How to Prepare for Obama’s Spending Avalanche

How to Prepare for Obama’s Spending Avalanche

How appropriate that President Obama revealed his 2016 budget on Groundhog Day. As in the movie of that name, Mr. Obama is offering up the same arguments about taxing the rich and “investing” for the future that we have heard for the past six years; Republicans, meanwhile, are sounding the usual warnings about unsustainable debts and deficits.

For most Americans, the coming budget debate will resonate about as clearly as the baffling chatter about “net neutrality”; in other words, not much. But, we all know that washed ashore by the tsunami of federal spending and regulation, there will be wreckage that impacts our daily lives. Here is a guide to the wary:

Related: Why Democrats Are Pushing a $1.2 Trillion Redistribution of Wealth

TAXES are going to be higher. Not only higher for rich people or for corporations, but for the economy as a whole. The Wall Street Journal reports that taxes will rise to 18.7 percent of GDP in 2016, from 17.5 percent in 2014, and average 19.3 percent through the next ten years. That’s a remarkable two percentage points higher than the 30-year average of 17.2 percent. Remarkable in that when you’re talking about an $18 trillion economy, two percent is a big number. People should ask themselves, what am I getting from that increase? Am I getting a more secure retirement, a safer world, better healthcare, improved schools?

People should also question whether raising taxes today is a good idea. A report from the Urban Institute calculated that Mr. Obama’s budget would cost the average household $209 in increased taxes; moreover, a higher number of taxpayers would be hit with increases than would see their tax burden decline. Most people think that in a recovery, it is damaging to hike taxes, which siphons money out of the private sector and funnels it to the ever-larger bureaucracy of the federal government. Are the Feds more efficient in their use of taxpayer money than privately-run businesses? Doubtful.

The economy is on an improving trend. But few, and not even President Obama, would argue that employment and incomes have reached acceptable levels. We had two quarters of robust growth last year, but gains slowed in the most recent quarter. Raising taxes today is premature, and could again slow growth. It’s a risk not worth taking.

ENERGY policy is buried in President Obama’s massive budget document. Over the next decade the president’s plan would take almost $50 billion away from oil, gas and coal producers, and redirect much of that money towards funding the EPA and subsidizing wind and solar power. One new item worth noting is a $4 billion Clean Power State Initiative Fund, which is meant to help states meet proposed EPA regulations that reduce carbon emissions from U.S. power plants. In other words, the Feds would raise money to help states meet the government’s new rules. There’s something circular about that but it’s hard to put a finger on.

Related: How Plunging Oil Prices Could Create Economic Upheaval 

Most Americans are enjoying a windfall from lower gasoline and fuel oil prices today. Two dollar gasoline is arguably the best thing that has happened to middle class Americans since Mr. Obama took office. The average household is expected to reap a $750 benefit from the swoon in pump prices – it could be higher. Those living in colder parts of the country will also enjoy a big savings on heating their homes this year.

This windfall is not the result of central planning. It is the result of technological breakthroughs and massive investment by oil and gas producers in the U.S. which has almost doubled domestic production, challenging OPEC’s grip on pricing. Higher natural gas output has driven prices lower and displaced coal, causing U.S. carbon emissions to drop 10 percent from 2005 to 2012. Win, win.

The only sour note on the energy scene is that last year for the first time in many, electricity prices rose faster than inflation -- by about 3 percent around the country. Historically, the price of electricity lagged inflation. From 1985 to 2000, for instance, electric­ity prices increased by just over one percent per year on average, while inflation came in at 2.4 percent per year.

Related: Obama’s Budget Boosts EPA to Fight Climate Change

As the government demands that more and more electricity be produced from alternative fuels, costs will rise. A review in 2011 put U.S. electricity prices at about one third those in Denmark and Germany, countries wedded to high-cost wind and solar power. Mr. Obama would like the U.S. to follow a similar path. Twenty-nine states now have renewable energy mandates; the higher costs are just beginning to emerge. Though these policies are set at the state level, the push comes from the top and will only be more stringent as the EPA’s power plant regulations take effect.

 Americans should tell the president: let well enough alone. Our energy industries are the envy of the world, we are benefiting from inexpensive fuel – a boon to industry and to consumers – and our carbon emissions are on the decline.  

Related: Finding the Ways and Means for a Budget Compromise

DEFENSE would see some increase, but, weirdly, outlays for fighting ISIS, which fall under the Overseas Contingency Operation funding, will drop from $5.6 billion to $5.3 billion. Maybe that’s a typo.  Similarly, the budget fails to address entitlements, which carry on unchecked, absorbing an ever-greater share of the budget. Specifically, mandatory outlays increase from 15.1 percent in 2016 to 16.6 percent in 2020. Medicaid, thanks to Obamacare, soars 88 percent between 2014 and 2025. That’s probably a typo too.

President Obama proposes to pay for some of his higher spending gain through a tax on financial firms that have over $50 billion in assets. The argument for this levy, which would raise $112 billion over the next ten years, appears to be that of the notorious bank robber Willie Sutton: that’s where the money is. Having reaped about $33 billion via fines and penalties on our largest financial institutions over the past two years, Mr. Obama may think that particular well is running dry. His rationale for the tax: the banks are too darned big.

By that standard, Mr. Obama, maybe we should start taxing the federal government.

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