POLITICO
By ALEX CONANT
1/27/10
In Wednesday’s State of the Union speech, President Barack Obama will vow a return to fiscal responsibility, featuring a temporary freeze on “nonsecurity” discretionary spending. We’ve heard this sort of talk from Obama before — but his words have proved cheaper than his budget.
Shortly after his Inauguration, Obama also went before Congress pledging fiscal austerity. Then, he “pledged to cut the deficit in half by the end of my first term in office.” He added that “because we’re also suffering from a deficit of trust, I am committed to restoring a sense of honesty and accountability to our budget.”
Now, as Obama readies his second budget, both the actual and the “trust” deficit are much bigger.
First, the actual budget: While Obama inherited an economic mess, the short-term budget outlook was relatively stable. Until the economic meltdown and subsequent financial bailouts in fall 2008, President George W. Bush’s past few budgets contained essentially no increases in nondefense discretionary spending (the sort of freeze Obama now wants to reinstate) and actually forecast a small surplus by 2012. So rosy was the nation’s short-term fiscal outlook that John McCain confidently promised a balanced budget during his first term if elected president.
The nation’s fiscal situation worsened dramatically during the financial meltdown in fall 2008, with tax receipts plummeting at the same time that government spending skyrocketed. Nevertheless, Obama appeared to view the decline as a blip, as his first budget did in fact forecast the deficit would be cut in half within four years.
But that was before the Democrats’ spending sprees (including a huge increase in nondefense discretionary spending that Obama’s freeze will leave in place) and this year’s jobless “recovery.” Now, even with Obama’s proposed freeze, the deficit will be much larger than he promised by the time he seeks reelection in 2012.
How much larger? We’ll know better when the White House releases the details of its FY2011 budget proposal next week. But given the private sector’s anemic growth last year, future shortfalls are bound to be historic. No wonder the administration is suddenly floating a wave of new revenue grabs (like the fee on banks), temporary budget freezes and commissions.
The growing budget deficit is also likely to increase the trust deficit of which Obama spoke.
Despite all the promises of honest accounting, Obama’s first budget contained plenty of smoke and mirrors to hide the true costs of government. For example, the president boasted that his first budget had “identified $2 trillion in savings over the next decade.” What he didn’t say is that much of this so-called savings appeared because his imaginative budget team looked at the cost of the Iraq war surge and hypothetically applied that expense to each of the next 10 years (assuming the Iraq surge would continue unabated for a decade). They then “discovered” trillions in “deficit reduction,” merely by viewing the surge as temporary in Obama’s budget. (Stay tuned to see how the budget office accounts for Obama’s new surge in Afghanistan.)
Another budget trick used by Obama in building his first year’s budget included incorporating rosy economic forecasts for the future. For example, the Obama White House originally predicted -1.2 percent growth of the gross domestic product in 2009, 3.2 percent growth in 2010 and 4.0 percent growth by 2011 — healthier than predicted by other economists and a brighter budget picture. Don’t be surprised if — to continue to help paper over future deficits — the White House budget office is again bullish in its economic forecasts.
This is all without considering the biggest long-term threat facing the budget: entitlement programs. Congressional Democrats proposed cuts to Medicare but only to pay for new health care entitlements elsewhere. Meanwhile, the president has taken no action to put Social Security on a path toward solvency.
On the campaign trail in 2008, Obama promised to pay for “every dime” of new spending, and after taking office, he told Congress that he would cut the deficit in half. But the budget outlook has only worsened during his first year in office.
Now, as he proposes his second annual budget, Obama is again promising to rein in the deficit. But after his first year in office, the numbers tell a far different story.
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