Obama's Plan: Deficits Now, Budget Discipline Later

The federal deficit will hit record heights this coming year, in part because the Obama administration wants to spend another $100 billion on immediate tax cuts and government spending to spur job growth. But even when the economy is on stronger footing, freezing discretionary spending doesn't touch the bulk of federal spending — which is on Medicare and other entitlements, along with defense spending.

RENEE MONTAGNE, host:

This is MORNING EDITION from NPR News. Good morning. Im Renee Montagne.

President Obama wants to tighten the governments belt a little bit next year, but only after letting it out a few extra notches this year. The presidents budget proposal calls for a record deficit this year of nearly $1.6 trillion.

As NPRs Scott Horsley reports, the deficit would begin to shrink next year, but only gradually.

SCOTT HORSLEY: One part of the presidents budget message is aimed squarely at independent voters, whove grown increasingly concerned about governments spending. For them, Mr. Obama offered tough talk, saying the government has to set priorities the same way American families do.

President BARACK OBAMA: We simply can not continue to spend as if deficits dont have consequences, as if waste doesnt matter, as if the hard-earned tax dollars of the American people can be treated like Monopoly money.

HORSLEY: But first, Mr. Obamas offering one more trip past go, so small businesses and others can collect their share of a $100 billion in additional job-generating incentives. With 10 percent unemployment, the president says jobs are his top priority this year, even if that means going deeper into debt.

Pres. Obama: We wont be able bring down this deficit overnight, given that the recovery is still taking hold and families across the country still need help.

HORSLEY: This mixed message that we need bigger deficits now and more budget discipline later reflects the delicate balance Mr. Obama's trying to strike, both economically and politically. Budget Director Peter Orszag says the president doesnt want to repeat the mistake that Franklin Roosevelt made in 1937, when a renewed push to balance the budget sent the economy into another tailspin.

Mr. PETER ORSZAG (Director, The Office of Management and Budget): We dont want to act too rapidly to bring down the deficit, because that would exacerbate the jobs deficit. And so were trying to find this balanced approach in which we have a smooth glide path, and I think thats what reflected in this budget.

HORSLEY: The presidents budget would shrink the deficit gradually, from more than 10 percent of the overall economy this year to about eight percent next year and five percent the year after that. Some of the savings would come from a three-year freeze on discretionary spending thats not tied to national defense. Within that category, though, Mr. Obama would spend more money in some areas, such as clean energy and education.

Pres. OBAMA: Just as it would be a terrible mistake to borrow against our childrens future to pay our way today, it would be equally wrong to neglect their future by failing to invest in areas that will determine our economic success in this new century.

HORSLEY: As president Obama likes to point out, much of the current deficit does stem from policies adopted during the Bush administration, such as unfunded tax cuts, two wars and the Medicare prescription drug benefit. Next year, Mr. Obama wants to eliminate the Bush tax cuts for Americas wealthiest families, but extend them for everyone else. Thats in keeping with his campaign promise not to raise taxes on families making less than a quarter million dollars a year.

But chief economist Diane Lim Rogers of the fiscal watchdog Concord Coalition, says by making that choice, the president can no longer blame that portion of the deficit on his predecessor.

Ms. DIANE LIM ROGERS (Chief Economist, Concord Coalition): If President Obama did nothing, if Congress did nothing, all of the Bush tax cuts that were passed in 2001 and 2003 would expire at the end of this calendar year. And we would get our budget deficit back down to two-and-a-half to three percent of GDP within five years, which is what the president actually says as his goal.

HORSLEY: Instead, Mr. Obama plans to rely on a bipartisan budget commission to recommend ways to cut the deficit that deeply. Over the longer term, the biggest drag on the federal budget is the rising cost of health care. Thats one reason the administration tried so hard this past year to control those costs, so far without success. For the moment, concern over health care has taken a back seat to jobs. A sobering forecast included in the budget says even with the governments job generating efforts, unemployment is likely to remain near 10 percent throughout this year and barely fall below nine percent next year.

Scott Horsley, NPR News, the White House.

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