Hypocrisy, they say, is vice’s tribute to virtue. In politics, we praise candidates who pledge to boost economic growth and curb the deficit, however implausible the promises, if only because they represent an aspiration to effective government. Yet even by this lax standard, President Obama’s budget is striking for its lack of ambition. Despite predicting almost implausibly strong economic growth over the next ten years, the administration itself projects enormous budget deficits. How can this be? After all, the soon-to-be-soaring economy assumed by the Obama administration would produce record tax revenues. Curbing deficits should not, then, be so difficult a task.

When times are good and the economy grows briskly, everything comes up roses for the federal budget. Income tax revenues rise as wages increase, capital gains taxes ride a wave of stock-market returns, and unemployment, welfare, and disability costs fall as employment rises. Together these tend to move the budget toward surpluses. When times are bad, by contrast, tax revenue falls and social spending rises. Since at least the Kennedy administration, high economic growth has correlated with lower budget deficits.

The Obama budget would be the exception to this rule: his administration projects high economic growth, significantly higher than estimated by the nonpartisan Congressional Budget Office and the private-sector blue-chip projections. At the same time, President Obama would also run the highest budget deficits of any peacetime administration in history.

President Obama criticized President Bush for running excessively large deficits. Obama would run budget deficits averaging 3.9 percent of GDP, nearly twice as large as Bush’s deficits.

To be fair to President Obama, he inherited the current recession and much of the stimulus spending would have occurred even under a Republican president. So let us examine only the Obama administration’s budget for the years 2010 through 2019, when his tax and spending policies would have taken effect. Moreover, we will use projections from Obama’s own Office of Management and Budget, rather than the more pessimistic Congressional Budget Office estimates. Even then, the numbers are dispiriting.

For instance, compare President Obama’s budget and economic projections to the record of President George W. Bush, whom Obama criticized for running excessively large deficits. During the Bush administration of 2001 through 2008, economic growth averaged 2.2 percent while the budget deficit averaged 2.0 percent of gross domestic product.  

Obama’s administration projects that from 2010 onward the economy will grow at an average rate of 3.2 percent, 45 percent faster than during the Bush years. Even so, Obama would run budget deficits—by his own optimistic projections—averaging 3.9 percent of GDP, nearly twice as large as Bush’s deficits. And while President Obama’s higher economic growth may or may not materialize, we can be confident that his budget deficits are not underestimated. Big government may be back, but balanced-budget liberalism is not.

Under President Obama, spending will increase to an average of 22.6 percent of GDP—14 percent above the 19.9 percent average during the Bush years and higher than any peacetime presidential administration in U.S. history.

And these deficits would not be due to a lack of taxes. President Obama’s budget projects average tax collections of 18.7 percent of GDP versus 17.9 percent during the Bush years, a difference that adds up to $1.3 trillion in extra revenues over 10 years.

Under President Obama, spending will increase to an average of 22.6 percent of GDP. This new spending, dedicated to healthcare, energy, education, and other areas, is 14 percent above the 19.9 percent average during the Bush years and higher than any peacetime presidential administration in U.S. history.

In testimony before Congress, Treasury Secretary Timothy Geithner blamed rising spending in the Obama budget on the aging of the population, which drives up Social Security and Medicare costs. Yet controlling entitlement costs increases, which are entirely predictable, is one reason we elect a president.

Paying more taxes to balance the budget at least presents a balance: while higher tax rates reduce incentives to work, lower budget deficits could raise national saving, increasing future productivity and wages. But higher taxes and increasing budget deficits together are another matter entirely. President Obama’s tax plans raise marginal rates at all income levels, hurting incentives to work. Likewise, large budget deficits will starve the economy of capital and reduce future investment—real investment, that is, not the Obama-speak “investment” that is mostly just spending in disguise. This spells lower future standards of living for Americans.

As Congress takes over the job of turning President Obama’s budget plans into legislative reality, they should focus on two words: aim higher.

Andrew G. Biggs is a resident scholar at the American Enterprise Institute.

FURTHER READING: In “Full Faith and Overextended Credit,” Biggs warns that the federal government’s long-term budget could bring about a financial crisis that surpasses the current one. AEI recently held a panel on “Tax Policy Lessons from the 2000s” and a lecture by Allan H. Meltzer called “Why Capitalism?”

Image by Dianna Ingram/The Bergman Group.