posted on: Thursday February 4, 2010
Jenny Arvanaghi ’10 / World Editor
On Monday, Feb. 1, President Barack Obama proposed a $3.8 trillion budget for fiscal 2011, which begins Oct. 1, 2010. According to The Wall Street Journal, the deficit for this year will surge to a record-breaking $1.56 trillion, topping last years’ deficit of $1.41 trillion. The plan will be greater than last year’s due to a proposed jobs package, which would cost $76 billion through 2015. This plan includes big increases in personal and business taxes, modest spending cuts, and increased outlays for education, defense, and jobs initiatives.The goal of the Obama administration is to cap the so-called discretionary spending, roughly 17 percent of the total budget, as part of a plan to narrow the record $1.6 trillion gap between proposed budget outlays and tax receipts, yet the budget plan calls for nearly $1 trillion in tax increases on upper-income families. Also, banks, bankers, and multinational corporations will now face new fees and levies. Similarly, oil companies would lose $39 billion in tax breaks.The budget will shrink the current deficit to $727 billion, or 4.2 percent of the gross domestic product by 2013, yet if annual deficits shrink the total federal debt will keep growing. Overall, the president’s budget would add $8.5 trillion to the federal debt through 2020, pushing the debt as a percentage of GDP to 77 percent from 53 percent. This is a major problem says Kenneth Rogoff, a Harvard University economist, who explains, “We will hit a point where it comes on us very quickly, and you don’t want to edge up to that point. Going beyond 80 percent, you’re taking a real chance.”This increase in GDP will preset many consequences for Americans such as cuts on some domestic programs. Also, the tax-cuts of George W. Bush expire at year-end. Budget departments of Agriculture, Commerce, Health and Human Services, Housing and Urban Development and Justice will be cut.Likewise, there are many tax implications from this new budget proposal. The two top-income tax brackets would rise to 36 percent and 39.6 percent from 33 percent and 35 percent. For families earning at least $250,000, capital gains and dividend tax rates would rise to 20 percent from 15 percent. In total, upper-income families would face and additional $969 billion in taxes between 2011 and 2020. With rising interest, though, Social Security, Medicare, and Medicaid costs, as well as total government spending, would rise by $85 billion to $3.76 trillion. Similarly, elementary and secondary education programs would receive $28 billion, a $3 billion increase. The Pell grants for college financial aid would be increased $17 billion.Also, the deficit would drop to the equivalent of five percent of GDP in 2013, through expected economic improvement.