President's Budget Is a Blueprint for Economic Malaise

It has often been said that budgets are a statement of priorities. If that's the case, President Obama has taken his eyes off of the nation's top priority: economic recovery. Instead of proposing measures that would spur economic growth, the president's budget would dramatically increase the size and scope of the federal government, increasing the cumulative federal deficit by nearly $9.3 trillion over the next 10 years. By 2019, the level of debt held by the public would reach an astronomical 82% of GDP.

To help pay for this spending, the president would raise taxes on business by $353 billion and on high-income households, which include many small business owners, by $955 billion over the next 10 years. The budget also includes the auction of carbon emissions credits, which amounts to a $646 billion stealth tax. Taken together, these tax increases would discourage saving and investment and slow job growth at a time when the economy is mired in the steepest downturn since the Great Depression. Moreover, the budget would create a tax code that is so skewed that virtually half the taxpayers in the country would be excluded from paying federal income tax and thus have no interest in the way government is run.

If that's not bad enough, some members of Congress have begun to talk about using a process known as budget reconciliation to enact sweeping changes to our health care sector. This would allow 51 senators to radically alter 16% of our economy with only limited debate. Reform is desperately needed to address the rising cost of care, uneven quality, and the problem of the uninsured, but the White House budget only includes a $634 billion place holder and no additional details. What is needed is an open and honest debate.

In general, President Obama's budget proposal focuses on important long-run issues while losing sight of the immediate concerns presented by the severe weakness in the economy. The spending proposals are broad but in many cases undefined, unfunded, or underfunded. The tax provisions are simply the wrong medicine at the wrong time to cure an ailing economy.

That's why the U.S. Chamber is urging Congress to reject the president's budget proposal and craft a budget that will, first and foremost, get the U.S. economy out of its current malaise and back on track for future growth. Congress should address the longer-term issues raised by the president only after the economy is growing again.

Comments

[SallyVCrockett]

I actually admire and respect President Obama for keeping energy/ climate change legislation a priority--this country has to do something soon to stem the tide of climate change. Having said that, I don't believe that a fundamenta­lly-flawed cap and trade scheme is the best way to address the issue, especially given these harsh economic times. A carbon tax shift approach like the one CTF co-founder (and former Under Secretary of Commerce for Economic Affairs under President Clinton) proposes reduces emissions incentivizes green technology R&D AND returns the revenue to families already burdened by the economic downturn. It's a win-win for the environment and for the economy. www.climatetaskforce.org

[TheMadHedgeFundTrader]

Things may be improving. Call me an optimist, but I am starting to see crocuses of economic recovery busting out all over. Long side traders now have a spring in their step after a 23% rise in the Dow in three weeks, the best move since 1938. If it is true that the stock market anticipates moves in the real economy by six months, then a lot of managers are going to come back from their summer vacations in September to find a surprising batch of new orders. Commodities have been on an absolute tear this year, especially oil and copper, classic harbingers of future business activity. Just look at my favorite, Freeport McMoran (FCX), which soared 170% from the November lows. The downward momentum of a whole range of economic indicators is slowing. The durable goods number was actually up last week! The mother of all inventory adjustments is almost over. Retailers are still offering the deals of the century, but there is very little left in the back room. And they are no longer looking for organ recipients for the major airlines. Now I hear that semiconductor makers are expected to make their Q1 targets. Maybe it’s because spring has arrived, and the girls on the Embarcadero have shed their overcoats for low cut tank tops. Or maybe the $4 trillion in global stimulus is starting to have its desired effect. www.madhedgefundtrader.com.