When President Obama sent his latest, and last, budget plan to Congress in February, he proclaimed it is all about “looking forward.” But in many ways the President’s final budget is little more than a look back. The plan resurrects the Administration’s unrealistically rosy economic assumptions, deficit spending proposals and punitive tax hikes that have been the hallmarks of Obama’s past budgets.
In the President’s previous budget proposals, the concept of a balanced budget was barely considered, and this year’s plan is no different. It would add $6.1 trillion in debt between 2017 and 2026—and this is after the Congressional Budget Office revised its outlook to show trillion dollar annual deficits adding $9.4 trillion to the national debt over those years. The deficit reductions the plan does forecast rely on $46.5 trillion in tax receipts, which exceeds the CBO’s projections by $4.5 trillion.
Once again, the Administration appears to be opting for symbolism over substance. Instead of putting forward an honest blueprint for fiscal responsibility, the President seeks to use the country’s checkbook as a tool to advance his political agenda. That reality is made evident by a $10.25 per barrel oil tax that has already been met with skepticism on Capitol Hill.
The President and his advisors claim the oil tax increase will fall on, and be paid by, energy producers. Unfortunately, that doesn’t pass a smell test. Experts roundly agree the increase will be shouldered by everyday Americans when they go to fill up at the pump. White House economic advisor Jeff Zients acknowledged last month, “We recognize that oil companies will likely pass on some of these costs.”
A discerning consumer should translate that admission as consumers will get stuck on the receiving end of most or all of the proposed tax hike. That’s not a dig against energy producers; it’s a reality of basic market mechanics. Like any business, oil and gas companies at each juncture of the production chain face fixed costs. In order to maintain profits, as every business must do, energy producers have to pass along the increased costs to the point of sale.
The President has long advocated for alternative energies, and it is his prerogative to do so. But the President can’t claim ownership of low gasoline and heating prices while simultaneously seeking to increase the costs consumers pay—especially when the price tag attached is a hefty $319 billion. Most paradoxical is the fact the impact of increasing oil costs would fall disproportionately on the middle-class, the very demographic the President so often emphasizes he is fighting for.
In 2014, the Wall Street Journal reported that the bottom fifth of income earners in the United States spend 12 percent of their income on gasoline, compared with only three percent among top earners. As prices go up, it will be those at the middle and bottom who feel it first. Likewise, raising the cost of oil will push up costs of goods like food and clothing, as they become more expensive to move to points of sale.
Today, American consumers are reaping the benefits of affordable, reliable energy produced here at home. The unprecedented energy renaissance over the past decade has reversed the trend of greater reliance on foreign suppliers and helped create stability on the international markets. U.S. oil exports are expected to fall to less than 15 percent of consumption by 2020, down from a record high in 2006.
President Obama’s budget rightly calls for a one-time lower tax rate to incentivize businesses to repatriate funds held overseas. But such objectives would be better achieved through comprehensive tax reform that simplifies the system, lowers rates and treats all sectors of the economy uniformly without repealing deductions for some sectors while increasing subsidies for other competitors. In fact, the President’s budget picks winners and losers by advocating punitive taxes on select industries. While that may curry favor with some likeminded lawmakers, it’s likely to enflame the gridlock within Washington, which could very well block the avenues for bipartisan reforms.
Republican lawmakers have made clear the President’s budget plan is “dead on arrival.” Under Senate Majority Leader Mitch McConnell, Republican lawmakers have set to creating a budget resolution that would reign in spending. While those efforts are admirable, lawmaker should use the moment to champion serious tax reform, which will spur economic activity and thereby generate revenue to meet Washington’s spending zeal.
