.S.$14 trillion debt, or if we discount his tax rake (because it's not actually a spending cut), then it's only 6% of the total. Even with the further U.S.$2 trillion in cuts that will have to come from the Medicare, Medicaid and Social Security programs, that would get him to U.S.$3.854 trillion, or only 27% of the total debt - which isn't much (!), but it would be a baby step in the right direction.
"This larger debate we’re having, about the size and role of government, has been with us since our founding days... As a country that prizes both our individual freedom and our obligations to one another, this is one of the most important debates we can have."
Social obligations are a secondary aspect of those political rights which frame individual freedom - they are defined, contracted and implemented voluntarily. The use of government to define, impose and coercively exact the implementation of social obligations is a monstrous distortion of how things should be in a civil society.
"Some will argue we shouldn’t even consider raising taxes, even if only on the wealthiest Americans. It’s just an article of faith for them."
No it isn't, it's a point of principle: it is wrong to coercively extract value from other people, even if they are hoary old gits like Warren Buffet and George Soros.

Update: Paul Marks goes so far as to accuse the FT of openly lying in its' April 14th reporting (presumably this one by Gillian Tett [article behind paywall - use google cache]) of President Obama's "plan" as a
"...fiscal reform deal, together with $4,000bn cuts."
Paul has a case - to talk of "$4,000 bn" ($4 trillion) of cuts is a gross inaccuracy - and for a financial broadsheet committed to the virtues of honest journalism to make that kind of error is hard to believe.


  1. I saw this as well the other day and sat chuckling to myself.

    One word on Obama's "spending cuts": bullshit.

  2. "All promises by Barack Obama come with an expiration date"(Jim Geraghty)

    Obama is not a leader. He throws up some strawmen, knocks them down, and lets other people do the work. Czars, Healthcare, budget, FCC, Libya are just some of the examples off the top of my head. This guy is on track to outdo Jimmy Carter as a failed president, who shockingly enough was the guy who helped bring about deregulation. Could you imagine the media staying silent as the people we protect go about killing black Africans if Bush was president or being on the same side as Al Qaeda? Do you remember the funemployment article a couple years ago?

    In the US I expect liberty gardens to come back into vogue soon along with wood burning stoves. People are going to need to trade time for money outside of their normal job in order to make ends meet.

  3. "Obama is not a leader."

    Oh I think he is - but not on the same premises as those you're working from; I think he's already done more to further extend and entrench political power throughout the U.S. than any President since FDR. The commercial banks are sitting on so much excess reserve (>$1 trillion) with interest paid by the Fed, that its release through the loan markets could well stoke inflation - these loans will therefore have to be subjected to some degree of political oversight: think about what that could mean...

    But yes I agree that his "deficit reduction" plan (even of $4 trillion) is a nonsense.


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