The budget deficit has already tripled to $1.2 trillion this year. So President Obama’s pledge to halve the budget deficit by 2013 is hardly ambitious. The end of the recession, phase-out of stimulus spending, and wind down of Iraq spending will halve the budget deficit on its own. Even though President’s budget assumes peace and prosperity by 2013, the $533 billion target budget deficit would still exceed those under President Bush (and that was while fully funding a war in Iraq.)
Furthermore, early indications suggest that tax increases would trump spending restraint in reducing the deficit. Spending would remain above 22 percent of GDP – a level that has been reached only 8 times in the past 62 years. Yet tax rates reportedly would rise for individuals and businesses in order to finance items such as a down payment on national health care. And the President is reportedly considering a statutory Pay-As-You-Go law, despite 20 years of Congress and Presidents ignoring PAYGO rules.
On taxes, President Obama stated “if your family earns less than $250,000 a year, you will not see your taxes increased a single dime. I repeat: not one single dime.” Yet he has already signed into law a 62-cent increase in the federal tobacco tax.
On the positive side, President Obama pledged to fundamentally reform Social Security and Medicare – the greatest budgetary challenge of our era. He promised to eliminate wasteful education programs and excessive subsidies for corporate agribusiness, and to “go line by line through the federal budget in order to eliminate wasteful and ineffective programs.” And while the President’s vague boast that he has “already identified two trillion dollars in savings over the next decade,” invites some skepticism, it is certainly a step in the right direction.
Overall, President Obama pledged modest spending restraint and deficit reduction. His forthcoming budget proposal will show whether he can truly deliver.
