Obama’s Fantasy Budget Suggests Tax Hike Surprise

April 10 (Bloomberg) -- “A thunderclap of a speech,” the editors of the New York Times called it.

President Barack Obama was certainly vigorous in attacking the House Republicans’ budget last week, as he was in attacking their budget last year.

The problem for Obama is that all he has is drizzle for a policy. His budget plan, as his Treasury secretary admits, doesn’t solve the country’s long-term debt problem, and was unable to get a single vote in the House of Representatives. His allies in the Senate’s Democratic majority haven’t passed a budget for three years, or even attempted to pass one.

The political bet seems clear enough: Voters may want the budget balanced, but they aren’t going to tolerate the steps needed to get there, and so Obama can win the debate by attacking the Republicans’ proposals and not offering real ones of his own. (It’s the same strategy Republicans have used against Obama’s health-care plan.)

The more interesting question is what Obama’s economic bet is. Could he be counting on having the flexibility to balance the budget in his second term in ways he cannot openly discuss now?

A Hidden Plan

Taken at face value, Obama’s arguments about the budget make little sense. He claims, for example, that his plan puts “annual domestic spending” on a path that takes it, as a share of the economy, to the low levels of the Eisenhower administration. That’s true only if we grant Obama a private language in which “annual domestic spending” excludes the country’s biggest domestic programs, such as Social Security and Medicare.

It isn’t just his own policies that he misrepresents. He claims that the House Republican budget, written by Representative Paul Ryan, leaves senior citizens having to pay for a bigger and bigger proportion of medical expenses over time. Actually, the Ryan plan is designed so that government support for seniors keeps up with medical costs (while also trying to harness the power of competition to lower those costs). Even under the worst-case scenario, the subsidies in the Ryan plan would grow no slower than Medicare spending would under Obama’s own plan.

The president is on firmer ground in criticizing Ryan’s proposals for tax policy and domestic discretionary spending. The Ryan budget charges the House Ways and Means Committee with writing a new tax code that raises slightly more revenue, as a share of the economy, than the historical average and that includes a top tax rate of 25 percent. It doesn’t tell the committee how to meet these goals, for example by specifying which tax breaks should go. There is no good argument for this selective specificity. It is probably also true, as Obama says, that Ryan’s budget sets an unrealistically low level for domestic spending outside of entitlements.

But here’s the dilemma. We can’t maintain the country’s historic rate of taxation and its current entitlement structure. If you want significantly more non-entitlement domestic spending than Ryan provides, you either have to restrain entitlements even more than Ryan does or collect even more tax revenue than Obama has suggested, or both. When the Congressional Budget Office applies its economic assumptions to Ryan’s budget, it finds that it reaches a balance in the 2030s. But Obama’s public proposals -- raising taxes only on the rich and cutting defense -- don’t achieve a balance ever.

Bush Tax Cuts

Obama, you may recall, has said he wants to keep the bulk of President George W. Bush’s tax cuts, allowing only those for high earners and investors to expire in 2013. But many Democrats have argued that he should let them all expire.

If that is Obama’s plan, one could envision a strategy that gets him there without too much political suffering. He would continue to claim that he wants to avoid middle-class tax increases. He would win re-election. And then he would try to blame any increase in middle-class taxes on congressional Republicans, arguing that their insistence on extending all of the tax cuts left his party with no choice but to block any bill from passing.

The advantage of this strategy is that it would yield a lot of deficit reduction without the need to get any legislation through Congress. It is thus more achievable than other deficit-reduction plans. But it amounts to raising middle-class taxes to avoid reining in middle-class entitlements. Wouldn’t it make more sense to let people keep their money rather than cycling it through Washington?

If a big, automatic tax increase is Obama’s plan for the start of his second term, it’s not a good plan. But it is more alarming to think that he has no plan at all.

(Ramesh Ponnuru is a Bloomberg View columnist and a senior editor at National Review. The opinions expressed are his own.)

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To contact the author of this column: Ramesh Ponnuru at

To contact the editor responsible for this column: Timothy Lavin at

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