Finally, a top Democrat has revealed the cost of following Barack Obama’s plans for the size of the federal government. Unfortunately, his name is not Barack Obama.
Instead, it was Obama’s former top economic adviser, Lawrence Summers, who painted the picture in an op-ed published by the Financial Times.
Now, to be fair, “the cost of following Barack Obama’s plans” is not how Summers put it. Rather, he referred to the cost of “preserving the amount of government functions the U.S. had before the financial crisis,” and he argued this future was inevitable whoever is president come 2013.
The problem with his assertion of inevitable government growth is that Obama and Mitt Romney are not proposing the same things.
It is Obama, not Romney, who argues such a level of government will somehow remain affordable. It is Obama, not Romney, who would have you believe any changes will affect someone else — usually “the rich.”
Still, Summers’ outline of how government would expand if left on auto-pilot is instructive, because it makes clear how untenable Obama’s approach is.
In brief, Summers estimates three leading contributors to larger government in the coming years (he does not use the same time frame for each element) and how much of our gross domestic product their growth would consume:
That’s a total increase of 10.1 percent of GDP, or more than $1.5 trillion in the current economy.
Who will pay for such growth? The only answer we’ve heard from Obama and the Democrats is “the rich.”
Let’s go back to 2006 and 2007, the last two years when federal tax receipts as a share of GDP were slightly higher than, and spending as a share of GDP equal to, their post-World War II averages. (I know, I know: That’s not what Democrats would have you believe about Washington’s finances in the age of the Bush tax cuts and wars. But it’s true.) Those were also peak years in terms of earnings by households reporting income of at least $1 million. What better time to soak “the rich”?
Obama’s “Buffett Rule,” named for famed investor Warren Buffett, who likes to talk about paying more taxes but never contributes more voluntarily, would ensure $1 million earners paid at least 30 percent of their income in federal taxes. Using IRS data, we can calculate whether the rule would have paid for the government growth Obama wants.
In 2006 and 2007, taking 30 percent from the $1 million-plus households would have yielded an extra 0.75 percent of GDP compared to what really happened — nowhere near Summers’ 10.1 percent figure.
Taking half of these households’ annual income would have yielded about 2.7 percent of GDP. If Uncle Sam had taken every penny these Americans earned, he’d have gotten 7.4 percent of GDP.
Taking all of their earnings is, of course, completely unrealistic. Certainly, no one would ever again make the mistake of earning so much money. Heck, even Hollywood might — might — abandon Obama and the Democrats.
Still, if Obama somehow pulled it off, the Buffett Rule would barely cover the increase in spending on retirees and interest. He’d still have to get nearly half a trillion dollars more from the rest of us just to pay for health care and education.
This reality is why Romney’s choice of Paul Ryan to be his running mate is so important to the country’s future. With Ryan in the race, Obama can no longer merely talk about narrowing the current budget deficit (which, at more than 7 percent of GDP this year, doesn’t even figure into the above calculations) or putting entitlements on sound financial footing. He has to offer a plan that comes to grips with the truths Summers pointed out.
Five trillion dollars ago, simple “hope” was a glib but effective slogan. Now it has to compete with much trickier “math.”
– By Kyle Wingfield