Great Society II

National Review Vol. LXI, No. 4 | Published on

By James C. Capretta

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Pres. Barack Obama, we are told, takes great pride in his facility with the written and spoken word, and perhaps justifiably so. He has, after all, authored two bestselling books (on himself), and is routinely praised by the media for being an exceptional orator.

Indeed, it is this particularly gifted way with words that seems partially to explain the ongoing confusion over his true political identity. It was well known and widely reported prior to the 2008 election that then-Senator Obama had achieved, during his brief time in national office, a more liberal voting record than any of his Democratic colleagues. Still, voters who had previously pulled the lever largely for Republican candidates cast their ballots for him in great numbers. No matter the clear record — many Americans were convinced that Obama would, if he won the presidency, govern from the center because, well, he sounded so moderate and reasonable in his speeches.

In the early days of the new administration, the president continued to use phrases and push themes that left conflicting impressions about the basic direction of his governing game plan. In his inaugural address, he said the question he would ask was not whether government is too big or too small, but whether it “works,” thus siding with the pragmatic over the theoretical. He also announced his intention to appoint a high-level “chief performance officer” to lead an effort to transform government into a model of efficiency, with a line-by-line review of every agency to eliminate wasteful and unnecessary spending. He even signaled, to the chagrin of liberal bloggers, a vague interest in bipartisan reform of the nation’s entitlement programs to put the country’s long-term fiscal house in order.

All of this reinforced the carefully cultivated persona of someone who could bridge old divides and unite the country in a post-partisan era of problem solving.

Then came his budget plan, which removed all doubt about where the president would like to lead the country. It seems likely that, years from now, this first budget submission will be marked as the moment when the president’s aggressively liberal governing philosophy finally came into full view. His budget would impose massive new taxes on entrepreneurs and upper-income households; redistribute much of the new revenue collected to others through scores of new government programs and special tax provisions; rapidly increase spending by nearly every agency of government; micromanage the energy and health sectors in ways never tried before in this country; and run up the public debt just as the baby-boom generation is about to swell the government’s retirement and health-care costs.

Though all of this is readily seen in the budget’s revenue and spending figures, the Obama administration nonetheless tried to couch it in the soothing language of fiscal conservatism. In his speech before Congress, the president said his team had found “$2 trillion in savings” over ten years with their sharp, budget-cutting pencils. But, even before the budget’s official release just two days later, it was clear that this claim was a mirage. The “savings” stemmed mainly from the assumption that, in a status quo scenario, war-fighting costs in Iraq would remain at essentially “surge” levels in perpetuity, which no one has ever thought would be the case. That false assumption alone added $1.4 trillion to the “baseline” against which the Obama team measured itself.

But it didn’t matter anyway. This budgetary sleight of hand couldn’t disguise what even the mainstream press recognized: The Obama budget, if adopted, would run up the nation’s debt at an unprecedented pace — some $7 trillion between 2009 and 2019. No matter what baseline it’s measured against, that’s a lot of borrowing. At the end of 2008, before the full force of the financial crisis had hit government tax collections, the entire debt, accumulated over more than two centuries, stood at only $5.8 trillion. In 2007, at the end of the government expansion that marked much of the Bush era, the federal budget deficit fell to a comparatively insignificant $161 billion, or just 1.2 percent of GDP. By contrast, the lowest annual budget deficit in the Obama plan would be $533 billion in 2013, or 3 percent of GDP.

This massive run-up of debt cannot be explained away with a continuing weak economy. In the run-up to the passage of the so-called stimulus bill, the president spoke incessantly of the financial crisis and the likely economic troubles that lie ahead. We won’t dig ourselves out of the problem easily or quickly, he warned. But the budget he submitted to Congress now predicts otherwise. Robust economic growth is expected to resume in 2010 for good. Indeed, in 2012, the administration projects real GDP will increase an astonishing 4.6 percent, three years into a recovery.

If anemic growth isn’t to blame for the Obama deficits, what is? It’s simple: spending. For all the talk of combing through the budget for savings, President Obama is planning an unprecedented expansion of government, with just about every agency and program in line for a major bump-up in funding. In 2008, total federal spending was $3 trillion. In 2013, after the financial crisis is expected to have subsided and economic growth to be in full swing, the president’s budget, including his health-care plan, forecasts spending of about $4 trillion — a $1 trillion, or 33 percent, increase in the size of government in just five years.

And the spending is pretty much for anything and everything. Child-nutrition programs, Pell Grants (an 80 percent increase by 2014), national-service scholarships, state welfare grants, job training, disease prevention, research, agency overhead, and on and on. The State Department (and related international funding) would nearly double in size in five years; the Education Department would grow by more than 60 percent. Overall, annual appropriations spending would increase by $780 billion over the coming decade.

To partially finance all of this new spending, the Obama budget would impose a massive tax hike on upper-income households. Those with incomes exceeding $250,000 per year would see their tax rate on ordinary income jump from 36 percent to 39.6 percent, and on capital gains from 15 percent to 20 percent. They would also lose some of the value of their personal exemption and itemized deductions, including charitable contributions and home-mortgage interest expenses. All in all, President Obama wants to increase taxes on the nation’s high earners and successful entrepreneurs by nearly $1 trillion over the coming decade. And that doesn’t count their share of the $645 billion ten-year tax associated with the administration’s “cap and trade” environmental program.

In his radio address on February 28, the president signaled that he understood his budget proposal marked a turning point in his early presidency. Gone were the soothing words of bipartisanship and moderation. He didn’t offer to negotiate or compromise. Rather, he warned his opponents that his budget submission to Congress was making good on the promise to bring about sweeping change. In effect, he was claiming an electoral mandate for the budget he proposed.

But did voters really have this — essentially the Great Society II — in mind when they voted last November?

Then, as now, the overwhelming issue was the severe economic contraction sweeping the country. The Obama campaign moved decisively ahead of Sen. John McCain in late September as it became clear that the downward spiral, which had started in the financial sector, was accelerating rapidly and threatening widespread job losses. The change a fearful public wanted then, and wants today, is whatever will break the cycle and restore private-sector growth.

Despite the rhetoric, the vast majority of the new spending and tax provisions in the Obama budge
t plan, including provisions enacted in the stimulus bill, will have no bearing whatsoever on the prospects for reversing the current downturn. As Fed chairman Ben Bernanke recently testified, growth will resume later this year or early next if and only if the problems of toxic assets and frozen credit are resolved in the financial sector. That’s what caused the problem in the first place, and its resolution remains the complex missing ingredient for jump-starting a recovery.

The president has strong working majorities in both chambers of Congress, so it is entirely possible that his budget will pass largely intact, thus changing the trajectory of government for some years to come. But it is also possible that a public expecting moderation and centrism will be startled by the aggressively liberal economic agenda their new president is pushing. If that happens, the administration may come to regret its massive budgetary overreach in the same way the Clinton administration came to regret its early missteps on health care.

–Mr. Capretta, a fellow of the Ethics and Public Policy Center, was an associate director of the Office of Management and Budget from 2001 to 2004.