Obama budget: War, debt and cuts in social services

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Obama budget: War, debt and cuts in social services
By Patrick Martin
2 February 2010

The Obama administration’s budget for the 2011 fiscal year, unveiled
Monday, projects massive US government deficits for the next decade,
fueled by gargantuan military spending and the impact of the financial
and economic crisis of American and world capitalism. The US national
debt is projected to more than double over the coming decade,
increasing by $8.5 trillion.

Administration officials also revealed that for the current fiscal
year, which ends September 30, 2010, the federal deficit will approach
$1.6 trillion, by far the largest ever, and nearly 11 percent of total
US gross domestic product. This is up sharply from the $1.35 trillion
estimate last week by the Congressional Budget Office.

The mushrooming deficit for the current year is largely a byproduct of
the worsening economic crisis, which has simultaneously depressed tax
revenues and forced the expenditure of much greater sums for
unemployment compensation and other mandatory programs.

White House budget director Peter Orzag now projects that tens of
millions of American workers will remain on the unemployment rolls for
much of Obama’s four-year term in office. The FY ’11 budget assumes
that the unemployment this year will average 10 percent, falling to
9.2 percent in 2011 and 8.2 percent in 2012, both figures well above
those prevailing before the Wall Street crash of September-October 2008.

Even these unemployment and deficit figures are unduly optimistic,
since they are based on a return to economic growth averaging 2.7
percent of GDP this year, 3.8 percent in 2011 and 4.3 percent in 2012,
remaining above 4 percent for several more years, a figure last
reached during the dot-com bubble of the 1990s.

In the event the GDP growth stagnates at the current level—let alone a
return to slump—the unemployment figures could soar much higher into
double digits, and the federal deficit would quickly reach a level
that would precipitate a loss of international confidence and a
collapse of the dollar. As it is, even the relatively benign scenario
envisioned by the White House has the United States borrowing more in
the next five years than in the entire previous history of the country.

Federal borrowing will rise from 68 percent of GDP at the end of the
2011 fiscal year to a projected 77 percent of GDP by 2020, close to
the 80 percent mark projected as the “tipping point” when the credit
of the US government would effectively collapse, as investors lost
confidence in Washington’s ability to repay its debts in any way
except printing more dollars.

In the context of such gargantuan sums, the amount Obama proposes to
spend on “job creation” in the 2011 budget, only $100 billion, is a
drop in the bucket. If it was translated entirely into jobs, with no
overhead costs or business profits, it would mean two million jobs
paying $50,000 apiece—in a country with an estimated 20 million
unemployed or underemployed.

As it is, however, not a penny of the $100 billion is for hiring
workers. It consists largely of tax cuts for businesses that hire
workers or raise their pay, extended unemployment benefits, and aid to
state and local governments.

While the White House seeks to focus attention on the so-called job
creation initiative, this spending is dwarfed by the real priorities
of the administration—the gargantuan military establishment, and
interest payments on the national debt, which go disproportionately to
the wealthy and to foreign creditors.

The budget calls for an additional $33 billion in war funding for the
current fiscal year, to pay for Obama’s increase of 30,000 troops in
Afghanistan, and for a total of $159 billion for Iraq and Afghanistan
combined next year. Together with the $549 billion in the regular
Pentagon budget, this brings total direct US military spending in FY
2011 to more than $708 billion. There is considerable indirect
spending, including nearly all the budget of the Department of Energy,
which operates the nuclear weapons manufacturing process.

Counting the additional funds requested this year for Afghanistan,
total US spending in 2010 and 2011 for the two wars will come to $322
billion, compared to $354 billion in the final two years of the Bush
administration. This is only a small drop, despite the assumption—by
no means guaranteed—that all US combat forces will be withdrawn from
Iraq by August 2010.

Fiscal 2011 is the first year that more money will be budgeted for the
war in Afghanistan than for the war in Iraq, in part because of the
enormous logistical costs of sustaining a huge army in a landlocked
country with virtually no modern infrastructure. There is no specific
appropriation for either war for Fiscal 2012, only a $50 billion sum
described by the administration as a “placeholder,” awaiting
subsequent decisions on military policy, particularly in Afghanistan.
Given the dismal state of the puppet Karzai government in Kabul, huge
additional costs for the war in 2012 and beyond can be expected.

The administration has also budgeted an additional $5 billion to
modernize the US nuclear weapons stockpile and tighten security
procedures at weapons facilities. This is in response to a letter
signed by all 40 Senate Republicans and independent Democrat Joseph
Lieberman, that they would block ratification of a nuclear arms treaty
with Russia unless the administration funds a modernized nuclear
warhead program including new facilities at Los Alamos, New Mexico and
Oak Ridge, Tennessee.

As for the cost of financing the federal debt, gross interest payments
are projected at $499 billion in FY ’11, rising to $888 billion by FY
’15. Net interest payments are to rise from $250 billion in FY ’11 to
$507 billion in FY ’15. The lion’s share of these payments goes to
wealthy investors, both in the United States and internationally.

In effect, the federal government is paying interest to the super-rich
for the cost of borrowing the vast sums expended for, among other
things, the Bush administration’s tax cuts for those same super-rich,
and the Bush and Obama administrations’ bailout of Wall Street. The
wealthy have reaped additional unearned income at every stage of this
entirely parasitic process.

The only setback for the wealthy is that the Obama budget assumes the
expiration at the end of this year of the Bush tax cuts for those
making $250,000 a year or more. All other Bush tax cuts, including
favorable business depreciation rules, are to be renewed this year.
The result will be an increase of $678 billion over ten years in tax
payments by the wealthiest families.

This represents approximately half of the $1.2 trillion in tax
increases and spending cuts proposed in the new budget. The remaining
tax increases—$120 billion on international corporations, $90 billion
on bailed-out financial institutions, $60 billion in inventory taxes
and $38 billion in taxes on oil and gas companies—are unlikely to be
imposed, since they were incorporated into last year’s budget and the
Democratic-controlled Congress rejected them.

The main proposed spending cut is $250 billion to be obtained through
a three-year freeze in non-military discretionary spending on domestic
social programs. The White House is not proposing an across-the-board
cut, but selective cuts and some program eliminations, but many
details of these cuts are still unclear.

Among the specific cuts announced is the elimination of the
Constellation program, the planned return to the moon by the NASA.
Instead, NASA will spend $6 billion over five years to develop a
commercial spacecraft that private companies would build, to lift
astronauts into low orbit around the Earth. Former NASA administrator
Michael Griffin said, “It means that essentially the US has decided
that they're not going to be a significant player in human space
flight for the foreseeable future.”

In his weekly radio and Internet address Saturday, Obama said cutting
the federal deficit was just as important as creating jobs in his
administration’s priorities. The language is significant, since it
represents a further shift to the right and an embrace of austerity
policies for working people, even while unlimited federal support
continues for Wall Street.

He also reiterated his call for the establishment of an independent
federal commission to propose major cuts in entitlement programs like
Social Security, Medicare and Medicaid, which comprise the majority of
the federal budget. He also urged the reestablishment of congressional
“pay-as-you-go” rules, which bar any net increase in federal spending,
requiring that any increase in federal programs be offset by cuts to
others.

http://wsws.org/articles/2010/feb2010/budg-f02.shtml

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