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Spinning the 2012 Budget

President Obama delivered his proposed 2012 budget earlier this week.   The budget is for 2012, but also projects spending though 2021.

Here are a few highlights of his spending plan.

  • The budget deficit is expected to be $1.6 trillion for fiscal 2011 and will decrease to $1.1 trillion for 2012
  • The deficit is projected to decrease to $607 billion by 2015 and gradually increase in subsequent years to reach $771 billion by 2021
  • The annual interest cost on the national debt is expected to be $205 billion in 2011 and grow to $884 billion in 2021
  • The total national debt will rise to $26.3 trillion by 2021

Here are some of the statements made by the President and top administration officials regarding this budget.

  • “What my budget does is to put forward some tough choices, some significant spending cuts so that by the middle of this decade our annual spending will match our annual revenues. We will not be adding more to the national debt.” President Obama
  • “The budget that he laid out on Monday, which is actually quite an extraordinary document, it proposes $400 billion in cuts through a freeze on non-defense discretionary spending.” Jay Carney, White House Press Secretary
  • “You’re absolutely right that with the president’s plan, even if Congress were to enact it, and even if Congress were to hold to it and reduce those deficits to three percent of GDP over the next five years, we would still be left with a very large interest burden and unsustainable obligations over time,” Timothy Geithner, Treasury Secretary

President Obama has said that spending will match revenue by the middle of the decade, but the annual deficit is never projected to drop below $607 billion.  He also said that we won’t be adding anything more to the national debt, yet the debt will nearly double over the next 10 years.  The truth about the budget is that he expects to spend more than the government takes in every year, and the national debt will continue to grow.

In making his statement, the President has conveniently ignored the interest cost to the debt.  He’s not counting that as part of the annual spending.  He has tried to make some lame argument that the debt is a different issue and needs to be handled separately.  He made an analogy that it’s like racking up a huge credit card debt, but not charging anything more against it.  In making this comparison, he conveniently ignored the interest payments on the balance due as a required expenditure.

If you follow his line of thinking you could take out a huge mortgage on a house, buy a fully financed car and go on a shopping spree with your credit card, without impacting your budget.   Effectively, you could exclude all of these payments in determining if your expenses exceed your income because those payments are “a consequence of a series of [prior] decisions that were made.” 

You know that this is ridiculous.  One of the consequences of your prior decisions is that you must pay off your debts.  The same goes for the government.  It may sound academic and profound to try to isolate the interest on the national debt, but it is real money and real cash needs to be paid every year to U.S. bondholders.

Politicians are masters of “spinning” the truth to accomplish their objectives, but there is a difference between political spin and dishonesty.  In presenting his 2012 budget, the President is flirting with being dishonest with the American people.  Some might argue he is flat-out lying.

Don’t believe it when you hear that the budget is balanced, and national debt is not going to rise.  It’s simply not true.  Probably the most truthful statement was that made by Secretary Geithner when he said that we’re creating “unsustainable obligations over time.”  That I believe.

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