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THE TRUTH ABOUT OBAMA’S BUDGET

The Obama budget calls for a huge expansion of the federal government paid
for in large part by increases in taxes on business and upper income
Americans.

• Under this budget, the deficit would equal almost 13% of GDP in 2009, 8% in
2010 (levels not seen since WWII) and would not return to 2008 levels until
2016.
• Debt held by the public would soar to 67% of GDP in 2011 and would remain
above 65% throughout the 10 year projection period. The only reason the debt
to GDP ratio falls at all is due to the unrealistically optimistic growth
projections in this budget.
• Government spending as a percent of GDP peaks at almost 28% in 2009 and
remains above 22% throughout the 10 year projection period.
• Government revenue (primarily taxes) rises from about 16% of GDP in 2009
to over 19% by 2013 and stay at that level throughout the 10 year period.

Obama’s budget includes tax increases on businesses totaling $353 billion over
10 years.

• Taxing carried interest as ordinary income beginning in 2011 and raising $24
billion over 10 years
• Codifying economic substance doctrine beginning in 2009 and raising $5 billion
over 10 years
• Repealing LIFO beginning in 2012 and raising $61 billion over 10 years
• Levying punitive taxes on the oil and gas industry beginning in 2011 and raising
$32 billion over 10 years
• Implementing international enforcement, reform deferral, and other tax reform
policies beginning in 2011 and raising $210 billion over 10 years
• Reinstating Superfund taxes beginning in 2011 and raising $17 billion over 10
years
• Requiring information reporting for rental payments beginning in 2010 and
raising $4 billion over 10 years

Obama’s budget includes tax increases on high-income individuals – those
earning over $250,000 (married) and $200,000 (single) – totaling $955 billion
over 10 years.
• Raising the 33 and 35% income tax rates to 36 and 39.6% beginning in 2011
and raising $339 billion over 10 years.
• Reducing or eliminating personal exemptions and reducing certain itemized
deductions beginning in 2011 and raising $180 billion over 10 years.
• Limiting the tax rate at which the remaining itemized deductions can be taken
to 28% beginning in 2011 and raising $318 billion over 10 years.
• Raising the income tax rate from 15% to 20% on capital gains and dividends
beginning in 2010 and raising $118 billion over 10 years.
• These income tax increases shift a greater amount of the income tax burden to
higher-income individuals, including the more successful small business
proprietors who file as individuals (Schedule C filers, and those who receive
income from partnerships, limited liability companies, and S corporations).

In addition to the direct taxes on individuals and business, the Obama budget
proposes huge energy “taxes.”

• On energy, the budget calls for a $150 billion in renewable energy
investment over the next decade. The budget projects a large increase in
spending at the Department of Energy in 2009, to $33.9 billion (up from
$24.1 billion last year), because it includes money from the stimulus package
designated for research, weatherization programs and modernization of the
electric grid. DOE spending drops to $26.3 billion for the fiscal year 2010,
beginning in October, although the stimulus package provides an additional
$38.7 billion for energy programs that will be spent over the next several
years.
• On environment, the budget projects a 34 percent spending increase at the
Environmental Protection Agency for 2010, with much of the money
devoted to clean water projects, a Great Lakes restoration program and
across-the-board increases for regulation, research and enforcement. EPA
also receives $19 million to establish greenhouse gas inventory, which is an
important component of a climate law.
• Cap and Trade: The President’s budget assumes $646 billion in net new
revenue from the auction of carbon emission credits from 2012-2019.
None of this revenue would be devoted to deficit reduction. Instead, the
budget proposes to spend $526 billion (about 80%) of the new revenue on
extension of the Making Work Pay Tax Credit (that was enacted temporarily
in the stimulus bill and extended in this budget), contending that this
constitutes a rebate to low and middle-income consumers to offset the
increase in utility costs that result from the limits on carbon emissions. The
remaining $120 billion would be spent on clean energy technologies. Cap
and trade as proposed by President Obama is nothing more than a stealth
tax on energy producers and users, followed by a redistribution of wealth.
It is worth noting also that the Making Work Pay Tax Credit only applies
for households making $150,000 or less. Obama promised no new taxes to
families making $250,000 or less, but all families making more than
$150,000 will pay for this “cap and tax” regime without the benefit of the
Making Work Pay tax credit to ease the pain.

President Obama seeks to impose massive, new fees on users of licensed
spectrum

• Spectrum User Fees: The President’s budget proposes to levy a fee on all
users (e.g., wireless carriers, broadcasters, and others) of spectrum licensed
from the federal government. The fee per licensee would be $50 million
this year, but would jump to $200 million in 2010 and eventually rise to
$550 million by 2019. According to the Office of Management and Budget,
the fees would generate $4.8 billion over the next 10 years. Imposing
spectrum fees would endanger the continued viability of our nation’s
broadcasting system which has always provided free over-the-air
programming. For the wireless industry, these fees would be in addition to
the more than $60 billion spent purchasing spectrum in government
auctions. To spur the deployment of broadband and advanced
telecommunications across the United States, government policy should
encourage continued investment in network infrastructure, rather than
diverting these valuable funds to pay spectrum fees.

President Obama promised transparency in government, but this budget is
anything but transparent and includes numerous budgetary gimmicks.

• User Fees Replace Taxes: Obama’s budget purports to include $149 billion
over 10 years in tax cuts for business, but $77 billion of this $149 billion is
repeal of aviation taxes which are then replaced with user fees.
• Misrepresented Savings from War Costs: The President’s budget makes the
assumption that the war baseline is over $50 billion higher than the amount
that has been enacted and proposed in 2009, growing by inflation until 2019.
Then the budget requests $130 billion for 2010, with an abrupt drop to $50
billion in 2011 and every year thereafter. Therefore it appears to “save” $2
trillion. In other words, the President claims savings from spending that was
never going to happen from a war that is winding down from its peak in 2008.
• SCHIP Expansion Costs are Unfunded After 2013: When the President
signed into law the State Children’s Health Insurance Program (SCHIP), it
authorized and funded the program through 2013. The President’s budget only
includes funding through 2013, meaning children would be put on the program
initially only to be forced off or onto Medicaid when the new funding runs out
after 2013. As this is politically impossible, CBO estimated the true cost of the
SCHIP expansion to be $115 billion over 10 years, instead of the advertised
cost of $73 billion.
• New Entitlement Program Unfunded After 2015: The budget further
creates a new mandatory program, the College Access and Completion Fund,
but only funds it until 2015, after which time the program is zeroed out. It is
highly unlikely that this program will end, and even if it does, it will not end
abruptly.

The Budget’s Economic Assumptions:

• The Obama budget marks the return of “rosy scenario” with its assumption
that GDP will only decline 1.2% in 2009. By contrast, the consensus of Blue
Chip forecasters is that growth will decline by a much more severe 2.6%. In
2010 the budget assumes GDP will grow 3.2%. Most forecasters in the Blue
Chip survey expect GDP growth in 2010 of 1.9%.
• His outyear forecast is even more optimistic. It assumes GDP growth will
average 4.3% for three years in 2011-2013 before returning to trend. In the past
20 years there have only been 4 years of comparable growth. Three of those
occurred between 1997 and 1999 when productivity surged and the economy
was in the midst of the tech bubble.
• The situation is even worse when we look at the unemployment rate. The ink’s
not even dry on this document, but already their forecast is wrong. The
unemployment rate in the forecast is predicted to reach 8.1% in 2009 and then
decline to 7.9% in 2010. With the unemployment rate currently at 8.1% and
expected to go much higher, their forecast is clearly unrealistic.
• Their overly optimistic viewpoint also applies to their inflation assumptions.
Despite the trillions of dollars of stimulus and credit extended to the banking
sector, the administration unrealistically assumes that the inflation rate never
exceeds 2.1%.