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The Skyrocketing Deficit: How Scared Should We Be?

5 years ago
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We've come a long way from the days when Bill Clinton fumed over his new role as an "Eisenhower Republican," driven to sacrifice his 1992 campaign pledges on the altar of deficit reduction. Nobody's an Eisenhower Republican now, and it's a little scary.
The nonpartisan Congressional Budget Office and the White House's Office of Management and Budget are releasing new deficit projections Tuesday morning. The good news expected from OMB: Apparently the federal deficit will be $1.58 trillion, instead of $1.8 trillion, for the fiscal year that ends Sept. 30.
The bad news: That's still really, really terrible. The worse news: Over the next 10 years, we thought the government was on track to spend $7.1 trillion more than it takes in. But now OMB thinks it's looking more like $9 trillion.
That would practically double the total U.S. debt, which stood at $11.7 trillion as of Friday (to watch the inexorable rise, check in once in a while at this Web site). Last month alone, the government paid $19.8 billion in interest on the national debt.
The administration leaked word Monday night that President Obama would reappoint Fed chairman Ben Bernanke to his job -- big news on the economic front, no doubt meant to divert us and the markets from those large, unpleasant numbers. But they are not so easily buried.
(Update: OMB director Peter Orszag has posted the new 10-year projection. He says "it underscores the dire fiscal situation that we inherited and the need for serious steps to put our nation back on a sustainable fiscal path." And here's the new CBO assessment.)

It's hard not to hyperventilate over the many better ways we could spend that interest money (covering the uninsured, anyone?). Hard not to wonder what our huge debt says about our character as a nation (selfish free-loaders on the next generation, casually putting the global economy at risk?)
It's hard not to fret about what that debt could do to us in a few years (drive up interest rates and taxes, sharply curtail government services) if we don't take steps to deal with it soon. Even now the projections are a threat to Obama's plans on health, energy and climate change – plans he campaigned on but, unlike Clinton, is insisting on pursuing in the teeth of a recession.
You often hear that Americans are anxiety-ridden about the deficit and national debt. Polls suggest that's not quite right. If people are asked what the government's top priority should be and the federal deficit is one of the choices, it typically ranks a distant second to jobs and the economy (38 percent to 17 percent, for instance, in a Wall Street Journal-NBC News poll last month).
If the question is open-ended, the result is different. Only 2 percent cited the deficit as the country's most important problem in a New York Times-CBS News poll in June. That put it behind the economy and health care, tied in a scraping-the-bottom third place with war and peace, the Iraq war, education and bailouts. People are very clear, meanwhile, that they don't want to pay higher taxes or receive fewer services to reduce the deficit.
As for Obama, polls show slightly more than four in 10 people approve of the way he's handling the deficit. That's not great until you pit him against "Republicans in Congress," which The Washington Post-ABC News poll did last month. By 54 percent to 35 percent, people said Obama would do a better job.
Conservatives are doing their best to blame Obama for what's happening now and what may happen in the future. "Obama's Deficits Put U.S. Credit Rating at Risk," the Heritage Foundation wrote in June. "The Obama agenda is dangerous for America," GOP economic adviser Douglas Holtz-Eakin wrote Monday in a memo to House Republican Leader John Boehner.
What they are not discussing is how we ended up in a hole this deep. Two words and an initial: George W. Bush. Clinton bequeathed a $281 billion budget surplus to Bush in 2001. Bush racked up a record $438 billion deficit for the fiscal year that ended Sept. 30, 2008 -- the product of economic doldrums aggravated by his big tax cuts, two wars and a new Medicare prescription drug benefit financed on borrowed money. Then came last fall's economic collapse, and "things fell off a cliff," said economist Alan Auerbach, director of the Burch Center for Tax Policy and Public Finance at the University of California, Berkeley. Bush's final deficit estimate for this year was $1.2 trillion.
There's been a steep decline in taxes paid to the government, as well as hundreds of billions spent on bailouts, rescues and a stimulus program. Even vigilant budget watchdogs say that money had to be spent. "It's a dangerous situation, but appropriate for what we faced," Maya MacGuineas, president of the Committee for a Responsible Federal Budget and director of the fiscal policy program at the nonpartisan New America Foundation, told me. Still, she said that so far Obama "is proposing policies that would make it worse -- not better" going forward.
Obama says his health reform plans will save money. But the payoffs are distant and speculative while the initial outlay would be real money, right now. The issue can be distilled to trust. Can we trust that his health plans will put us on a path to savings? Do we trust that he'll buckle down next year and address the approaching crises in Medicare, Medicaid and Social Security? Do we believe that Congress will help, or will lawmakers follow their familiar partisan patterns?
In 1993, when the deficit was hardly the problem it is now, Clinton and his Wall Street advisers raised taxes and kept a tight leash on federal spending. Then Silicon Valley, high technology and the Internet exploded into the economy. Obama is talking up a new "clean energy economy," but Auerbach told me it doesn't have the same transformative potential as high-tech had in the 1990s. Instead, he said, "We have to look inward and try to behave responsibly."
He and MacGuineas want Obama and Congress to signal they are serious about changing a course that is viewed as "unsustainable" by no less than CBO director Douglas Elmendorf. The idea would be to calm nerves about where the economy is headed long term. They'd love to see a bipartisan law passed right now that would start phasing in -- at some future date, of course -- higher premium payments for Medicare or changes in Social Security. I can see that happening, sure -- in Brigadoon, on the one day every 100 years that it shows up on Earth.
By next year, Obama will probably have a health victory of some sort on his major hits score card, in addition to the stimulus package and a new Supreme Court justice. If he gets very lucky, he may have some kind of energy bill and maybe some financial system reforms. And still luckier, an economy continuing to move further into the light. The last thing any congressional Republican will want to do at that point, with midterm elections coming up, is give him more bragging rights on anything. And, just a guess, Democrats won't be rushing to raise taxes or cut benefits and services on their own.
The X factor is Obama's unusual presidential management style – so centered on building relationships, staying at the negotiating table and taking the long view. Still, as he proves repeatedly, he is only human. Which makes looking at these numbers feel a bit like looking straight down just before the roller coaster plunges.
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