[Pen-l] WSWS on Obama budget

[Louis Proyect <lnp3@xxxxxxxxx>]

http://wsws.org/articles/2009/feb2009/budg-f27.shtml
Obama budget projects record deficits and borrowing
By Patrick Martin
27 February 2009

The budget outline issued by the Obama administration Thursday 
constitutes an official admission of the unprecedented dimensions of the 
economic crisis afflicting American and world capitalism, which now 
threatens to plunge the government of the most powerful capitalist 
nation-state into bankruptcy.

The US government will run a $1.75 trillion deficit during the current 
fiscal year, which ends September 30, nearly four times the largest 
previous federal deficit. This gargantuan sum includes the $700 billion 
allocated for the Wall Street bailout, more than half of it already 
spent, as well as part of the $787 billion in spending authorized by the 
economic stimulus bill passed by Congress and signed into law by Obama 
last week.

For fiscal year 2009, nearly half over, the federal government will 
borrow almost half of all the dollars it spends: $1.75 trillion out of a 
record expenditure of $3.94 trillion. The White House projects that 
spending in fiscal year 2010 will be only slightly lower, $3.55 
trillion, with the deficit falling to a still staggering $1.17 trillion.

According to the White House estimates, the combined deficit for the 
four years 2009-2012 comes to $4.42 trillion. The net debt of the 
federal government, what it owes to individuals, businesses and foreign 
countries, will double, rising from $5.3 trillion at the to $11 trillion 
over the same period.

There is no discussion in the budget outline of where these vast sums 
will come from. Given the worldwide financial crisis, US borrowing on 
such a scale means that the American government will be competing 
with—and effectively denying funds for—the governments of other, weaker 
capitalist powers, many of which have already had to resort to borrowing 
from the International Monetary Fund to avoid financial collapse.

The ten-year budget projection, covering the years 2010 to 2019, shows 
the annual deficit declining to $533 billion in fiscal 2013—still larger 
than any previous year before the crash of 2008—and then beginning to 
rise again. By 2019, the US national debt is estimated at $13.8 
trillion, a sum equivalent to the entire US Gross Domestic Product last 
year.

The actual trajectory of the federal budget is even more ominous than 
these figures suggest, since the White House estimates assume that the 
US economy will essentially stand still in 2009 and 2010, rather than 
declining even further, and that economic growth will resume in 2011 and 
accelerate rapidly. That is an absurdly optimistic projection.

For all Obama's rhetoric about renewing and reviving the economy, the 
budget figures have a stark meaning: the US government is bankrupt, the 
US economy moribund. The crash of 2008 marks, not a conjunctural crisis, 
even of immense magnitude, but a turning point, one that marks the 
long-term decline of American capitalism and the irreversible loss of 
its position of world domination.

The details of the budget outline matter far less than this central 
historical fact. In any case, many of these details are so sketchy and 
conditional that they serve only to indicate the wishes and hopes of 
White House officials, not any reasonable expectation of the performance 
of the US economy.

Thus the budget sets aside as much as $250 billion to cover the cost of 
further bailouts of US financial institutions, although the White House 
readily admitted that this was only a "placeholder" and there was no way 
of predicting today how much more will be expended in the effort to 
rescue the bankers and billionaire speculators.

The White House has ended the Bush administration practice of excluding 
the cost of the wars in Iraq and Afghanistan from the regular budget, 
and financing the wars through so-called emergency spending bills passed 
separately. Obama hailed this action as truth in budgeting, although he 
will nonetheless request a supplemental appropriation for the two wars, 
supposedly the last such effort, totaling $75 billion for the current year.

The ten-year projection nonetheless shows total Pentagon spending rising 
steadily, despite the assumed end to combat operations in Iraq, reaching 
the staggering total of $872 billion by 2019. Over the entire ten-year 
period, total US military spending is projected at nearly $8 trillion, a 
sum greater than the entire GDP of any other country on the planet.

Much publicity has been given to claims that the Obama budget allows 
Pentagon spending to rise by only 4 percent in 2010, and thereafter 2 
percent annually, compared to a 7 percent rate of increase for domestic 
spending. This is largely a statistical fiction, caused by the assumed 
decline in spending in Iraq. The baseline Pentagon budget, excluding 
Iraq and Afghanistan, will rise from $557 billion this year to $689 
billion in 2012, a 24 percent increase during Obama's first term in office.

The bloated military budget is likely to swell to even greater 
proportions. The budget document explicitly declares that the reduction 
in spending on Iraq and Afghanistan is merely an assumption for the 
purpose of making estimates, and does not reflect any actual policy 
decisions to withdraw or redeploy US troops.

In the course of the Bush administration's "war on terror," total 
Pentagon outlays rose so sharply that they came to exceed the combined 
total of all other discretionary government spending (i.e., spending 
that is not already required by law, such as payments under Social 
Security, Medicare, Medicaid and other "entitlement" programs.) The 
Obama administration budget confirms and extends this supremacy of guns 
over butter: Pentagon spending will exceed all other discretionary 
spending in each of the next ten years, and the discrepancy will grow 
wider year by year.

One feature of the new budget outline much celebrated in the media is 
the set-aside of $634 billion over ten years to cover the cost of an 
as-yet-undetermined health care reform program. While the number might 
appear substantial, it is a small compared to a health care system that 
now costs the American people $2.3 trillion a year—generating huge 
profits for drug, insurance and medical equipment companies, but 
producing worse health outcomes than in any other advanced industrial 
country.

The annual average cost of Obama's health care initiative, about $60 
billion a year, is less than 3 percent of annual US spending on medical 
care. In other words, Obama's policy is a change at the margins, not a 
significant reform. Put another way, Obama's health care "reform" 
provides just over $1,000 a year for each uninsured American—a sum 
grossly inadequate to pay for healthcare coverage.

The $634 billion allocated to the administration's most important social 
policy proposal also compares unfavorably to the amount projected for 
payment of interest on the federal debt, a colossal $4.9 trillion over 
the next ten years. In other words, Obama's budget openly states that 
interest payments, which go largely to the wealthy, will cost eight 
times more than his proposed health care reform.

On taxes, the Obama budget makes a significant concession to the 
Republican Party and the super-rich by allowing the Bush tax cuts for 
the wealthy to expire as scheduled at the end of 2010, rather than 
canceling them immediately, as the Democratic candidate had suggested he 
would do in the course of the presidential election campaign. This delay 
is worth hundreds of billions of dollars to the wealthiest one or two 
percent of Americans.

This concession is offset in part by tax increases on the wealthy to 
finance the health care program. The Obama budget outline suggests that 
$318 billion, about half the cost of the initiative, will be raised by 
reducing the amount of tax write-offs for wealthy families and 
individuals who itemize their deductions. One other new tax will be 
imposed on the wealthy: elimination of the "carried interest" tax 
loophole that allows hedge fund managers to pay a lower tax rate than 
their janitors and secretaries.

The White House budget outline assumes that Congress will make permanent 
both the Bush tax cuts for families making less than $250,000 a year and 
the temporary tax cut for working-class families enacted as part of the 
stimulus plan. These modest reductions will be paid for from the 
estimated $637 billion in additional revenue when the Bush tax cuts for 
high-income households expire in 2011.

The total tax increases on the wealthy, however, are less than one 
quarter of the new spending for interest payments, which go 
overwhelmingly to these same high-income households, who own the vast 
bulk of Treasury bills and other US government bonds. In effect, Obama 
will take from the rich with a teaspoon, and then hand money back to 
them with a shovel.
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