Kneale: Obama's 'Ridiculous' Promise

Dennis Kneale
CNBC Media &
Technology Editor

President Obama is about to learn the unpleasant risks of trying to please most all of the people all of the time.

He promised to forgo tax hikes for anyone earning less than $250,000 a year and to cut taxes for 95 percent of Americans. It was "a ridiculous promise," David Walker, the former chief of the Government Accountability Office, declared on "Squawk Box" this morning (watch video below). He added, speaking of President Obama:

“I don’t know why he made it. Politicians are good at making these type of promises during campaigns. Anybody that passed basic math would have known that you cannot end up dealing with our structural problems in our deficits without having more revenues.”

It sure was a ridiculous promise. Especially for a president who, unflinchingly, proposes spending an extra $1.5 trillion on new healthcare efforts and hundreds of billions more on new green initiatives—on top of $787 billion in stimulus that ain't stimulating yet.

The president's silly promise forces him to strain to devise massive tax increases that can be called by another name, or alternately to find small, invisible revenue increases in the nooks and crannies of our economy.

The One Fell Swoop tax in this scheme would be a new tax on employer health benefits—which could slap new payments on 163 million people covered by employer plans. By some estimates this could raise $2.3 trillion over 10 years, more than enough to cover Obama-care. The problem: half of all people with health coverage at work earn less than $75,000, the Cato Institute says.

Sounds like a middle-class tax increase to me—which is why it may never go forward. There’s talk of eliminating tax benefits for health savings accounts to save a measly $11 billion over the next 10 years. Never mind that some 80% of health-spending account users are in middle-income households or lower, as Cato noted this month.

And so we hear ideas for a new tax on soda pop and salty snacks, an IRS crackdown on employer cell phone bills as unreported income, and a hoped-for $635 billion windfall from pollution caps.

Elsewhere, the Obama posse proposes measures that will result in increased costs for all. A $330 billion reduction in government payments to hospitals over the next decade will mean hospitals must raise their prices to patients. A proposed annual fee on cell-phone spectrum, owned by carriers that already paid billions to the feds in what were supposed to be one-time auctions, likewise would raise costs to customers.

And Obama proposes to further soak the rich, more than doubling the tax rate on venture capital and private equity and hedge funds. And raising all manner of taxes on the top 1% of earners—though they already provide 40% of all federal income tax revenue.

Yet the bottom 40% of the nation’s workers don’t pay any federal income tax at all. Shouldn’t all but the most desperately poor pay something? They live here, too.

The Cato Institute’s Michael Tanner and Chris Edwards note that government always lowballs its spending estimates in this area. When Medicare was born in 1965, the forecast was for “Part A” spending of $9 billion by 1990—but it ended up at $67 billion. The Medicaid benefit to hospitals, added in 1987, was pegged at $100 million a year; by 1992 it was already at $11 billion.

It will be fun to watch President Obama squirm his way through this healthcare tax crunch. And the squeeze likely will get only worse, for the cruel corollary to healthcare reform is that the more people we cover with health insurance, the more—not less—we will spend on them.

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