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Obama's budget illustrates dire fiscal straits

By Ben Pershing
President Obama and the government he runs are in a fiscal pickle. That's the takeaway from the morning-after coverage of the White House's budget submission, as analysts pull back from the specific cuts and increases in the blueprint to break down the larger financial problems the country faces over the next decade.

David Sanger notes
that the budget projects a huge deficit in 2011 and for many years into the future: "For Mr. Obama and his successors, the effect of those projections is clear: Unless miraculous growth, or miraculous political compromises, creates some unforeseen change over the next decade, there is virtually no room for new domestic initiatives for Mr. Obama or his successors. Beyond that lies the possibility that the United States could begin to suffer the same disease that has afflicted Japan over the past decade. As debt grew more rapidly than income, that country's influence around the world eroded. ... Mr. Obama has published the 10-year numbers in part, it seems, to make the point that the political gridlock of the past few years, in which most Republicans refuse to talk about tax increases and Democrats refuse to talk about cutting entitlement programs, is unsustainable.

David Rogers also writes on the president's predicament: "Obama's new $3.83 trillion budget is a chickens-come-home-to-roost moment for Democrats who skipped past the deficit to tackle health care last year and now risk paying a heavy price in November. The great White House political gamble was to act quickly -- before the deficits hit home -- and institute major changes which proponents say will serve the long-term fiscal health of the country. Instead, a year of wrangling and refusal to consider more incremental steps have brought Obama and Congress to this juncture, where waves of red ink threaten to swamp their boat and drown reform altogether. ... Not until 2014 to 2015 -- midway through what Obama hopes will be his second term -- is there any chance of approaching a sustainable budget. Even then, the president admits he will need the help of a bipartisan fiscal commission willing to tackle long-range issues like Social Security reform."

The Boston Globe says Obama delivered "a stark message: The economy is still struggling, the government spent a decade approving tax cuts and spending it couldn't afford, and now the nation must get to the painful task of paying it back." Can Obama shift any of the heat for these problems to the opposition? The Los Angeles Times writes that the president's budget "bolsters a goal of his party for the 2010 elections: Show voters that the president is trying to persuade Republicans to share responsibility for governing the country, but that Republicans are turning him away." The Washington Post writes that "Republicans savaged it as a recipe for fiscal disaster, while Democrats defended the call to drive record deficits even higher to finance measures aimed at putting people back to work."

Bloomberg and the Wall Street Journal both focus on the budget's tax increase on the wealthy, with the latter noting that "one conflict looming with Congress this year concerns what to do about the 2001 and 2003 cuts to income taxes, capital gains and dividend taxes and estate taxes, which all expire Jan. 1, 2011. Mr. Obama would extend the cuts for middle- and lower-income Americans, but allow taxes to rise for wealthy families, although not all the way back to the levels under President Bill Clinton." Financial Times examines Obama's assault on overseas tax breaks. K Street has already mobilized, the Hill reports, as the budget "drew a rebuke from the oil-and-gas industry and others targeted for cuts as the annual fight over spending officially kicked off Monday. Oil and coal industries have done well in beating back climate change legislation, which has stalled in the Senate. But now the sectors face a repeal of tax breaks worth nearly $40 billion over 10 years."

Administration officials will fan out Tuesday to defend the budget, with Peter Orszag, Tim Geithner, Robert Gates and Michael Mullen all scheduled to testify on the Hill. (On Orszag, Dana Milbank tackles the question of "just what makes the gangly and geeky director of the Office of Management and Budget a heartthrob." More on that subject here.) Rich Lowry says Obama "is a budgetary Don Quixote, with ... Peter Orszag his enabling sidekick Sancho Panza. Obama has donned his armor and picked up his lance to wage a thoroughly imaginary battle for fiscal restraint." Michael Lind dislikes the budget for the opposite reason: "The policy of slashing government spending during a near-depression, which the deficit hawks advocate, is insane. Even most intelligent conservative economists acknowledge this. But this madness seems plausible to many voters because of the parallel that deficit hawks draw between households and businesses, on the one hand, and governments, on the other. ... This folksy metaphor is repeated so often that its absurdity is rarely noticed. In reality, households and businesses do not balance their budgets every month, or even every year. Both households and businesses take out loans and pay them down over many years." Michael Hirsh argues that Obama should worry more about helping the embattled middle class than the deficit.

Obama will sell his own proposals to help small businesses with an appearance Tuesday in Nashua, N.H., where the Associated Press says he "will tour a local business and hold his second town hall in six days, a format that allows him to show engagement with the public and counter a sense of "remoteness," as he has put it, that people have had with his policy agenda." Obama will be greeted by a front-page editorial in the Manchester Union-Leader that "recounts some of his past promises, all of them broken. That duplicity and his wasteful spending are bad enough. Obama has made it much worse by playing politics with the security of this nation in as reckless a manner as we have ever seen."

Gates and Mullen, meanwhile, will "will tell the Senate on Tuesday that the military will no longer aggressively pursue disciplinary action against gay service members whose orientation is revealed against their will by third parties," the Washington Post reports, adding that they "also are expected to announce the creation of a group to assess how to carry out a full repeal of the decades-old 'don't ask, don't tell' policy." AP writes "the senior-level study will be co-chaired by a top-ranked civilian and a senior uniformed officer. It would recommend the best way to lift the ban, starting from the premise that the goal will take time to accomplish but that it can be done without harming the capabilities or cohesion of the military force, officials said." The Wall Street Journal profiles Patrick Murphy, the Democratic congressman and Iraq veteran who is the "administration's staunchest ally in the uphill fight" to reverse Don't Ask Don't Tell.

Whither health-care reform? "The Obama administration still foresees a major health-care overhaul in its 2011 budget, estimating that the cost of the legislation will reach $743 billion over 10 years," the Wall Street Journal reports. Obama's budget assumes that a bill will pass, but there is little reason for optimism Tuesday on the pro-reform side. The Journal also notes that "with the fate of a national health care overhaul unclear, state legislators are pushing their own bills aimed at expanding coverage, though tight budgets are likely to hinder many of these efforts." Bloomberg reports that the failure of reform would likely result in an accelerated series of hospital mergers. Arlen Specter thinks Democrats should use reconciliation to get a bill through the Senate, Huffington Post writes.

It's primary day in Illinois, with competitive intrtraparty contests on the ballot for senator and governor. Lynn Sweet writes: "No matter who wins today's Democratic and Republican Illinois primaries for senator and governor, the general election contests will be played out on a national stage, for reasons of the calendar as much as the anticipated pitched partisan battles in President Obama's adopted home state. Illinois has the first 2010 primary in the nation and will, for months, be the only state with twin rip-roaring November battles with governor and senator nominees." Roll Call reports that Alexi Giannoulias and Mark Kirk "are expected to win their respective primary contests for President Barack Obama's former Senate seat, but according to public polling released a week ago, the number of undecided voters is still quite high." Nate Silver thinks "the issue of 'electability' has loomed large, as Democrats are understandably nervous about dropping yet another blue-state Senate seat to the formidable Republican nominee Mark Kirk. And both sides are making electability arguments that are, to my mind, somewhat superficial." The Fix asks, "Looking for an overarching theme in the voting? How about the latest test of just how anti-incumbent/anti-establishment the voters are feeling. Gov. Pat Quinn is in serious trouble and, while his challenger -- state Comptroller Dan Hynes -- isn't exactly an outsider, the defeat of a sitting governor in a primary race is a rarity."

By Ben Pershing  |  February 2, 2010; 8:00 AM ET
Categories:  The Rundown  
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Comments

The most glaring item on the budget is the proposed international tax reform bill. If the $122 Billion tax is approved, what incentive is there for companies like Coca-Cola to remain a US based multinational? Why not move the corporation to Switzerland, where the favorable corporate tax structure has long lured the operations of large MNCs such as Johnson & Johnson and Burger King Holdings Inc.

According to KPMG’s Corporate and Indirect Tax Survey 2009, the current effective U.S. Corporate tax rate is 40%, while in Switzerland the effective tax rate is 21.2%--and considerably less in some cantons. Under the proposed bill, the tax gulf will only grow wider.

The timing could not be better for companies looking to relocate their operations to Switzerland. An emerging trend among Swiss cantons is to compete for the business of MNCs by lowering their corporate tax rates. The cantons of Zug, Schaffhausen (just north of Zurich) and Lucerne have all cut their tax rates in a heated battle to lure more MNCs.

For U.S.-based MNC’s looking to dodge the proposed international tax bullet, Switzerland provides the most favorable corporate tax environment in which to relocate U.S. operations. It will be interesting to see what happens with the proposed tax.

Until then, MNCs should take a look at the Swiss system of corporate taxation. This was the subject of an article in the International Business Law Advisor www.intlbusinesslaw.com

Posted by: Scueto | February 5, 2010 2:06 AM | Report abuse

You are right, bigfan2000. Further spending by the government will only increase our deficit and further destroy our businesses, our jobs, our economy and our country.

We should be doing the OPPOSITE of what Obama wants to do.

Don't expect, however, Obama's comrades or the state-controlled media (80% of the media) to demand that Obama stop spending.

We the people must do through our representatives and through any way possible. We owe it to our children and grandchildren whose future is being destroying by Obama and his comrades.

Posted by: AntonioSosa | February 2, 2010 2:36 PM | Report abuse

What Obama’s budget illustrates is that Obama means to keep at least one promise -- that of fundamentally transforming America... into a commie banana republic!

Posted by: AntonioSosa | February 2, 2010 2:31 PM | Report abuse

Why the suprise? The economy is a basket case? Something radical must be attempted.

On second thought, inheriting this mess; geez! At this juncture The President can only be bold, and do what's best. Economists differ on solutions. No one has the real answer. Mr. Obama can only accept/implement what seems relevant and move forward. But in this situation, Congress and their 'stumblings' unable to move quickly on anything, cannot be overlooked.

In the end... just want to see Americans back to work and by any means necessary. http://www.youtube.com/watch?v=4faMkBfQ49o

Posted by: Victoria5 | February 2, 2010 1:20 PM | Report abuse

There is plenty of room for new initiatives - they just have to reduce spending. The President could recognize that the world is vastly safer and cleaner than it was even 20 years ago, that no bureaucrat ever said that his or her little regulatory scheme had gone far enough and it was time to send him or her home, and start looking for areas of the government to downsize. Initiative does not have to equal vast new spending and you'd think that after multiple journalists and editors looked over an article, at least one of them could recognize that point.

Posted by: bigfan2000 | February 2, 2010 12:07 PM | Report abuse

IN AN AMERICA WHERE MAJOR FEDERAL AGENCIES DISRESPECT HUMAN RIGHTS AND THE RULE OF LAW -- AND THE OBAMA WHITE HOUSE REFUSES TO ENGAGE -- POLITICS BECOMES LITTLE MORE THAN BREAD AND CIRCUSES.

Veteran Journalist Asks Justice Dept. Civil Rights Division:

'THOUSANDS ARE TERRORIZED, PHYSICALLY HARMED BY HOMELAND-SPAWNED, POLICE-PROTECTED MULTI-AGENCY GESTAPO AND CELL TOWER- BASED MICROWAVE WEAPON ATTACK...

..IS THAT WHY NO AUTHORITIES WILL INVESTIGATE?'

• Thousands of Americans unconstitutionally targeted, slandered, sabotaged and silently tortured and impaired by Bush-legacy "multi-agency program" that continues to persecute and physically assault.

Why is the Obama administration COVERING UP A BUSH-SPAWNED AMERICAN GENOCIDE?

* Bucks County, PA- based MAGLOCLEN mid-Atlantic "fusion center" -- Ground Zero of an American Gestapo.

http://nowpublic.com/world/u-s-silently-tortures-americans-cell-tower-microwaves
http://nowpublic.com/world/gestapo-usa-govt-funded-vigilante-network-terrorizes-america
OR www.NowPublic.com/scrivener (see "stories" list) OR www.poynter.org/subject.asp?id=2

Posted by: scrivener50 | February 2, 2010 9:47 AM | Report abuse

It is in places like New Hampshire that we will be able to gauge how far the last week has gone in bolstering support for Obama and his agenda with the crowd that really matters.

http://www.political-buzz.com/

Posted by: parkerfl1 | February 2, 2010 9:34 AM | Report abuse

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