For investors the strength of the dollar and economy are important reasons to invest in the United States. What is troubling at the same time, is the irresponsible actions of the American government under President Obama. The national debt is now in excess of $18 trillion USD (United States Dollar) and increasing at an alarming rate. President Obama is on track to increase the level of indebtedness more than all former presidents from George Washington to George W. Bush combined. To present a national budget that will tip the scales at over $4 trillion USD is not only irresponsible, but totally reckless. It indicates to investors in the American economy, that politics will continue to triumph common sense, as long as Obama is President of the United States.
It is difficult for Americans to grasp the situation fully, when freewheeling politicians like President Obama, continue to insist that a 7% increase in discretionary spending makes sense at this time. The American economy in contrast this year, may only grow a third of that rate of the proposed increase. To insist on such a unrestrained increase at this juncture, is to be totally ignorant of what the implications of this overwhelming debt actually are.
At 320 million inhabitants, the United States government debt per person has reached $56,484,69 USD. Per household that works out to be $146,295.36 USD. These statistics make it easier to understand on a individualized level. However, the most alarming is the unfunded liabilities of the American government. Social Security itself is already shortchanged by an amount topping $15 trillion USD. Considering that 10,000 baby boomers are retiring everyday, this is a situation that will dramatically become much worse in the next few years. Medicare spending for these retirees at present, has an unfunded liability of over $79 trillion USD alone.
The prescription drug liability is now closing in on being $20 trillion. The indebtedness for this category was vastly expanded in 2006, with the new medicine entitlement for individuals on Social Security. This benefit was enacted during a time when Republicans controlled the presidency and the Congress. It should of been quite clear at the time, that there was no real way to fund this huge new government entitlement. Yet the legislation passed anyway and it became law.
So what does President Obama do when Democrats are in control of Congress in 2009 and 2010? Move to pass another massive entitlement that is unfunded and therefore not affordable. Of course, in order to make the new national healthcare act more fiscally palatable, totally fantastical figures were used to garner public support, for this new budget buster. The end result of the misleading facts and figures presented by the government, is another $9.2 trillion unfunded liability that will not be paid for.
This brings the unfunded liabilities for the United States in 2015, to the level of an incredible mind boggling $123.3 trillion USD. Worse yet, it continues to rise at an alarming rate. The total unfunded liabilities per person in the United States is now close to $385,000 USD. This works out to be close to a million dollars per household ($996,843 USD) at the time of this writing. This is a sum most Americans can realistically relate to. That is why it is almost never used in explaining how overwhelming the fiscal situation in the United States has become.
The deficits under the Obama Presidency have been massive. In 2009 it posted at $1.4 trillion. In 2010 and 2011 there was a slight decline to 1.3 trillion.
In 2012 because of the sequestration which were automatic spending cuts across the board, the amount of the deficit declined further to $1 trillion.
Improving economic conditions and continued sequestration brought a further reduction to $676 billion in 2013 and $500 billion in 2014. That is still a massive run up in federal debt totaling $6.176 trillion USD in six years.
Some political pundits will wish to point out that the 2009 budget was the sole responsibility of President Bush. In normal circumstances this largely would be the case. The expected deficit requested for fiscal 2009 which began in October 2008, was $407 billion. The higher amount spent ($1.4 trillion) was the result of the bailout of the banks (TARP) to the tune of $245 billion and the part of the massive stimulus that was passed in February of 2009, to be spent the same year, added $200 billion more. Extra spending passed in March of 2009 which added up to $410 billion, ended up making the deficit much larger. In addition, extra overall spending and a drop of revenue as a result of the recession, made up the rest.
President Bush can only be accountable to his actions regarding TARP. He was no longer President when these other spending actions were taken. It also must be pointed out that President Bush was negotiating with a Congress under complete Democratic control. This was the case in 2007 and 2008, the last two years of the Bush Presidency.
This will now be the case for President Obama in the last two years of his presidency, with Republicans in firm control of both houses of Congress. Therefore, it is unlikely that much of what he proposes will be enacted. However, it does indicate the challenge for any fiscal conservative, to make headway against an addiction to spending and debt that has been tolerated and encouraged by the political leaders of both parties. It is only in degree that the two sides differ.
Despite earlier promises and the creation of a presidential commission whose recommendations were later ignored, it is unlikely that there will be any entitlement reform during the tenure of President Obama. As a result deficits will surge back above $1 trillion USD within the decade. Entitlements will cost a staggering $2.3 billion this year alone. That is three-fifths of all government spending. In ten years it will consume almost the entire present day budget.
President Obama continues to insist on a redistributive tax system. Taxes will be raised even higher on the affluent, to the total of $2 trillion over the next decade. The money raised will not be used to lower the deficit. It will instead be used to lower taxes for low and lower middle income families. Tax reductions are a good thing, if they are accompanied with real spending cuts. It really does not matter at this point, because any major tax increase for any group of Americans, is a nonstarter for the Republican Congress. So the stalemate will resume.
What both sides do agree on is the need to reverse the stagnation of wages that the middle class has been experiencing, since the advances of the 1990’s. At that time both economic growth and unemployment averaged about 4% a year. As much as the Democratic Party under President Obama will insist to the contrary, there will be no real restoration of upward mobility, until there is new wealth creation. Therefore, the policies of redistribution will only bring fleeting relief.
The budget presented by the President does little to reorient the country towards investment and growth. The cost of maintaining entitlements and paying the interest on the debt, is taking an ever greater share of the budget. However, these are all current consumption, they do not help with making an investment in the future of the nation.
On a positive note President Obama finally has acknowledged the need to cut the corporate tax rate, which is the highest in the industrialized world. The proposed rate cut will be from 35% to 28%, but should actually be reduced to a low of at least 20%. Regardless, the lower tax rate will be quite helpful to American companies in competing at the global level. The President is also at last, promoting the idea of a new minimum tax on global profits earned by American companies. The idea is to reduce the burden of taxes on businesses by helping them avoid paying taxes on income earned overseas twice. That is in the host country and then again in the United States.
A major thrust of the President’s budget proposal is the elimination of the sequester which was agreed upon cuts across all discretionary spending, if a budget compromise could not be reached. In place since 2011, it has been an effective tool in dealing with the deadlock in out of control spending. By raising discretionary federal spending by a proposed $74 billion, any fiscal constraints will then be eliminated. Although the new money would be equally divided between defense and domestic spending, it simply is additional spending that will just be tacked onto the deficit.
There is an effort to increase infrastructure spending contained in the proposed budget. These types of investments can actually help sustain economic growth. Much of the nations power grid and transportation system, as well as scientific research and investment could use extra funding. The problem is, there is no dedicated source to fund these efforts. Again, the costs will just be added to the deficit and subsequently to the national debt.
Ultimately, of course the budget proposes even higher taxes on the rich who are the wealth generators. It asks for a $2 trillion increase over the next decade on this group. These include a minimum tax on millionaires. It will be at least 30% now. Capital gains which were taxed at 15% before Obama, have already been increased to 23% and will now rise to 28%. It has almost doubled during his presidency. Why would anyone want to make investments in this type of tax environment? An investor takes all the risks and if one is successful, the government wants nearly a third of the take. Higher taxes on inherited wealth and limits on itemized deductions claimed by the wealthy, are also included. There is even a plan for a new tax on the nation’s hundred largest banks.
The message is quite clear. The more affluent, will continue to pay an ever higher share of the tax burden of the country. Will this help balance the budget? Of course not, since even more spending is being proposed. Will it bring down the national debt or help will unfunded liabilities? Again the answer is no. It will not provide new investment or business expansion. It will not grow the economy. What Americans are in need of at this juncture in history, are more employment opportunities and higher paying lines of work.
Higher taxes and higher government spending in the end, will only lead to lower economic growth, less overall investment,fewer and lower paying jobs. These so called progressive policies, will not return the country to sustained growth and prosperity. Once again, a missed opportunity for the country to move in a new fiscal direction. The president could of showed leadership on this crucial issue and not attempt to pander to his base, as he has continued to do throughout his time in office. Instead, he once again failed the test of being a statesman. The country will ultimately pay a high price for his failure.