This story was written by Barbara Borozan, Cornell Daily Sun
President-elect Barack Obama is engulfed in one of the most challenging transitions in American history, as he will inherit two wars and the worst economic crisis since the Great Depression. In the weeks following his election, Obama has retreated from the public spotlight, beginning to plan the much talked about change that his campaign promised to deliver. With the appointment of Rahm Emanuel as Obamas chief of staff, anxious Americans, who are understandably fixated on the current financial crisis, wonder: Who will replace Henry Paulson as the countrys treasury secretary, and what lies ahead for Americas fiscal policy and the economy?
In assessing what the budget may look like under Obamas presidency, we first need to establish the current economic figures: as a result of the recession and the current financial crisis, the fiscal year 2009 budget deficit is on track to hit around $800 billion (approximately 5.5 percent of GDP). After incorporating the Troubled Assets Relief Program and Supplementary Financing Program, the deficit is likely to be around $1.8 trillion an uncomfortably staggering number. This will take the public debt to GDP ratio above 50 percent. Compound this with the possible bailout of the US automakers, and we are looking at a drastic deficit. Indeed, a serious change is in need.
At the heart of Obamas economic proposal is a new tax program: this initiative will decrease taxes for the middle class and increase taxes for the top two marginal tax rates, affecting the top five percent of income earners. The president-elects tax policies certainly received quite a bit of press during the last month of his campaign, as Obamas comment on spreading the wealth to the now infamous Joe the plumber was deemed synonymous with socialism by the McCain campaign. The Republican presidential candidate failed to highlight how the governments recent partial nationalization of various U.S. banks is strangely reminiscent of such dirigisme. Nevertheless, Obamas tax cuts, effectively an extension of the Bush tax cuts for the bottom 95 percent of income earners, promise to help various Americans retain some of their income, increasing taxes on those who can afford to spread the wealth. Such will marginally help the U.S. deficit.
Additionally, Obama plans to install a phased withdrawal of the U.S. military from Iraq. This will likely reduce the deficit over time, saving the government some much needed money. However, increased spending on defense will continue, as Obama plans to do more in Afghanistan, which might end up being more expensive than the president-elect currently envisions. Furthermore, Obamas plan for expanded health care coverage should be lauded, but this is another policy initiative that will likely result in an increased deficit.
Although the deficit is not the countrys primary concern given the current recession and financial crisis, Americas long-term financial health and sustainability are issues that Obama needs to consider. As Time magazine recently put Obama on its cover by superimposing his face on an old image of FDR, it is abundantly clear that the president-elect inherits an economy in similar shambles as prior to the New Deal. Obama needs to tread carefully, remembering that the reinstallation of fireside chats are important in lifting the countrys morale, but rhetoric is not the answer. It is critical that the president-elect weighs his programs in light of the current meltdown, remembering that just because we can implement certain policies does not mean that we should.