Tags: obama | budget | jobs | deficits

Obama Walking a Tightrope with New Budget

Sunday, 31 Jan 2010 10:23 AM

 

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WASHINGTON – President Barack Obama on Monday will unveil a budget that must balance his short-term political imperative to boost jobs, while convincing investors he has a credible plan to curb record deficits over time.

Obama has previewed key details of his budget for fiscal 2011, including a freeze on some domestic spending and a commission on fiscal responsibility. He has also told creditors like China he understands that failing to tackle the deficit could ultimately erode confidence in the United States.

Obama risks being painted in an election year by his Republican Party foes as a tax-and-spend liberal after he pumped hundreds of billions of dollars into the economy. He said this action was vital to staving off a depression, while Republicans say the money was misspent.

But Obama faces greater political peril if he fails to ease unemployment, now at 10 percent, and said the budget will not be cut while the economy is recovering, declaring in last week's State of the Union address that jobs were his top priority.

"The budget deals with a complex situation that takes steps to ensure the recovery is sustained and job growth accelerates," said James Horney at the Center on Budget and Policy Priorities, a liberal-leaning think-tank in Washington.

U.S. growth jumped at a 5.7 percent annualized pace in the fourth quarter of 2009, but this has yet to result in the rate of prolonged job creation needed to replace the 7 million jobs lost since the country tipped into recession in December 2007.

As a result, there is not much chance of the deficit shrinking before 2011.

"In the short run, the deficit will grow as an unfortunate necessity to stimulate the economy. But it will also demonstrate the president is committed to getting the deficit down to a sustainable level," said Horney, who is director of federal fiscal policy at the Center.

SPENDING FREEZE

Obama has proposed a three-year freeze on domestic spending excluding national security and Social Security, Medicare and Medicaid entitlement programs, which he says will save $20 billion in fiscal 2011 and $250 billion by 2020.

The U.S. leader will propose trimming or chopping 120 government programs to help rein in the U.S. deficit, the White House said on Saturday, in a 2011 budget proposal that the New York Times reported would hit $3.8 trillion.

The White House declined to confirm or deny the report.

The newspaper said the proposal would include $25 billion for struggling states and provide funding increases for programs at the Energy Department, National Institutes of Health, National Science Foundation and the Census Bureau.

An administration official confirmed to Reuters that the budget would include a 6 percent increase in civilian research programs. The New York Times said space agency NASA's mission to fly back to the moon would be scrapped and some public works projects by the Army Corps of Engineers would lose funding.

Budget experts also expect the numbers to anticipate drops in the cost of fighting wars in Iraq and Afghanistan, where Obama has laid out timetables for withdrawing U.S. forces, as well as growing tax revenues as the economy regains altitude.

The nonpartisan Congressional Budget Office forecasts a small improvement in the 2010 budget deficit to $1.35 trillion, or 9.2 percent of gross domestic product, from a post World War Two record of $1.4 trillion, or 9.9 percent of GDP, in 2009.

It forecasts this deficit declining steadily to 4.1 percent in 2012, when Obama faces reelection, which would also meet a pledge he repeated in the State of the Union speech to halve the deficit by 2013.

But critics say this is based on assumptions about raising revenue from his keynote policies such as cap-and-trade, which they do not think have any chance of becoming law, as well as allowing tax cuts on wealthy Americans to lapse.

"I don't think the president can cut the deficit over the next decade through his current budget plans," said Brian Riedl at the conservative Heritage Foundation in Washington, although he expected Obama to declare otherwise.

"The White House understands the American people are extremely worried by the high budget deficit ... In an election year, the president cannot be seen as behaving in a fiscally irresponsible fashion," he said.

Earlier this month Obama's Democrats lost a U.S. Senate seat in Massachusetts long held by the late Edward Kennedy, foreshadowing potential heavy losses in November mid-term congressional elections if voters remain unhappy.

Obama may view the lesson from Massachusetts to be that voters are concerned about jobs rather than the country's fiscal outlook, and long-time budget watcher Stan Collender scoffed at the notion that voters cared about it.

"The budget is seldom the issue that voters vote on. What they do care about is the economy and their own jobs," said Collender, a congressional budget staffer in the 1980s and now a partner at Qorvis Communications in Washington.

© 2014 Thomson/Reuters. All rights reserved.

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