Washington Matters


Obama's Deficit Ball and Chain


President Obama is vowing to get real about deficit reduction. He has to. The flood of red ink threatens to push up interest rates and short circuit a recovery. It will also undermine his domestic agenda and could drive away foreign investments. Even though Obama inherited much of the deficit from the Bush years, it will be his fiscal nemesis and it is turning into welcome ammunition for Republicans. It will be a Democratic Party ball and chain for years to come.

The deficit will come in this year at $1.8 trillion or so, about 12% of GDP, and more than $1 trillion next year. Chalk it up largely to the recession and lower federal tax revenues, continued heavy war costs, the economic stimulus, various federal bailouts and expanded social safety net obligations in the recession.

The national debt stands at a whopping 60% of annual GDP, up from 40% in 2007.

It's clearly unsustainable, and doing nothing, or even a little, is courting a failure that will come at a crushing long term cost to American prosperity and progress. Pointing the finger of blame backward to earlier policies of former presidents doesn't work either, although the New York Times offered some recent deficit history this week showing that about 20% of the deficit was due to Obama's policies.

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The trouble for Democrats is that they are no easy fixes. Big reductions in popular, non-entitlement domestic spending, such as education, science, energy research, job training and social programs, are unrealistic and would only help a little and at much pain politically. A government-wide discretionary spending freeze would accomplish little, too.

A huge cut in the defense budget? Not a chance in this uncertain global environment with military operations ongoing and with the huge Washington defense lobby protecting interests. Maybe some defense program cuts here and there, but for a pittance in savings. 

Other ideas? Pork barrel spending reform makes for nice sound bites, but it, too, would amount to a pittance in savings -- about one-half of one percent if every single earmark is stripped away.    

Obama's call for reinstitution of "pay-as-you-go" budget rules in Congress may sound commendable but it is loaded with loopholes and carve-out exemptions, and it will have little practical effect. The Senate Democratic leadership is cool to it anyway, preferring instead a bipartisan commission to propose long term fiscal discipline ideas. Even if it were reinstituted, PAY-GO only requires Congress to find offsets for entitlement expansions and new tax cuts, not for expansions of current domestic spending programs.

All this makes the deficit a major opportunity for Republicans, who are scrambling for a message to unite them and show some stark differences with Democrats. It matters little that Republicans don't have a realistic deficit reduction plan of their own, even though there are some very early and incomplete GOP deficit reduction talking points. They don't need a real plan in the short term. They only need to pin spiraling deficits on Democrats. Obama's only negative approval ratings, in fact, relate to his handling of the deficit and federal spending.

Democrats' most effective tool in the short term is one largely out of their hands and that odds don't favor happening -- a robust economic rebound and a galloping economy next year to turn around federal tax revenues. It's a foolish prayer, though. Economic recovery will start later than Democrats want and slower than they need to deflate the deficit issue before the 2010 mid-term election. Even Obama's budget gurus expect the deficit to be cut only in half by the end of 2012. That will still be a bear of a deficit, though.




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