President Barack Obama is set to deliver the worst fiscal news since the Great Depression. Obama: Deficit is big, my plan is bigger

Last week, America ran up the credit card. This week, the statement arrives.

President Barack Obama is set to deliver the worst fiscal news since the Great Depression.


On Monday, he’ll outline a deficit of $1.3 trillion, the largest as a share of the nation’s economy since World War II. He’ll blame years of runaway budgets, two costly wars, exploding health care costs – and even the massive stimulus package he signed last week, accounting for fully one-quarter of it.

Then he’ll try to convince Americans that he knows how to fix it, with a pledge to slice the deficit in half in four years.

It’s easily the trickiest public relations challenge of his young presidency – balancing sober, but optimistic talk about the government’s dismal financial state, on a timeline not of his making. Also, there could be a crushing cost to failure, with stocks already tanking, consumer confidence scraping bottom and unemployment rising.

“The budget news is very bad in the short, and the long run,” said Alice Rivlin, Bill Clinton’s budget director.

Obama’s team has settled on a three-part plan to deliver the bad news to America, aides and experts say. First, they will begin the week with a “fiscal summit” Monday designed to stress that the president cares about the deficit and plans to reduce it, by raising taxes on the wealthy, drawing down in Iraq and reining in Medicare and other entitlement costs.

Second, the president will explain the widening gap in an address to Congress Tuesday in positive, hopeful terms. He’ll say a brief bulge in government spending is needed to stimulate the economy, and to reform health care, education, and energy policy – key campaign promises that he’ll flesh out as he releases his first budget outline on Thursday.

And third, the current White House will take advantage of a ripe but waning opportunity: to blame it all on President George W. Bush.

Blaming Bush is perhaps the easiest move in the budget dance, though aides say it won’t be put too sharply. It also dovetails nicely with an Obama campaign promise to engage in more transparent budgeting. The budget will be “honest in its assessments,” Obama said Saturday.

The president will, aides say, write the estimated cost of operations in Iraq and Afghanistan into the budget, and set aside millions for natural disasters – moves his predecessor resisted. In that way, he’ll turn Bush budgeting on its head – crafting a budget whose imperative is to reflect the worst case scenario, not the best, and most of which is inarguably Obama’s inheritance from his predecessor.



“We’re inheriting quite a fiscal mess,” Obama budget director Peter Orszag told POLITICO.

The main focus next week, however, will be on trying to get the public to see past the grim present toward a more hopeful future. In his short time in office, Obama already has pitched two massive bailout efforts – for Wall Street and struggling homeowners – and now must ask for a little more public patience as he grapples with the federal budget.

But it’s slow going. Monday’s fiscal summit will be unique in the history of such events, for instance, in at least one respect: it isn’t expected actually to produce anything.

“‘Deficit reduction’ is only on the table at this meeting to the extent that the president wants to get the discussion started,” budget watcher Stan Collender wrote Saturday, noting that few economists see cutting the deficit as an appropriate policy amid the current economic crisis. “[G]etting the deficit reduction discussion started a year or so before a decision is needed by itself will be a major achievement whose importance should not be minimized.”

Indeed, even the phrase “fiscal responsibility” has been sharply redefined.

“It has to be fiscal responsibility in context,” said Robert Bixby, the executive director of the Concord Coalition, which has long pushed for balanced budgets. “Obviously in the immediate future with the economy the way it is and the banking system the way it is and the housing situation the way it is, it’s not a time to worry about balancing the budget – and I say that as a confirmed deficit hawk.”

Obama’s aides now talk about “bending the curve” – that is, changing the rate of increase of the deficit – rather than balancing the budget. The plan released this week will “seek to restore the nation to a sustainable fiscal trajectory over of five-to-ten year window,” Orszag said.

Obama’s pledge is to reduce the budget by 2013 to a mere $533 billion, a figure that previously would have been thought of as staggering.

If the fiscal summit will seek to cast record spending in the terms of responsibility, Obama’s address Tuesday is expected to include more positive talk about the future. In contrast to last week’s promises that stimulus measures would not be converted into permanent budget lines, Obama will now turn to the substantive promises of his first budget.

Obama’s aides say the president’s ambitious healthcare agenda remains very much on the table, and that cuts and incentives inserted in Medicare and Medicaid spending could be a first step.

The budget – and Obama’s pledge to budget based on actual policy plans – could also force the president to “show his hand” on other policy areas, said Douglas Holtz-Eakin, John McCain’s campaign policy director and a former director of the Congressional Budget Office. Energy policy is expected to be prominent in Obama’s budget, for instance, and the budget is likely to reflect any planned revenues from plans to impose a cap-and-trade system for greenhouse gas emissions.

There are other political bombs buried in the budget. It will also mark Obama’s first income tax increase, as he follows through on campaign plans to allow income tax cuts on the wealthy signed by Bush to expire in 2011. It will also put into hard numbers his promise to withdraw from Iraq, in the form of declining spending there.

Skeptics on both sides say Obama may regret elements of his ambitious first budget. For one, it will signal which, if any, items in the stimulus package will continue beyond its two-year timetable.

“The pressure’s on to show clearly defined exit strategy [from the stimulus],” said Holtz-Eakin. “That’s what this budget will have to show.”

Some liberal economists, meanwhile, say Obama’s continued focus on deficits sets the president up for a fall.

“A trillion is not a ‘bleak’ number, per se. It's just a number. We might need two trillion,” said the University of Texas’s James Galbraith in an email. “Deficits have to grow. They will grow. Please get used to it.”

This article tagged under: 2010

Politics