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Obama's deficit woes persist
By Jeff Mason
Published in The Saudi Gazette on 22 - 08 - 2009

A stabilizing US financial sector has freed President Barack Obama to trim 2009 budget deficit projections, but the still-record-breaking figure will not make it any easier for him to sell healthcare reform.
The White House budget office will lower its deficit forecast next week for the current fiscal year to $1.58 trillion from $1.84 trillion after removing $250 billion set aside for bank bailouts.
The decision shows the administration has enough confidence in the financial sector's strength to forego an option to ask the US Congress for further rescue funds.
But the lower figure's release, which comes at a convenient time for Obama as he tries to overcome critics' concerns about a nearly $1 trillion overhaul of the healthcare system, does not change a key problem: the deficit is still in the trillions of dollars.
“The size of the deficit remains large and most Americans will see it that way,” said Julian Zelizer, a history professor at Princeton University. “In this case, the devil is not in the details but rather it is in the trillion dollar figure.”
The Congressional Budget Office will offer its latest deficit projections Tuesday, setting up a potential clash of fiscal outlooks. Previous CBO estimates showed the deficit topping $1.8 trillion in 2009, largely because of Obama's $787 billion economic stimulus package.
In May, the White House pushed up its budget deficit estimates for the fiscal year ending Sept. 30 to $1.84 trillion - representing a huge 12.9 percent of gross domestic product.
The latest number of $1.58 trillion, which represents 11.2 percent of GDP, still marks the highest deficit as a percentage of GDP since 1945.
The White House acknowledged that, despite positive signals about the banking system, the budget outlook was tough.
“I think the budget situation continues to be a great challenge,” spokesman Robert Gibbs said Thursday.
“We have seen the economy in a very, very steep decline, in some ways in a steeper decline than anybody had predicted. And I think the budget picture, in many ways, will demonstrate that resulting deterioration.”
Obama, a Democrat, has pledged to halve the deficit by the end of his four-year term and is eager to remind constituents that he inherited a $1.3 trillion budget hole from his Republican predecessor, George W. Bush.
Audiences at town hall-style meetings often boo when Obama emphasizes that fact and critics have gained traction by arguing that expensive plans to revamp healthcare, improve education and alter US energy usage do not mix well with budget shortfalls.
Rudolph Penner, a former director of the CBO and now a fellow at the Urban Institute, which analyzes economic issues, said US debt was headed to hit 80 percent of GDP by 2019. “The administration so far hasn't shown any signs of trying to get the long-run budget situation in order,” he said. “What we have to do is change the long run trajectory of spending, and that's a very difficult thing to do.”
Administration officials said spending in the 2009 fiscal year would total $3.653 trillion and revenues would be $2.074 trillion.
Obama, speaking on a radio program, said reducing healthcare costs was crucial to keeping government programs such as Medicare and Medicaid from bankrupting the country.
Nigel Gault, chief US economist at the analysis and consulting firm IHS Global Insight, said the new estimates reflected positive economic progress, but the deficit remained a looming problem.
“It's good news in the sense that it reflects a stabilizing economy and less troubled financial markets,” Gault said of the latest projections.
“But the long-term issue remains: Can the administration implement a successful ‘exit strategy' from huge deficits, especially after adding in the costs of healthcare reform?”
That question is on the minds of many Americans, who polls show are worried that higher taxes will ensue if the budget deficit does not fall.
Meanwhile, progress or not, the US economy still has a long way to go before it can be described as healthy, and that process could alter budget plans going forward.


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