Obama’s deficits: Quite the rosy scenario

A third straight year with a $1 trillion-plus budget deficit: That’s what President Obama proposed today in his budget request for fiscal 2011 (the budget year beginning this October).

The White House does project that by 2015 the deficit will fall to half of this year’s level. For some perspective, however, the 2015 deficit would still be almost as large in inflation-adjusted dollars as the combined deficit of any two years between the end of World War II and 2009.

Democrats will have to bear that budget as they try to avoid repeating last month’s shocking loss in Massachusetts on a national scale in November’s mid-term elections. And that’s assuming Congress doesn’t increase the deficit even further. This is essentially a bet against the tea-party movement, even though the tea partiers are more likely to gain strength and momentum this year, as the Instapundit, Glenn Harlan Reynolds, argues here.

But even the still-historic deficit levels projected in 2012-2015 may be too good to be true. What’s left unsaid, or at least buried in the budget documents, are these two things:

1. the White House assumes that the economy of 2011-2015 will be as hot as it was during the go-go years of the late 1990s — growing at least 3.5 percent a year for five straight years (a feat we didn’t accomplish during the ’80s or the ’90s); and

2. these growth figures depend on inflation remaining lower in the next decade than it was in the last decade, even though the Fed in the last couple of years has been creating money at an unprecedented rate.

Neither of these assumptions seems likely to come true. First, which industries are likely to replicate the growth that we saw, chiefly in information technology, in the late 1990s? Not “green” energy, not by a long shot.

Second, how exactly is the Fed going to rein in all of the dollars it’s been letting loose since the beginning of the housing crash? Even if Ben Bernanke & Co. time it just right, it’s probably impossible for them to keep inflation at the low levels that the Obama budget writers assume.

Even if inflation is just as benign as it was during the Bush administration, it’s likely to knock at least a percentage point off the GDP forecasts made by the Obama administration. That would put the economy on roughly the same growth trajectory as during the Bush years.

I’m not sure what exactly that would do to revenues, but I am sure that they would suffer somewhat. Some of our debt would become cheaper to service, but the history of devaluing one’s way to prosperity is not good. Deficits would widen accordingly.

Bottom line: As bleak a picture as the administration paints, things probably aren’t even that cheerful. There is no time to waste in cutting spending and the deficit.

74 comments Add your comment

Jefferson

February 1st, 2010
4:00 pm

Higher rates are needed now.

Disgusted

February 1st, 2010
4:14 pm

If Obama would just stop being so stubborn and do what his predecessor did, his problem would be on the way to being solved: just take the war spending out of the annual budget, and don’t include it in the deficit calculation either.

jconservative

February 1st, 2010
4:15 pm

“There is no time to waste in cutting spending…”

Everyone talks about cutting spending. Talk. That is all. Talk.

OK Kyle, what do you want to cut? Article 2 in this series can be a list of cuts we can all rally around.

I will start the list. First – Pull all troops out of Iraq today. What is that, $200 billion or more a year? Second – raise the enrollment age on Medicare from 65 to 67. What is that, another $200 billion a year, $2 trillion over a decade? Third – cancel the March 2009 Obama tax cuts. That is about $200 billion a year if I remember.

Now does someone else want to add to the list? Or do you want to tell me we can’t do these things for whatever reason?

I will guess the latter because that is what we have done since 1981 when we started this cut taxes/increase spending economic policy.

Jess

February 1st, 2010
4:16 pm

Had Obama taken the interest in controlling the federal budjet that he claims to now, his ratings would be much higher. There are many of us who think the first stimulus package was purely taking advantage of a bad situation to cram through pet spending projects, and to pay for political favors. What he is proposing now is closer to the mark, but it’s too little too late.

Small businesses are not going to hire people if they have no work, regardless of the tax credits. They will not have work until the American people decide to spend money. They will not start spending money until they have confidence that this government knows what it’s doing. In the meantime, record savings by Americans will continue, along with a sharp decline in borrowing.

This country is going to see some very hard times, and it did not have to happen. Economies, in a free market, have a natural ebb and flow. Government intrusion in this process causes disruption.

Jess

February 1st, 2010
4:22 pm

Let’s look at some of the spending cuts. Last year the education department had a budjet of $46 billion. This year their budjet will be $120 billion. Next year they will be held to and inflation adjusted $120 billion. I know it sounds tough but times are hard, and our President has to take hard measures.

Jefferson

February 1st, 2010
4:24 pm

I though it had all changed because of MA, see — nothing has changed. Stop the war, raise interest rates and income taxes on over 250K to 50% 500K to 70%. That will give someone the chance to vote NO.

Jefferson

February 1st, 2010
4:34 pm

How did it get so bad so quick?

Michael H. Smith

February 1st, 2010
4:40 pm

Kyle, did you really think our right honorable President would seriously cut spending beyond a few token cuts made to appease the deficit hawks within his own party?

His budget proposal is going to take some time to review and consider. I’m completely in favor of tax credits, incentives and capital gains cuts in exchange for real verifiable full-time long term jobs created. It is the only fiscally responsible way to raise revenues and stop borrowing ourselves out of first world existence into the third world abyss. However, the devil as always remains in all of those pesky – all too often porky – little details.

Road Scholar

February 1st, 2010
4:44 pm

Jefferson: Republicans! Start 2 wars, increase medicaid and tax breaks. Simple!

Kyle Wingfield

February 1st, 2010
4:44 pm

I’m on board with Nos. 2 and 3, jconservative. The payroll tax cuts were too small and scatter-shot to have much of an effect other than the president’s being able to say that he cut taxes for 95 percent of working families, as he promised.

As for No. 1, if I’m not mistaken the plan is to wind down operations there sharply beginning this year. The surge worked, but it’s not clear that keeping such a large presence there longer is going to have much marginal effect — unless you stay for 50 years, and I don’t think anyone wants that.

Road Scholar

February 1st, 2010
4:47 pm

This is the budget he proposes. Now its time for the Congress and Senate to do their thing! Oh Boy! Grab a REALLY big bag of popcorn (if you can afford it) and watch…

Jefferson

February 1st, 2010
4:49 pm

I know spending is the problem, but if you don’t raise the hell out of taxes the same people keep getting elected.

Michael H. Smith

February 1st, 2010
5:05 pm

Jess, I understand the premise of your “no work” comment. However, no work is not always the case of why a business holds off hiring new employees. There is more to this than a catch – 22 situation and the chicken or the egg first scenario. My boss wants to expand. With these potential tax cuts credits – depending on the details of course – it could allow him to have the capital necessary to move forward on hiring new employees and seek out whatever new additional business he might acquire. Then you have people on the sidelines with money to invest in the ideas and innovations of others that have been reluctant to finance new ventures who will be drawn off of those sidelines by these capital gains cuts or favorable tax incentives that make the rewards worth the risks they will take.

citizen

February 1st, 2010
5:15 pm

My one big worry is that through the budget, States will be more beholden to Washington to ease their own economy and Washington will be bigger and more powerful than they already are. Governors have a tough choice to make, accept the money and the subjugation or reject the money and the citizens complain.

Jefferson

February 1st, 2010
5:21 pm

Sonny will take the money, he did last year.

Jefferson

February 1st, 2010
5:22 pm

His name is really George, he should use it.

Michael H. Smith

February 1st, 2010
5:25 pm

Republicans! Start 2 wars?

Excuse me, Roads, wasn’t there an Al-Qaeda somewhere in that mix, about 3,000 American dead, buildings destroyed in New York, the Pentagon damaged and a Senator now President Obama who supported one of those wars?

As best I recall, only one Senator (Wellstone – D of Minnesota) opposed the war in Afghanistan from the start.

Michael H. Smith

February 1st, 2010
5:28 pm

Careful citizen, you are beginning to sound like that old fabricating, big omnipotent federal government detesting Michael H. Smith that the socialist liberals on these blogs love to attack with great a disdain. :lol:

Chris Broe

February 1st, 2010
5:29 pm

These deficits are a no good. We must cut the deficits or we gonna be in a big trouble one day. Now why a not a spend a money when you gots a some in you pocket instead of charging everything when you no can a pay? I a don’t a like a that at all. (pardon my french)

Michael H. Smith

February 1st, 2010
5:34 pm

Chris my good soul we already in big trouble with few days left to cut spending and grow revenues before we hit LBJ’s infamous “Big Muddy”.

Cutty

February 1st, 2010
5:43 pm

Republicans have seen the light, and are back to being fiscal conservatives. And it only took one day January 20, 2009.

Michael H. Smith

February 1st, 2010
5:56 pm

Marvelous how revelations come about, simply Marvelous. Heck some of those Republicans drop the GB water bucket and actually began to ask their constituents for their honest opinions instead of telling us what we should think and how we should answer their pre-designed questions.

Of course, the Democrats just told us to sit down and shut the hell up! At least until after, Virginia, New Jersey and Massachusetts.

neo-Carlinist

February 1st, 2010
6:06 pm

jconservative, here’s another idea. excuse me for not having the budget in front of me. why don’t all civil servants (from the guy in the print shop to the President) ALL have their salaries capped at minimum wage? in this era of hazy lines between the public and private sectors, why shoul Americans care about “executive compensation” in the private sector, but not the goverment? ditto the concept of minimum wage. if Congress feels the need to mandate or set the minimum wage, why not have a federally established minimum wage (same wage)? seriously is being a member of Congress or the Senate “skilled labor”? and while we’re at it, who needs offices in DC (staff)? why not have all House members “telecommute”? they can work from home, and maybe once or twice a year (State of the Union, etc.) they can travel to DC (on their own dime, it is tax deductible) and get their picture taken with the President, or whatever.

samuel

February 1st, 2010
6:12 pm

Medicare is the biggest problem with the budget. Seniors are already upset with Obama because the Republicans have them thinking that health care reform would cut their benefits. Imagine the outrage if Obama propsed a freeze and/or a cut in Medicare and Social Security benefits. The expiration of the first Bush tax cut will eventually help to reduce the budget deficit, as will the restoration of the PAYGO system that was first passed by Congressional Democrats in 1990 and allowed to expire by Congressional Republicans in 2002. It was PAYGO that allowed the budget surpluses of 1998-2001. Anyone who studies the history of budget surpluses and deficits, as well as national debt, knows that deficits and the national debt have exploded under the last 3 Republican presidents. The evidence is available on the internet. Look it up.

Michael H. Smith

February 1st, 2010
6:14 pm

Oh well, ho hum, Dunkeys do have smaller ears than Elephants: Possibly that explains those required two extra days of revelation?

Just saying…

Jess

February 1st, 2010
6:24 pm

Michael Smith,

I’m actually in favor of the hiring tax credit, however even though your scenario is true for some businesses, the majority of small businesses are currently hampered by a lack of business rather than a desire to expand. For these companies this will not improve until Americans regain some confidence that we are not headed off a cliff. For these people it will take more than a hiring tax credit to spur adding personnel. Americans are saving at record levels, and have cut their use of credit dramatically.

Michael H. Smith

February 1st, 2010
6:33 pm

Americans care about “executive compensation” in the private sector

Hey, this one I want to take on, neo-Carlinist. Seeing as how I’ve been all but called a bleeding corporate run government goon for quoting Jefferson on liberty.

Americans who own stocks and bonds, 401K’s and the like have every bleeping right to angry as all “H” because a huge part of these “executive bonuses” should be going back to them in the form earnings, yields on their investments, instead of lining some expletives delete delete money losing corporate or wall street creeps pockets!

jconservative

February 1st, 2010
6:37 pm

Kyle – re the savings from an immediate pull out from Iraq. True we are schedule to get out in 2011 but I am saying we can save $200 billion by getting out in 2010.

Do the list of cuts in a follow-up column.

jconservative

February 1st, 2010
6:50 pm

Here you go guys – what you have alwats wanted.

http://www.youtube.com/user/murrayhillcongress

Michael H. Smith

February 1st, 2010
7:13 pm

Road Scholar

February 1st, 2010
7:39 pm

Michael H. Smith: Now who was President when Iraq and Afganastan were invaded? Bush or Cheney (pick one) No WMD found in Iraq. No accounting for its cost in the budget until recently. Three years of wasted occupation after the war was “won” (Mission Accomplished). Finally the surge…
Didn’t Prsident Bush said he could get Bin Laden? I guess he didn’t say when…

Kyle Wingfield

February 1st, 2010
10:07 pm

Folks, I’m not sure why comments aren’t making it onto this post, but keep posting and I’ll push them through as soon as I can.

Michael H. Smith

February 1st, 2010
10:54 pm

Roads, what is your real objective here, to damn Bush or be untruthful about what you said in a very foolish attempt cover over your misrepresentation of the facts?

Once again, the part of your statement I called into question.

Republicans! Start 2 wars?

Republicans didn’t start “two wars”. Al-Qaeda committed an act of war against the United States of America and the American people September 11, 2001. That removes all doubts about either Republicans or Democrats for that matter, starting a war. That’s one war that belongs to Al-Qaeda. Furthermore, re-stating what is public record, Democrats joined Republicans in responding to that act of war committed by Al-Qaeda, as the United States of America. Had Al-Qaeda been a nation state a formal declaration of war would have been declared by Congress no differently than as took place when Japan attack Pearl Harbor.

To go further, this madness and it is madness, of Bush being the sole reason for the disastrous economy of this country we now face is totally insane. This fiscal calamity has been in the making for several decades past spanning across Republican and Democrat Congresses and Presidencies alike.

Michael H. Smith

February 1st, 2010
11:16 pm

Your point is well taken Jess but you have to start somewhere and it is best to start with those who are ready and willing to make the moves to expand and hire people. Otherwise, small businesses are doomed waiting on a jobless recovering that will never produce the business they need.

Paul

February 2nd, 2010
2:25 am

…and yet that all pales in comparison to the more than $9 TRILLION in assets that the U.S. lost in ONE YEAR during the great stock market crash of 2008.

Had we raised taxes AND cut spending during the economic boom of 2001 – 2006, we could have paid off most of the $10 trillion in debt that we had at the end of 2008. Now we have to choose between running huge deficits to keep the economy from collapsing (tax cuts without spending cuts is ALSO spending) or cutting spending which could also do the very same thing. Give people less Social Security, make them pay higher Medicare rates, essentially pull the support rug out from under them and see how eager they are to spend their money in this economy.

People have to feel comfortable to start spending again so that we can see the American consumer replace the government’s role as the one keeping the economic engine running. If you stop giving the engine gas before it’s running on its own, it’s going to shut down completely and it’s going to take a miracle to get it started again. Hello second great depression.

Higgins

February 2nd, 2010
3:53 am

Obama will destroy the American economy, with or without ObamaCare or Cap-n-Trade.

Grumpy

February 2nd, 2010
6:07 am

Everything needs to happen, or else we’re on our way to a financial perfect storm. Taxes need to go up. The Clinton tax rates didn’t seem to hurt growth too badly. Social Security and Medicare eligibility ages need to go up. People are living longer, yet these eligibility ages remain the same. That makes no sense. And spending needs to be cut. You telling me we couldn’t cut every Federal agency by at least 5% across the board tomorrow? Those agencies would find their waste real quick if they were given the ultimatum.

Churchill's MOM

February 2nd, 2010
8:42 am

I will bet $10.00 that the C17 and the alternative F35 engine are put back into this bloated budget. As a side bet I’ll also bet that both of our Socialist Senators vote to add them back. Congress works for Lobbyist not taxpayers.

DannyX

February 2nd, 2010
8:54 am

Bush and the Republicans started 2 wars, created a massive government spending program, Medicare Part D, all this while cutting taxes.

Instead of going back to LBJ Michael H Smith how about you tell us what has happened to the budget since Clinton balanced it back in the 90’s.

Just when are all the promiosed benefits of the Bush tax breaks due to show up?

Chris Broe

February 2nd, 2010
9:09 am

I wonder Y comments aren’t going through on several AJC blog sites? I don’t know anything. Honest. I didn’t do it. How? Why? I’m low tech. I don’t have the knowledge. ALRIGHT!! I’ll admit it! It’s me! I’m the reason the comments aren’t going through. I put in a cookie worm virus thingie a few days ago. It’s incripted piggyback on one of my emoticon happy face doodads. Yes, I did it. And I’m GLAD! And I’d do it again. I have a secret plan to be editor in chief of the AJC online.

And I woulda got away with it too, if it hadn’t been for the bratty Bookman trolls!! Augh, all my evil government cheese gone forever… What a world.

What a world.

Jklol.

Kyle Wingfield

February 2nd, 2010
9:36 am

OK, the technical glitch has been fixed…immediate commenting should be restored for everyone.

Democrats are Corrupt, Repukes are Lying Scum

February 2nd, 2010
9:44 am

I think it is a conspiracy Kyle, Cindy Lou and Bookworm are jealous of your popularity, and have used their influence with the powers what be to block posts on your vastly superior blog.

Fix-It

February 2nd, 2010
9:46 am

What most of the Obozo supporters don’t seem to realize is he and his crowd are “progressives”. They hate America and the constitution it was founded on. They have one purpose, to destroy America financially so that the sheeple will have to turn to the government for all their needs. These people are not only power hungry they are stupid, if we have all the people turn to the government for support who will be paying the taxes to support the government?

Kyle Wingfield

February 2nd, 2010
9:49 am

DannyX: Do me a favor and actually look at some budget figures sometime. For instance, Table 1.3 from President Obama’s budget documents: http://tr.im/Mxu4

What you’ll see is that tax revenues started rising in 2004 — i.e., after the most significant Bush tax cuts, in 2003 — and continued until the housing market collapsed. And in spite of the two wars, the deficit was falling at roughly the same pace as it did after the Clinton tax increases of 1993.

The budget was balanced five years after Clinton raised taxes. Had it not been for the housing collapse, which had nothing to do with fiscal policy, the budget would have been balanced five years after Bush cut them. Could he have cut the deficit faster by keeping spending growth in check? Of course — and the Republicans are still paying the price for their profligacy. But this was always a spending problem, not a tax problem.

Gordon

February 2nd, 2010
9:49 am

I hate to break it to everyone, but the only long term answer is to cut entitlements. Cutting other spending is fine, but you’ve only kicked the can down the road. The entitlements we have now are unsustainable, and its not even close. Before too long, they and interest alone will consume all revenue.

I think we should eliminate the payroll (FICA) tax, and stop pretending that Social Security is anything but another government program that comes out of general revenues. We should also stop pretending it will not evolve into a welfare program for people who didn’t save. Taxes on everyone that pay taxes will have to be raised. The age to receive benefits will have to be raised. I know everyone will scream about this, but those who have saved have to think of all that FICA they have paid as a tax to keep the society from collapsing. You will still be able to enjoy what you have saved outside of FICA. Dependency has been created and it must be serviced. Medicare and Medicaid are even bigger problems….

Just get used to the idea that the future you envisioned for yourself, and especially your children, is not the one that is actually going to happen. It’s mathematically impossible.

Democrats are Corrupt, Repukes are Lying Scum

February 2nd, 2010
9:51 am

Right you are Churchill’s MOM: First we need to destroy the defense contractors, like the thieves at Lockheal, Boering, and all the other over paid, over bribed, lying scum who suck up our tax dollars. President Obama should apply the RICO laws against all defense contractors, and seize all their assets. Cuff and perp walk each and every executive.

DannyX

February 2nd, 2010
9:53 am

Kyle, you are not answering the question. What effect do the wars, medicare part d, and the tax cuts have on todays budget?

Kyle Wingfield

February 2nd, 2010
9:54 am

To Alex who tried to post at 6:51 a.m.: Try reposting without the four-letter word and your comment will be fine.

Kyle Wingfield

February 2nd, 2010
10:03 am

That wasn’t your question, DannyX. You asked about the tax cuts. But here goes anyway: Obviously, the wars and Part D have an effect on the budget. If we were nearing a balanced budget in spite of them in 2007, what has changed since then? Oh right, the hundreds of billions of dollars in bailouts and “stimulus.”

If you want to argue that those expenditures were worthwhile, fine. But don’t turn around afterward and blame the budget deficit on something else. The Obama administration projects that eliminating the Bush tax cuts on “the rich” will increase revenues by $678 billion over 10 years but the deficit for this year — that is, one single year — is about twice that cumulative figure. So where do you think the deficit is coming from?

DannyX

February 2nd, 2010
10:13 am

I asked the question right here kyle, in the same post, you only read part of it I guess.

“Instead of going back to LBJ Michael H Smith how about you tell us what has happened to the budget since Clinton balanced it back in the 90’s.”

Now, again what affect does Medicare Part D, the wars and the Bush tax have on our present budget?