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Charles Dharapak/AP

Open the spigots

Politics | In a town not known for fiscal restraint, President Obama's first speech to Congress signals a historic surge in federal spending

Issue: "Wealth and poverty," March 14, 2009

WASHINGTON, D.C.-When President Obama, during his first address to Congress, proclaimed to the gathered lawmakers they had a responsibility to "our children . . . to ensure that we do not pass on to them a debt they cannot pay," the loudest applause in the divided House chamber came from the Republican side.

Moments later those same Republicans sat on their hands when the president added that he planned to save the children from debt by letting some of Bush's tax cuts expire.

In reviewing the address and the first six weeks of the Obama White House most conservative lawmakers said it portended three things for the next four years: More taxes. More spending. More government.

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In fact, conservatives are fearful that Washington has gone beyond the looking glass when it comes to federal spending: "We are on a spending spree of gargantuan proportions here," said Senate Republican Leader Mitch McConnell.

The president has pledged to the nation that he will cut the estimated $1.75 trillion annual deficit in half during the next four years. But many Republicans are asking what kind of magic Obama will employ to accomplish this in the face of yet another mammoth spending bill and the introduction of costly new initiatives.

Two weeks after Congress passed a nearly $800 billion stimulus package, the House quickly passed along party lines a $410 billion omnibus spending bill that the watchdog group Taxpayers for Common Sense says contains 8,570 earmarks totaling about $7.7 billion.

Furthermore, Obama's first budget outline released this week seeks to pour a $634 billion, 10-year down payment into efforts at universal health care with half the funding paid for by additional tax hikes.

These new tax increases would reduce the itemized deduction rate for contributions and expenses-a move sure to be unpopular among charities looking for donors. Still, experts say this $634 billion reserve fund would only cover half the cost of insuring every American.

Obama's budget also seeks to increase the top income tax rate, from 35 percent to 39.6 percent; to update the alternative minimum tax for inflation (a move that would add $150 billion to the deficit by 2013); and to freeze the estate tax at current levels instead of allowing it to expire next year.

Economist Diane Lim Rogers with the Concord Coalition says the formula for cutting the annual deficit in half despite increased federal spending is simple: End the war in Iraq and let the Bush tax cuts expire on schedule in 2010. "Without the expiration of the tax cuts we are talking about trillion-dollar deficits for years to come," says Rogers.

Obama in his speech to Congress again vowed to "end the tax breaks for the wealthiest 2 percent of Americans," meaning those making $250,000 or more each year. But another congressional battle royal is expected when Democrats try to extend some but not all of the tax cuts passed in 2001 and 2003. It is a recipe for a weaker economy and fewer jobs, worries budget expert Brian Riedl: "There is no good time to raise taxes, but during a recession is the worst time."

When the tax cuts expire it will not just hit the wealthiest, says Ryan Ellis, tax policy director with the Americans for Tax Reform. Seventy percent of the nation's small businesses are in the tax bracket the president threatens to increase. They could see their tax rate go from 37.9 percent today to 42.5 percent in 2011, potentially devastating both small business owners and the people they employ.

The president insists that the nation's recovery will require significant resources from the federal government, probably more than have already been set aside: "I reject the view that says your problems will simply take care of themselves; that says government has no role in laying the foundation for our common prosperity."

Conservatives say that the Obama administration is aiming for the wrong target when it comes to cutting federal deficits: The arrow should be pointed at reducing federal spending, not raising taxes.

"There hasn't been any emphasis or any focus whatsoever on spending by the administration or by the Democratic leadership in Congress," argues Republican Sen. John Thune of South Dakota.

Obama administration officials also acknowledge that a big factor in cutting the deficit in half will be slashing the amount of money spent annually in Iraq.

But analysts say it is very unlikely every dollar saved during a gradual drawdown in Iraq will be pumped back into the U.S. economy. Much of the money will be swallowed up by shifting a greater presence of American forces to Afghanistan and by continued support for the Iraqi government and military, says Jeffrey White, a former Defense Intelligence Agency analyst now with the Washington Institute for Near East Policy.

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