Thursday, February 26, 2009

O.M.G. - Part 3

WASHINGTON - President Barack Obama is sending Congress a budget Thursday that projects the government's deficit for this year will soar to $1.75 trillion...

A senior administration official told The Associated Press that Obama's $3 trillion-plus spending blueprint also asks Congress to raise taxes on the wealthy in 2011 and cut Medicare costs to provide health care for the uninsured.

The new budget also plans for additional financial bailouts of up to $750 billion, a senior administration official told NBC News. But the White House believes that as the economy improves it will get roughly $500 billion back, so the expected cost to taxpayers is $250 billion.

The deficit is expected to remain around $1 trillion for the next two years before starting to decline to $533 billion in 2013, according to budget projections.

Obama also will ask for an additional $75 billion to cover the costs of wars in Iraq and Afghanistan through September, the end of the current budget year. That would be on top of the $40 billion already appropriated by Congress, the administration official said.

The administration will also ask for $130 billion for Iraq and Afghanistan in 2010 and will budget the costs of operations in Iraq and Afghanistan at $50 billion annually over the next several years.

Obama's budget proposal would effectively raise income taxes and curb tax deductions on couples making more than $250,000 a year, beginning in 2011...Obama would allow the marginal rate on household incomes above $250,000 to rise from 35 percent to 39.6 percent.

The $1.75 trillion deficit projected for this year would represent 12.3 percent of the gross domestic product, double the previous post-war record of 6 percent in 1983, when Ronald Reagan was president, and the highest level since the deficit totaled 21.5 percent of GDP in 1945, at the end of World War II."

Wars. Federal bloat. Unaccountable deficit spending. Beltway arrogance. Pompous messianic politicians. Lofty rhetoric.

Yes, indeed. The more things "change", the more they stay the same.

Obama thinks a family making $250K is rich. Oh, is that rich. I dare say even low-income people would say the $1M mark defines what is "rich".

Those making low six-figure income may be well-off and fairly secure. But "rich" or "wealthy"? This is just redistributionist class warfarist propagandizing and the subtle demonization of citizens who do not deserve such totally-arbitrary treatment.

In short, Obama plans to have a family, for example, that makes $ 250,000.01 pay $11,500 more to the government per year, indefinitely, beginning in less than 2 years.

In short, why even break the $250K mark? You'll end up with even less than if you just simply made less.

Also, Obama thinks that "credit" is the "lifeblood" of our economy, so it is no surprise he is using the nation's credit card like an overextended mentally-unbalanced consumer going on a berzerk shopping binge.

Where's all the sacrifice come into this no-holds-barred spending extravaganza?

Or does Obama really mean sacrificing the (real) 'lifeblood' of American generations not yet in existence to accommodate his fierce expediency of now?


tom said...

"The new budget also plans for additional financial bailouts of up to $750 billion, a senior administration official told NBC News. But the White House believes that as the economy improves it will get roughly $500 billion back, so the expected cost to taxpayers is $250 billion."

Could some Obama zealot please explain this math to me?

The government can only generate revenue via taxation, right?

So assuming the economy improves and the government gets $500 billion "back" in the form of additional taxes collected, how does $750B in spending offset by $500B of extra tax revenue equal a cost to taxpayers of $250B?

Or does Obama perhaps think the Inflation Fairy is just going to create that $500 billion out of thin air and hand it to him?

Anonymous said...

Tyler, I think your $11,500 figure is incorrect, i.e., way overstated.

Since 11,500 divided by .046 = 250,000, you have assumed that the 39.6% marginal rate is applicable over the entire $250,000.

Moreover, the tax is calculated based on the AGI, which for a $250,000 income will probably deduct down to around $220,000.

If you consult the y-1 (married filing jointly) 2008 tax schedule, you will see that even the highest tax bracket of 35% does not kick in until AGI exceeds $357,750.

I was not able to find the Obama y-1, therefore I cannot calculate the additional tax that the $250,000.01 earner will pay under the Obama plan, but I will bet it will be no where near $11,500.

Perry Hood

Anonymous said...

Tom, my understanding is that the "bailout" money is actually either a loan that must be paid back, or purchase of some asset, like preferred stock, which the government can liquidate at a later date. Since there appears to be a predicted loss of $250K, it looks like some loss due to unrepaid loans or reduced value assets is figured in. That's my take.

Perry Hood

Tyler Nixon said...

I think you're correct Perry that I overstated the # (calculated and written in a hurry). But I doubt I "way" overstated it.

If the tax increase was $1150, not $11500, I could agree with you.

But even assuming $100K in typical deductions (undoubtedly "way" over what is average), then a family making $387750 will be paying $113,949 in federal income taxes, before all other government bites on their earning. This is $13,230 MORE in taxes.

As if the $113K isn't punitive enough, seems to me this increase will be very punitive upon the middle class.

If you are going to be defining "rich" and "wealthy" for a nearly 5% tax increase, I just can't believe Obama would hit low six figure earners so hard.

When Obama stagflation kicks in, he will have reduced these people's standard of living. Is that what you want, Perry?

Or does "standard of living" only some ethereal talking point you use as if it some pinpoint aggregate measure?

Tyler Nixon said...

Actually, Obama will have reduced these people's standard of living with or without stagflation.

Anonymous said...

Tyler, I don't think you are taking into account the tax schedules, so you are basing your calculation on the marginal tax rate over the entire AGI.

Anyway, noone can make an accurate calculation until the Obama tax schedule is published.

One other point. This tax increase on the >250K AGI folks does not kick in until T/Y 2011. The idea is that the extra revenue will be needed to cut the deficit in half by 2013.

tom said...

The projected $500 billion was predicated upon "as the economy improves", not "when the bankrupt companies become profitable again". That strongly implies an expectation of increased tax revenue. It won't be from anything so obvious as an increase in personal income tax rates. Instead it will be hidden as inflation driven increases in receipts of everything from excise taxes, capital gains taxes, and business income taxes, and reduced payouts of benefits based on income levels.

And if I am wrong about this, the situation is even worse and they are flat out lying about the projected revenue recovery.

Remember that not only will any loan repayments and asset sales be in inflated dollars, but that the market will punish the bailed out companies.

It will be a long time before the banking, finance, insurance and auto sectors regain their stock value in general due to worries about their stability and fear that the entire industry will be nationalized.

The companies that actually accepted the bailouts will be the last to recover for several reasons. Lack of trust is one. The government selling off large blocks of their stock any time it starts to gain value is another. Loan repayments will cut into their profits. And finally, because the primary effect of the bailout was to prevent them from being forced to adapt and reorganize themselves into more profitable companies, so they will not magically recover and become profitable just because all of the more prudent businesses did.

Tyler Nixon said...

Your points are chilling, Tom.