President Obama's recently released fiscal 2014 budget proposal would continue near-record level deficits despite tax hikes, largely because it would increase spending by more than 20 percent over the next five years. The deficits would continue despite an increase in tax collection by 46 percent over the same period under Obama's plan.
The budget proposal submitted to Congress (two months later than required by law) calls for a $744.2-billion deficit in fiscal 2014, the first under a trillion dollars since Obama took office. The president is able to claim to bring deficits down to the $500 billion per year deficit level after 2014 only because he assumes outlandishly high economic growth rates: about 3.5 percent real GDP growth average for the next four years, along with low 2.2-percent price inflation.
Obama's expectation of 2.6-percent growth in fiscal 2013 is already behind schedule, as the first quarter of the fiscal year (September-December 2012) saw an anemic 0.4-percent annual growth rate. And while the U.S. economy has traditionally rebounded from a recession with four-percent growth for several years, nations with high national debt and a low national savings rates — which the U.S. economy has — historically grow at a much slower rate. The U.S. government currently carries double the proportionate debt load it had during the 1980s, and the economy maintains only two-thirds the national savings rate compared to the same time period. The United States should instead expect a recovery-era growth rate similar to that being experienced by the United Kingdom, Germany, and Japan, which also have high national debt levels (though a higher savings rate than the United States).
Only by projecting unreasonably high economic growth does Obama make projected additions to the national debt more modest than his first four years as president. Yet even assuming his growth figures, the president seeks to add an additional $4 trillion to the national debt over the next five years. The proportion of debt compared to the size of the U.S. economy would remain in the 100-110 percent of GDP range, he predicts, because the economy would grow with the debt level. Without that vigorous growth, the debt level would rise significantly. And with a new recession, such as the United Kingdom appears to be entering, the national debt would skyrocket toward Japanese levels of debt.
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