The White House Discovers The Budget Deficit

Most economists have warned that the budget deficit could cause a need for ongoing huge borrowing by the Treasury and the need for higher taxes to stanch the red ink. Neither alternative is particularly attractive, but the Administration has largely ignored them up until the last few weeks.

In his radio address over the weekend, President Obama not only discovered the budget but admitted it could cripple the economic recovery.

In his comments, the President said “it is critical that we rein in the budget deficits we’ve been accumulating for far too long – deficits that won’t just burden our children and grandchildren, but could damage our markets, drive up our interest rates, and jeopardize our recovery right now.”

The deficit went largely unnoticed, at least in public, by the Administration, as it made it case for the $787 billion stimulus package. Some economists argue that the stimulus must be extended and its size expanded if the government is to spend it way out of the recession and into employment growth. Those actions may or may not work, but they would add hundreds of billions of dollars to the federal budget at time when The White House is about to submit its spending requests for next year to Congress. The amounts that Obama would like to spend in the government’s next fiscal would cause a record $1.6 trillion deficit.

Obama has suggested saving $250 billion over ten years by freezing the level of some discretionary spending, but that figure is only 3% of the deficit that will be created over the next decade.

The difficulty is that the budget deficits are likely to stay very high for the next two or three years. Tax receipts will not rise because of slow business activity and unemployment. Social Security, Medicare, and Medicaid costs are rising more quickly than the rest of government spending, but politicians do not want to go to their constituents with the idea that the national social safety net should be cut back.

Expense cuts in the budget have always been good in theory. When it comes around to actually making them, no one wants the program that he or she needs to be re-elected to be touched.

Douglas A. McIntyre