Cato scholars respond to the Obama’s State of the Union address

While President Barack Obama proposed on Tuesday night to cut spending, increase “investment” - a code word for more spending, reform the tax code, among many other pledges and announcements of new policy initiatives.

A post-speech analysis by the National Taxpayers Union found that despite the five-year spending freeze proposal, Obama’s proposals will have a net cost of $21 billion, and that’s on the low-end of estimates.

Some of the policy experts from the Cato Institute weighed in on the various proposals and themes in the State of the Union, ranging from the speeding freeze, to high-speed rail, trade and ObamaCare:

Budget deficit for 2011: $1.5 trillion

The day after President Barack Obama’s State of the Union address, where he called for a mediocre spending freeze, the Congressional Budget Office released new projections showing an almost $1.5 trillion budget deficit for the current fiscal year, and nearly $7 trillion over the next 10 years:

Economic developments, and the government’s responses to them, have—of course—had a big impact on the budget. We estimate that, if current laws remain unchanged, the budget deficit this year will be close to $1.5 trillion, or 9.8 percent of GDP. That would follow deficits of 10.0 percent of GDP last year and 8.9 percent in the previous year, the three largest deficits since 1945. As a result, debt held by the public will probably jump from 40 percent of GDP at the end of fiscal year 2008 to nearly 70 percent at the end of fiscal year 2011.

If current laws remain unchanged, as we assume for CBO’s baseline projections, budget deficits would drop markedly over the next few years as a share of output. Deficits would average 3.6 percent of GDP from 2012 through 2021, totaling nearly $7 trillion over that decade. As a result, the debt held by the public would keep rising, reaching 77 percent of GDP in 2021.

The CBO also predicts that unemployment will remain over 9% for the year and would stay over 8%, where the Obama Administration said unemployment would peak under the stimulus bill, in 2012. Hey, but a freeze on non-defense discretionary spending will bring us back to fiscal stability, right? Not a chance, and frankly, the GOP proposal are also thin. But at least they’re actually proposing spending cuts.

House GOP passes measure to set budget at 2008 levels

Last night, President Barack Obama called for a five-year spending freeze in non-defense discretionary spending; hardly a bold move considering that budget deficits will surpass $6 trillion over the next 10 years. However, the Republican-controlled House earlier in the day passed a resolution that would set the budget at 2008 levels:

In a 256-165 vote, the House approved a measure instructing Rep. Paul Ryan (Wis.), the GOP chairman of the House Budget Committee, to set the budget for this year at 2008 spending levels or lower.

The House approved H.Res. 38 on a mostly party-line vote after rejecting a Democratic motion to recommit the resolution by a 184-242 vote.

Seventeen Democrats voted with Republicans: Reps. Jason Altmire (Pa.), John Barrow (Ga.), Dan Boren (Okla.), Ben Chandler (Ky.), Jim Cooper (Tenn.), Jim Costa (Calif.), Jerry Costello (Ill.), Joe Donnelly (Ind.), Tim Holden (Pa.), Larry Kissell (N.C.), Dan Lipinski (Ill.), Jim Matheson (Utah), Collin Peterson (Minn.), Mike Quigley (Ill.), Mike Ross (Ark.), Kurt Schrader (Ore.), and Heath Shuler (N.C.).

The vote came after another tense hour-long debate in which Democrats accused Republicans of not revealing the budget levels. Republicans countered that the resolution is the start of a process for reducing spending, not a final budget bill.

Republicans are trying to show voters that they are committed to reducing spending after winning back the House on a campaign to bring austerity to Washington. Ryan has talked about reducing spending for fiscal year 2011 by $60 billion, but some conservative Republicans have talked about making bigger cuts.

Liberty Links: Morning Reads for Wednesday, January 26th

Below is a collection of several links that we didn’t get around to writing about, but still wanted to post for readers to examine. The stories typically range from news about prominent figures in the liberty movement, national politics, the nanny state, foreign policy and free markets.

Republicans ready for fight on spending cuts?

With spending expected to be one of the themes in President Barack Obama’s State of the Union speech, Republicans are already gearing up for the debate by hitting the president on his fiscal profligacy:

Republican leaders over the weekend previewed their arguments against the spending proposals President Obama plans to outline in his State of the Union address tomorrow, warning, as Senate Minority Leader Mitch McConnell did, not to hide spending proposals under the guise of “investments”

“With all due respect to our Democratic friends, any time they want to spend, they call it investment, so I think you will hear the president talk about investing a lot Tuesday night,” McConnell, R-Ky., said on Fox News Sunday.

“We’ve got a huge spending problem here,” he added. “We’ve had over $1 trillion annual deficit each of the last two years. … I mean, most of us think, and most American — of the American people think that we need to do something about this and start doing it now.

McConnell and his Republican colleagues were trying to get ahead of the president’s remarks tomorrow night in which he plans to say that the U.S. must “out-innovate,” “out-compete” and “out-educate” other countries.

Sen. Jeff Sessions (R-AL) took to the Washington Post to slam Obama on his spending, pointing out that the president is “unwilling to lead” on budget issues. However, Sen. Saxby Chambliss (R-GA) and Sen. Mark Warner (D-VA) are proposing a bill that would cut spending by $4 trillion.

State of the Union address tomorrow, Paul Ryan to give GOP response

On Tuesday evening, President Barack Obama will deliver his State of the Union address to a joint session of Congress. We’re beginning to get an idea of what he will say - most of which will probably fall short of what Republicans want to hear:

President Barack Obama will call for new government spending on infrastructure, education and research in his State of the Union address Tuesday, sharpening his response to Republicans in Congress who are demanding deep budget cuts, people familiar with the speech said.

Mr. Obama will argue that the U.S., even while trying to reduce its budget deficit, must make targeted investments to foster job growth and boost U.S. competitiveness in the world economy. The new spending could include initiatives aimed at building the renewable-energy sector—which received billions of dollars in stimulus funding—and rebuilding roads to improve transportation, people familiar with the matter said. Money to restructure the No Child Left Behind law’s testing mandates and institute more competitive grants also could be included.

While proposing new spending, Mr. Obama also will lay out significant budget cuts elsewhere, people familiar with the plans say, though they will likely fall short of what Republican lawmakers have requested.

Earth to Congress: It’s a SPENDING Problem

In recent weeks, the debate over the the retention of tax cuts initiated during the George W. Bush administration monopolized the political discussion, aside from a few politicians showing us that they care nothing for the First Amendment as they condemn Wikileaks and its founder, Julian Assange. What Congress and President Obama seem not to grasp is that regardless of tax policy, the underlying issue for our economic situation is spending, specifically our affinity to borrow money to pay for spending beyond revenue.

No matter what the Presidential Budget Commission recommends with regard to taxation, a value-added tax (VAT), a broader-based income tax with few exemptions, or a switch to a consumption-based tax system, the Federal Government has an addiction. That addiction is to spending taxpayer money.

Whether it is funding for our imperial efforts to expand the American reach across the globe in the name of democracy and fighting terrorism, to continue to fund Medicare, Social Security, and other entitlement programs, or a variety of other government programs, substantial cuts to spending MUST crop up in the debate over how to “right the ship.” The addiction to spend is not a Democrat problem, and it is not a Republican problem; it is a bipartisan problem, and the only answer lies in a nonpartisan solution to break the addiction.

I understand that there are significant obstacles to breaking any addiction, and the Federal Government committed funding to many people and programs. Currently, we are at a point that difficult choices must be made NOW to avoid necessary, drastic, and clumsy choices when the funding is no longer available.

Hidden costs of ObamaCare

While some Democrats continue to defend ObamaCare, we are learning more about the costs associated with it. As you can see in the chart below, put together by Christopher Conover for a presentation at the Cato Institute (embedded below), there is the potential for danger with various actions Congress may take, such as the “doc fix” (which was originally part of ObamaCare, but separated to keep the overall cost of the bill down).

ObamaCare cost

The Medicare spending reductions aren’t likely to happen. Any time they come up, Congress extends them, passing them off to future Congress. This was noted by Megan McArdle shortly before passage of the bill.

Fiscal realities of ObamaCare

Over at Investors Business Daily, Douglas Holtz-Eakin, a former head of the Congressional Budget Office, and Paul Howard warn that ObamaCare could bring us back to where we just left…in another financial crisis:

Layering a new entitlement program with essentially unknown costs on top of the two programs that are already draining the federal Treasury — Medicare and Social Security — is the height of legislative irresponsibility. ObamaCare also reached a new low in Washington’s perennial budget games.

The $138 billion in estimated first-decade savings is illusory. It includes $53 billion in Social Security revenue that should go to that program, and $70 billion in premiums for a new federal long-term care program.

Counting these as health care “savings” merely generates a deficit somewhere else.

Program costs to get ObamaCare up and running — which aren’t appropriated in the bill — could easily add $110 billion or more in additional spending and wipe out any remaining savings. Democrats are also desperately trying to double-count $500 billion in Medicare cuts in ObamaCare as both shoring up Medicare’s long-term finances and funding a new entitlement program.

The CBO has ruled that it can only do one — not both. After ObamaCare becomes law, Democrats are expected to vote on a “doc fix” for increasing Medicare physician payments that will add another $371 billion to the price of health care reform.

When the $500 billion in Medicare cuts are added into the mix (remember, they can’t be counted twice) deficit costs in the first 10 years alone could easily approach $900 billion. The president and Democrats in Congress, of course, promise to get spending under control later, perhaps through a bipartisan commission.

Paul Ryan gives Chris Matthews a lesson in economics

Rep. Paul Ryan (R-WI) appeared on Hardball on Monday and discussed taxes, the debt and spending cuts with Chris Matthews, who demagogues tax cuts, and wound up giving him a lesson on economics:

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