On Monday, President Barack Obama proposed a $3.8 trillion budget that would be effective fiscal year 2011. The plan would include big increases in personal and business taxes, as well as modest spending cuts and increases in spending for education, defense and job initiatives.
Discretionary Spending, Tax Increases in the Proposal
In Obama’s plan is the idea to cap discretionary spending, which accounts for roughly 17 percent of the total budget. His goal is to narrow the record $1.6 trillion gap between the expenditures in the proposed budget and tax receipts. (Learn about Obama’s stimulus plan)
Also, in budget is a plan to increase taxes on upper-income families by nearly $1 trillion dollars. The way he will accomplish this goal is by allowing Bush’s tax cuts for these families to expire. In addition, banks, bankers and multinational companies would face new fees and levies. Reports also say that oil companies would lose $39 billion in tax breaks.
The hope is that by making these adjustments, the current deficit would shrink to $727 billion – or 4.2 percent of the gross domestic product – by 2013. However, by reducing the annual deficit, experts say that the federal debt would jump to $8.5 trillion by 2020.
Another Financial Crisis the Result of Obama’s New Budget?
Economist Kenneth Rogoff, who was interviewed by the Wall Street Journal, explained that the increased federal debt could result in drastically higher interest rates. In addition, the value of the dollar could plunge, which could cause the economy to face another financial crisis.
As suggested by Rogoff, in order to keep the government at a reasonable federal debt, the president would need to cut some domestic programs and large tax increases – basically, the opposite of what he’s doing now.
The idea is that he may be trying to fix the short-term problems, but all of the spending may in essence create long-term issues.