Obama's budget deficits to rise from wars, recession

McClatchy NewspapersFebruary 1, 2010 

WASHINGTON — Fighting wars and lingering effects from a deep recession, President Barack Obama will run up a record $1.56 trillion budget deficit this year and is proposing a 2011 federal budget that would spend $1.27 trillion more than the government takes in next year.

Even with plans to scale back after that, his budget proposal Monday calls for deficits of more than $700 billion a year for at least a decade and relies on outside help from an as-yet un-appointed commission to bring them down more.

"It's a budget that reflects the serious challenges facing the country," Obama said at the White House. "We're at war. Our economy has lost 7 million jobs over the last two years. And our government is deeply in debt after what can only be described as a decade of profligacy."

While he said that he wanted to bring the deficit down later, he warned that the government needs to keep spending at or near its current pace to help create jobs and guarantee that the economy fully recovers. Aides said the White House feared that any quicker cut in the deficit could risk another recession akin to the one in 1937, as the country was starting to recover from the Great Depression and the government cut spending to balance its budget.

"It's very important to understand," the president said. "We won't be able to bring down this deficit overnight, given that the recovery is still taking hold and families across the country still need help."

Obama also used the budget — as much a political document as a policy plan — to blame former President George W. Bush and the Republican-led Congress in Bush's first six years for much of the fiscal crisis that the country faces.

"Over the course of the past 10 years, the previous administration and previous Congresses created an expensive new drug program, passed massive tax cuts for the wealthy and funded two wars without paying for any of it, all of which was compounded by recession and by rising health care costs," Obama said.

"As a result, when I first walked through the door, the deficit stood at $1.3 trillion, with projected deficits of $8 trillion over the next decade."

He did not, however, mention that Bush also cut taxes for the working and middle classes, which Obama on Monday proposed extending permanently without any offsetting spending cuts or tax increases to pay for them. He also didn't propose ending the prescription drug benefit that the Republicans added to Medicare.

His budget plan would spawn deficits totaling $8.53 trillion over the next 10 years.

Democrats in Congress called the Obama budget the best that can be done given the high costs of war and recession.

"It will be impossible to bring the deficit down unless the economy is up. The budget the president is sending Congress today puts a priority on those objectives. It keeps one eye on the economy and the other on the deficit," said Rep. John Spratt, D-S.C., the chairman of the House of Representatives Budget Committee.

Budget watchdog groups gave Obama credit for some parts of his proposal, but warned that more is needed to keep spiraling deficits and debts from damaging the economy permanently.

"A small spending freeze, some minor tax reforms to raise revenues and a budget commission are all excellent ideas," said Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, a nonprofit fiscal-policy group.

"But this budget doesn't go nearly far enough, and it will require presidential leadership to develop a responsible fiscal plan."

Republicans, who last week helped shoot down a Senate proposal to create an independent deficit-cutting commission that they once supported, called instead for a plan of spending cuts and caps, including scaling back spending increases on entitlements such as Medicare and Social Security.

"President Obama is submitting another budget that spends too much, taxes too much and borrows too much," said House Minority Leader John Boehner, R-Ohio. "Serious fiscal responsibility requires more than a few cuts here and there at the margins. Republicans have proposed adopting strict budget caps that limit federal spending on an annual basis and are enforceable by the president."

The president's proposed budget would spend $3.83 trillion in the federal fiscal year beginning Oct. 1, a 3 percent increase over the current year.

The budget foresees the government taking in $2.57 trillion in taxes and other revenue, an 18.6 percent jump as the deep recession ends and a growing economy boosts income. He proposed making Bush-era tax cuts permanent for those who earn less than $250,000 annually, and ending the tax reductions for those who make more than that.

Two key factors would help drive up spending or increase the deficit: war and government programs to create jobs.

First, Obama is spending more for war than he expected.

A year ago, he estimated that spending on war and intelligence operations in Afghanistan, Iraq and Pakistan would drop from the $145 billion he inherited to $129 billion in the current fiscal year. Instead, he's sending another 30,000 to 35,000 troops to Afghanistan and is asking for another $33 billion for the current year, boosting the total to $162 billion, and for $159 billion next year.

The United States is committed to withdrawing all its combat troops from Iraq by the end of 2011, and Obama has pledged to start drawing down troops from Afghanistan next year as well.

Still, his budget asks to set aside an additional $50 billion for the fiscal year that starts Oct. 1, 2011, and again every year after that, just in case it's needed.

"These estimates do not reflect any policy decisions about specific military or intelligence operations," the president's budget says, "but are only intended to indicate that some as-yet-unknown costs are anticipated."

Second, Obama continues to propose new spending and tax cuts to help spark the economy and create jobs, atop the $787 billion stimulus package enacted last year.

Among his new proposals: $100 billion in tax cuts and credits for small businesses and spending on infrastructure to create jobs and increase wages.

Even with the added boost, the White House forecasts slow progress from the current unemployment rate of 10 percent. Christina Romer, the chair of the Council of Economic Advisers, forecasts that the jobless rate would drop to 9.8 percent this year, 8.9 percent in 2011 and 7.9 percent in 2012.

The president also proposed other spending increases for the next fiscal year, including:

  • $48 billion for veterans' medical care, an 8 percent increase.
  • $53 billion for homeland security, a nearly 4 percent increase, including money for 1,000 advanced imaging technology machines for airport passengers, new explosives detection equipment for baggage and more federal marshals aboard international flights.
  • $310 million to close the prison at Guantanamo Bay, Cuba, including $273 million to buy a state prison at Thomson, Ill., for those detainees who won't be released or transferred to other countries.

Obama also urged Congress to take steps that he said would shave $1.2 trillion off the deficit over the next 10 years:

  • Freezing overall spending for three years for some federal departments and programs outside of national security, Medicare and Social Security.
  • Slapping a fee on big banks.
  • Ending subsidies for oil, gas and coal production.
  • Cutting or eliminating 120 programs.

Obama projected that the deficit, while staggering in dollar terms, would drop as a share of the economy. By 2014, he said, a $706 billion budget deficit would be 3.9 percent of the economy, nearing the 3 percent level that he and his aides said would be manageable.

He proposed that a bipartisan fiscal commission find the rest of the spending cuts or tax increases that are needed.

(David Lightman and Kevin G. Hall contributed to this report.)

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