"The shortfalls Obama would produce don't approach the size of the deficits John McCain's budget threatens to bring. The Republican candidate's tax cuts alone would increase the debt by $5 trillion by 2018, compared with $3.4 trillion for Obama, says the Tax Policy Center, another nonpartisan group."
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Obama's Small Spending Limits, Big Tax Cuts May Worsen Deficit
By Matthew Benjamin
July 29 (Bloomberg) -- Barack Obama, who says he's going to spend most of his presidential campaign talking about the domestic economy, bills himself as a fiscal disciplinarian.
``My plan is detailed and specific when it comes to cutting spending,'' the Democratic candidate said in a July 7 speech in St. Louis. ``In fact, all my new spending proposals would be more than paid for by spending reductions.''
Budget analysts from across the political spectrum disagree. His spending and tax-cut proposals, they say, would do little to curb runaway federal spending, resulting in more red ink at a time when the White House is already forecasting a record $482 billion budget deficit for next year.
``Clearly, this is not a spending-cut agenda,'' said Robert Bixby, executive director of the Concord Coalition, a Washington-based nonpartisan group that advocates budget restraint. ``You're likely to see continuing large deficits from the Obama plan.''
The shortfalls Obama would produce don't approach the size of the deficits John McCain's budget threatens to bring. The Republican candidate's tax cuts alone would increase the debt by $5 trillion by 2018, compared with $3.4 trillion for Obama, says the Tax Policy Center, another nonpartisan group.
Obama's proposed spending cuts would touch areas from student loans to Medicare to subsidies for wealthy farmers. Excluding health-care-related savings, they would total less than $30 billion -- 1 percent of the $3 trillion U.S. budget.
The plans ``sound good on paper but don't produce much,'' said Isabel Sawhill, an associate budget director during the Clinton administration.
`All Very Minor'
Sawhill, a scholar at the Brookings Institution in Washington, said the Obama spending cuts ``are all very minor.''
In some cases, the savings would just be recycled back into spending programs, which include universal health care and the doubling of funds to fight poverty.
The Illinois senator says he hopes to end the Iraq War within 16 months of taking office, though he would use most of the money saved to strengthen the military, increase veterans' benefits and bolster the war effort in Afghanistan. The U.S. spent about $165 billion last year in Iraq and Afghanistan.
``He'll increase the size of the standing army; that's part of what the Iraq money is going to,'' said Jason Furman, Obama's top economic adviser. Only a small portion of the money now spent in Iraq would go toward deficit-reduction, he said.
Washington Panel
Several members of an economic advisory panel convened by Obama, including former Treasury Secretary Lawrence Summers, said after a meeting with the candidate in Washington yesterday that stoking economic growth, not deficit reduction, should be Obama's top priority.
Most of Obama's cuts and spending programs would be phased in over four years. He would eliminate a student-loan program run by private lenders, saving taxpayers about $3 billion annually. Earmarks, or money set aside for lawmakers' pet projects, would be scaled back, saving about $9 billion, Furman said.
Government energy consumption would be reduced to save $1.5 billion a year, while Medicare would encourage the use of generic drugs and allow for the re-importation of medication, chopping $6 billion from that program's costs, Obama advisers say.
Like McCain, Obama, 46, promises to make government procurement more competitive and efficient. Obama would also close corporate loopholes and crack down on tax havens and no- bid government contracts.
``Barack Obama is committed to paying for all of his proposals and reducing the deficit,'' said Furman.
Medicare Cuts
The bulk of savings in his plan are health-care related. He would cut $15 billion in subsidies to a private Medicare coverage program and save tens of billions more by modernizing health-care information systems and insurance-payment processes.
Those savings would be used to lower the cost of the Democrat's most-expensive new program, extending health coverage, through tax credits, to most of the 47 million Americans who lack it. The price the campaign attaches to that project -- about $65 billion a year -- is unrealistic, analysts say.
``The savings estimates simply do not hold water,'' said Robert Laszewski, president of Health Policy and Strategy Associates in Alexandria, Virginia, who studied Obama's health plan. He estimates it will cost taxpayers well over $100 billion a year.
More Spending
In addition to extending President George W. Bush's tax cuts that went to Americans with incomes under $250,000 and reducing the tax burden for middle-income workers and seniors, Obama proposes increasing early-education programs by $18 billion a year and clean energy by an annual $15 billion, though the latter would be offset by revenue from carbon-emission permit auctions.
He would allocate an additional $6 billion for infrastructure improvements, $3.5 billion for a national service program, and $1.5 billion for paid-leave assistance. He would also double to $50 billion funds to fight global poverty, an expense the campaign says would be financed by ending the Iraq War.
Both Obama and McCain make their proposals look more responsible by using a ``baseline'' going forward that assumes Bush's tax cuts will be extended permanently. Under current law, the reductions will expire at the end of 2010. Making that assumption moves Obama's tax plan from the red into the black and provides funding for many of his new expenditures.
David Walker, former head of the Government Accountability Office, says he isn't impressed by McCain's or Obama's plans.
``The math doesn't work for either candidate,'' he said.
To contact the reporters on this story: Matthew Benjamin in Washington at mbenjamin2@bloomberg.net.
Last Updated: July 29, 2008 00:01 EDT |
