If the government shuts down, the Republicans will likely get the blame but the American people will be the losers.
Federal finances are in a shambles and in need of radical overhaul. President Obama’s budget ignores this; however, with a shutdown, he will be able to tar Republicans as ideologues, steal the initiative on spending and taxes, and leave his successor with a mess.
From 2007, the last full year before the financial crisis, to 2011, the second year of recovery, spending has jumped $1.1 trillion—40 percent. The President’s budget plan would trim the deficit to $774 billion by 2022, but his projections have been rejected as too optimistic by private economists and political analysts of all stripes—he assumes cost savings and new revenues from health care reforms that are unlikely to materialize and a 4 percent economic growth through 2014, which few private economists endorse.
Most legitimate deficit reductions the President’s budget accomplishes are through higher taxes on the wealthy, and a new interest and dividend tax that will likely drive business investment and personal wealth offshore.
Higher taxes are not the answer. In 2011, spending is projected at $3.8 trillion and revenues at $2.2 trillion. A 50 percent increase in all taxes and fees—personal income, Social Security, Medicare, and corporate taxes, entry fees into national parks, and the like—would leave the deficit at $560 billion. Even if phased in over several years, such a dramatic increase in taxes and fees would send the economy into a depression from which it would never recover.
Since 2007, only $200 billion would have been necessary to keep spending in line with inflation, but the Congress and President, in the name of temporary stimulus, permanently increased spending another $900 billion on entitlements—notably on increased Medicaid benefits; industrial policies for electric trains, windmills and the like; and more regulators, such as to accomplish bank reforms that have not managed to restore lending to small businesses or end consumer credit car abuses.