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Bill Clinton Sees 'More Immigrants' As A Way To Reduce Deficit

Bill Clinton Sees 'More Immigrants' As A Way To Reduce Deficit

Dan Froomkin Dan Froomkin
Wed Apr 28, 2:26 pm ET

Former President Bill Clinton enthusiastically weighed into the blistering national debate on immigration today with a resounding assertion that America needs more immigrants -- not fewer -- to ensure its long-term fiscal future.

At a symposium on deficit reduction today (see my earlier story), Clinton said that one key to avoiding massive debt is to maintain a good ratio between people paying into the system, and those receiving payouts (through such programs as Social Security.)

That means more jobs and more people working, he said. "Which to me means more immigrants."

Clinton said he supports immigration reform as proposed by President Obama or as supported by Sen. John McCain before he changed his mind.

Clinton spoke glowingly of the immigrant experience in the United States. "We've got somebody from everywhere here, and they do well," he said.

And looking at the overall budget numbers, comparing money in to money out, "I don't think there's any alternative for us but increasing immigration," he said. "I just don't see any palatable way out of this unless that's part of the strategy."

Clinton didn't mention it, but it's not just legal immigrants who contribute to the plus side of the Treasury's balance sheet. In fact, undocumented immigrants are even more lucrative for the government, particularly Social Security. Many undocumented workers have payroll taxes automatically withheld from their wages, but because they use fake numbers, never collect the benefits.

States on the brink of a budget crisis

In the January 15, 2010 CNNMoney article "More and More States on Budget Brink," senior writer Colin Barr reports "some states are facing shortfalls as much as 40% of what they need to operate."

California is hurtling into the budgetary abyss -- and it's not alone.

Across the nation, state tax collections in the first three quarters of 2009 posted their steepest decline in at least 46 years, according to a report this month from the public policy research arm of the State University of New York.

At least 30 states raised taxes in their most recently completed fiscal year -- which ended in most cases in mid-2009. Even more cut services. All told, states raised $117 billion to fill last year's budget gaps, the Pew Center on the States estimates.

Yet despite all those new taxes and deep cutbacks, pressure on state finances continues to build. Economists warn that without a new round of federal stimulus spending, states could face another round of layoffs that could kneecap an already shaky economic recovery.

"We could see a real ripple effect if the states don't take a balanced approach" by balancing cutbacks with tax raises and other new revenue, said Jon Shure, deputy director of the state fiscal project at the Center on Budget and Policy Priorities in Washington.

State and local governments have cut 132,000 jobs since August 2008, the center says. Fiscal problems appear most acute in California, whose general obligation bonds were downgraded this week after Gov. Arnold Schwarzenegger declared a fiscal emergency.

The state has already said it will increase tuition by a third in the University of California system, among other cash-raising moves. At one point, it was projected to spend nearly 50% more than it stands to garner in revenue in this fiscal year, by one count. California has asked for federal help and warned it could run out of cash in March.

And California's not the only state facing an almost unfathomable shortfall. Like California, Arizona and Illinois face budget gaps above 40% of projected general fund spending, according to Pew data.

Arizona put its state office buildings on sale this week in a bid to raise $700 million. The University of Illinois furloughed some workers this week after the state failed to come up with $436 million in expected funds. Budget officers in those two states describe their outlooks for fiscal 2010 as "dire," according to a National Conference of State Legislatures report.

Alaska, Nevada, New Jersey and New York face gaps of at least 30% of their planned general fund spending by the end of this fiscal year. A dozen more states face a fiscal 2010 budget gap of between 20% and 29%.

"California is playing out on the biggest stage, but there are states around the nation facing problems of equal or greater magnitude," said Corina Eckl, who runs the fiscal affairs program at the National Conference of State Legislatures in Denver. "We are seeing some frightening situations."

Big shortfalls scare legislators because states by law must balance their budgets every year. After revenue and spending rose steadily in the middle of this decade, bolstered by a housing bubble that boosted employment and fed a stream of property transfer fees, state funding went into freefall when the recession started at the end of 2007.

Given the depth of the recession, few states are expecting an uptick in employment or consumer spending that would translate into bigger tax collections anytime soon. Nine states are forecasting they won't return to their peak revenue years of 2007 or 2008 until at least 2014.

Adding to the pressure, job losses spur demand for the services states devote the lion's share of their budgets to: education and Medicaid, which provides healthcare for low-income people.

"The needs grow as states' ability to meet those needs declines," said economist Andrew Reschovsky, a professor at the University of Wisconsin in Madison.

So far, the worst cuts have been avoided with the help of billions of dollars of federal stimulus money -- including $135 billion for education and Medicaid.

But the flow of those funds will start to slow down in the second half of 2010 and will stop altogether at year-end, unless Congress appropriates more money for state assistance.

States have used $53.6 billion in Medicaid funding through Jan. 8, according to government data. If Congress doesn't extend the Medicaid funding beyond the end of the year, "states are looking at a stimulus cliff," said Robert B. Ward, deputy director of the Rockefeller Institute of Government at the State University of New York at Albany.

The only way to make up those shortfalls is through more new taxes, cutbacks and borrowings.

Local and state governments have had little problem borrowing in the bond market, where analysts expect issuance of $400 billion or more this year. California has had to pay higher-than-average interest rates to sell its debt, but there seems to be little fear of a default, given the state's giant economy and its relatively small $64 billion worth of general obligation bonds outstanding.

But borrowing is no help in fixing so-called structural deficits, in which spending exceeds revenue over a prolonged stretch. And so far there has been little sign legislators are willing to make the obligatory tough choices, particularly issuing more or higher taxes.

Many of the so-called fixes for current state deficits are mere Band-Aids that push the problem forward rather than address it, observers said.

"It's surprising that political leaders don't seem to be taking seriously the magnitude of the problems," said Reschovsky. "You would hope it wouldn

't come to this, but it might take schools closing and programs being eliminated to create a sense of urgency."

Democrats see GOP hypocrisy in health care debate

In the December 25, 2009 article "Democrats see GOP hypocrisy in health care debate," Associated Press writer Charles Babington reports on the hypocrisy of Republican criticism of Democratic health care proposals that add to the federal budget deficit when their own proposals from a few years ago are a significant contributor to the public debt.

WASHINGTON – Republican senators attacking the cost of a Democratic health care bill showed far different concerns six years ago, when they approved a major Medicare expansion that has added tens of billions of dollars to federal deficits.

The inconsistency — or hypocrisy, as some call it — has irked Democrats, who claim that their plan will pay for itself with higher taxes and spending cuts and cite the nonpartisan Congressional Budget Office for support.

By contrast, when Republicans controlled the House, Senate and White House in 2003, they overcame Democratic opposition to add a deficit-financed prescription drug benefit to Medicare. The program will cost a half-trillion dollars over 10 years, or more by some estimates.

With no new taxes or spending offsets accompanying the Medicare drug program, the cost has been added to the federal debt.

All current GOP senators, including the 24 who voted for the 2003 Medicare expansion, oppose the health care bill that's backed by President Barack Obama and most congressional Democrats. Some Republicans say they don't believe the CBO's projections that the health care overhaul will pay for itself. As for their newfound worries about big government health expansions, they essentially say: That was then, this is now.

Six years ago, "it was standard practice not to pay for things," said Sen. Orrin Hatch, R-Utah. "We were concerned about it, because it certainly added to the deficit, no question." His 2003 vote has been vindicated, Hatch said, because the prescription drug benefit "has done a lot of good."

Sen. George Voinovich, R-Ohio, said those who see hypocrisy "can legitimately raise that issue." But he defended his positions in 2003 and now, saying the economy is in worse shape and Americans are more anxious.

Sen. Olympia Snowe, R-Maine, said simply: "Dredging up history is not the way to move forward." She noted that she fought unsuccessfully to offset some of President George W. Bush's deep tax cuts at the time.

But for now, she said, "it's a question of what's in this package," which the Senate passed Thursday in a party-line vote. The Senate bill still must be reconciled with a House version.

The political situation is different now, Snowe said, because "we're in a tough climate and people are angry and frustrated."

Some conservatives have no patience for such explanations.

"As far as I am concerned, any Republican who voted for the Medicare drug benefit has no right to criticize anything the Democrats have done in terms of adding to the national debt," said Bruce Bartlett, an official in the administrations of Ronald Reagan and George H.W. Bush. He made his comments in a Forbes article titled "Republican Deficit Hypocrisy."

Bartlett said the 2003 Medicare expansion was "a pure giveaway" that cost more than this year's Senate or House health bills will cost. More important, he said, "the drug benefit had no dedicated financing, no offsets and no revenue-raisers. One hundred percent of the cost simply added to the federal budget deficit."

The pending health care bills in Congress, he noted, are projected to add nothing to the deficit over 10 years.

Other lawmakers who voted for the 2003 Medicare expansion include the Senate's top three Republican leaders, all sharp critics of the Obama-backed health care plans: Mitch McConnell of Kentucky, Jon Kyl of Arizona and Lamar Alexander of Tennessee. Eleven Democratic senators voted with them back then.

The 2003 vote in the House was even more divisive. It resulted in a nearly three-hour roll call in which GOP leaders put extraordinary pressure on colleagues to back the prescription drug addition to Medicare. In the end, 204 Republicans and 16 Democrats voted for the bill.

Democrats certainly have indulged in deficit spending over the years. They say they have been more responsible over the last two decades, however. Bill Clinton's administration was largely constrained by a pay-as-you-go law, requiring most tax cuts or program expansions to be offset elsewhere with tax increases and/or spending cuts.

Clinton ended his presidency with a budget surplus. But it soon was wiped out by a sagging economy, the Iraq war, GOP tax cuts and the lapsing of the pay-as-you-go restrictions.

Obama and many Democrats in Congress have vowed to restore those restrictions. But they waived them this year for programs, including heavy stimulus spending meant to pull the economy from the severe recession of 2008-09.

The 2010 deficit is expected to reach $1.5 trillion, and the accumulated federal debt now exceeds $12 trillion. When the Republican-led Congress passed the Medicare expansion in 2003, the deficit was $374 billion, and was projected to hit $525 billion the following year, in part because of the new prescription drug benefit for seniors.

Some GOP lawmakers cite these numbers in arguing that their current worries about heavy government spending are legitimate, even if they voted for the deficit-financed Medicare bill in 2003.

But Judy Feder, an analyst with the Democratic-leaning Center for American Progress, said these Republicans had their chance and blew it. In the second Bush administration, she said, "there was a total elimination of any kind of pay-for responsibility."

Those responsible should now show some humility, she said.

The Republican Party's red-ink argument

In the December 10, 2009 Politico editorial "The Republican Party's red-ink argument," Kevin Madden and Kristen Soltis argue the increased government spending, budget deficits, and public debt under the leadership of President Barack Obama may cost Democrats in the 2010 elections. The authors fail to acknowledge that the overwhelming majority of recent deficits is the result of policies implemented before Obama took office. For example, under President George W. Bush and a Republican Congress, tax cuts reduced government revenues (from what they otherwise would have been) and the federal government was expanded more than under any other President since Lyndon Johnson in the 1960s. And the bailouts the authors criticize were designed and implemented under Bush (and continued under Obama). Much of the recent increased government spending is designed to stimulate the overall demand for newly produced goods and services and put the unemployed back to work. The authors (and critics of current fiscal policies, in general) give no credit to these policies in preventing the economic downturn from being worse (as most economists do) and provide no alternative plan, unless it is that by further enriching the wealthy they will open new business or expand existing ones. But businesses do not hire workers because the owners are richer. They do it when they believe that the worker will generate more revenues than the what the worker is paid in wages and benefits. Yet, to the extent that the public fails to understand Keynesian economic policies (or trust that they have been implemented correctly), the authors may be right that Democrats will lose positions of political leadership in upcoming elections.

According to the article:

As unemployment hovers in the double digits, the nation’s federal deficit continues to tick upward, with the Obama administration projecting a $1.8 trillion federal spending deficit for the 2009 fiscal year alone. That unrestrained spending of taxpayer dollars and piling federal debt has had an important political consequence: a potentially toxic political environment for Democrats heading into 2010.

While the everyday American confronts a sour economy with a sense of conservatism — cutting back on excess expenditures, doing more with less — congressional Democrats and the White House have confronted it liberally: a $787 billion “stimulus” targeted toward the public sector, a proposed trillion-dollar health care bill and billions upon billions more of federal taxpayer dollars directed at bailouts. What’s most troubling is there seems to be no end in sight.

Democrats have offered up a gift in the form of disgruntled independents, the growing and mobile political force currently in possession of both parties’ political fortunes. Both anecdotal and empirical evidence demonstrates these voters are highly concerned with the policies that have flooded the country with debt and red ink.

The red-ink argument against wasteful government spending and mounting deficits presents the Republican Party its best chance to rebuild a center-right coalition of voters. There are three pieces to the argument that the Republican Party should be cognizant of in order to gain momentum and voter support:

Restore credibility: During President George W. Bush’s two terms, government spending and deficits increased, leading to a popular Democratic retort to today’s GOP complaints about spending — “Where was this complaining when you were in charge?” Fair enough. But there’s nothing like a trip to the woodshed to help provide some much-needed perspective.

Yes, the deficits during Bush’s eight years were still lower than the deficit from President Barack Obama’s first year alone. But Republicans must accept responsibility for past negligence on spending, accepting the charge that the party could have and should have done more to reform institutional waste in government. Doing so combats efforts to level the hypocrite charge and is a first step toward restoring credibility with the American people.

Never tire of hammering Democrats on spending: One of the more relevant axioms in politics is the warning to “never tire of your own message.” In order to rebuild the Republican Party’s image on fiscal issues and reclaim the reform mantle, the party must relentlessly inform voters about the real-life consequences of Democrats’ spending policies.

The concerns and raw economic anxieties of everyday Americans are all, in some way, connected to wasteful spending practices. Unemployment, bailouts, the rising costs of health care and tuition and worries about future debt are the real consequences of spending policies that seem out of touch with the American public’s instinct on fiscal responsibility. Republicans running in 2010 must have a message that continuously demonstrates the undesirable outcomes of reckless spending.

Understand the anger, but be for something: Democrats may be falling out of favor, but it’s not enough to simply let them self-destruct — Republicans need to take steps to win back the trust of voters. Present ideas, present alternatives and present price tags that reflect the kind of conservatism that Americans are applying to their own household finances.

Republicans also need to take their arguments beyond simply saying they want to cut spending and explain why less spending creates better outcomes. Lower taxes and less spending aren’t ends in and of themselves; they’re a means to economic growth, personal freedom and job creation. Reconnect our policy ideas to the values that matter to voters, like their ability to provide for their families or the security of their children’s futures.

The Republican Party’s electoral descent in 2006 and 2008 was the result of a deterioration of the party’s standing as genuine reformers in the eyes of voters. The party was no longer viewed as being able to govern competently and responsibly, so any alternative looked attractive. The Republican Party absolutely must reclaim the fiscal responsibility trademark. Perhaps no item is more critical to a comeback in both the 2010 midterms and creating the long-term growth needed to gain a governing majority once again.

Kevin Madden is a former senior adviser to former Massachusetts Gov. Mitt Romney’s 2008 presidential campaign. Kristen Soltis is director of policy research at The Winston Group, a Republican strategic consulting and polling firm.

GOP has little credibility on budget deficit

In the November 24, 2009 Nashua Telegraph editorial "GOP has little credibility on budget deficit," Froma Harrop points out the hypocrisy in Republican cries for greater fiscal responsibility since they created much of the current problems when they controlled the White House and Congress.

Nearly every Republican these days calls for tax cuts and lower deficits, and in the same sentence. Point out that these goals clash – that taxes pay for government and not paying for government causes deficits – and the Republican counters: “We must shrink government, instead.”

Sure. And you’re just the boys to do it.

There hasn’t been a balanced budget since the last Democratic administration. During the George W. Bush years of mindless tax cutting, the national debt doubled, and GOP claims to fiscal rectitude became a bizarre joke.

The last fig leaf fell off this summer when Republicans demagogued efforts to save more than $100 billion by ending subsidies for the private Medicare Advantage health plans.

Here was the lowest-hanging fruit in the fastest-growing government program. It was something most Medicare beneficiaries would barely notice was gone, yet Republicans hollered that Democrats were pulling the plug on grandma.

That dashed any residual Republican pretenses that Bush had led them astray on spending, and a lesson was learned. Clearly, they’re not changing a thing.

Bruce Bartlett, an economist in Ronald Reagan’s Treasury Department, has criticizing such inconsistencies for several years. Republicans could have embraced his 2006 book, “Imposter: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy,” as evidence that they truly regretted the fiscal wreckage of the Bush years. Instead, they turned Bartlett into a Republican pariah.

Bartlett has just come out with another book, “The New American Economy: The Failure of Reaganomics and a New Way Forward.” It has received an equally chilly reception from the right-wing media and associated think tanks. That is, they’re making no mention of it.

I asked Bartlett whether he feels beaten up by former fellow Republicans. (He’s now an independent.) No, he said, “One of the funny things since ‘Imposter’ came out is the refusal of people on the right to even debate me.” One can’t entirely blame them for trying to smother his book sales.

Democrats would be hard-pressed to find better talking points anywhere else – though Bartlett does find fault with them, too.

Bartlett’s main point is there’s almost no place to cut domestic discretionary spending. Subtract money going for defense, entitlements (such as Medicare) and payments on the debt, and there’s precious little left.

Domestic discretionary spending in fiscal 2008 last year totaled $485 billion, while the deficit was $459 billion. You would have had to kill nearly every domestic program to balance the budget. That would have meant nothing for education, agriculture, housing, border patrols, the FBI, highways.

Taxes must go up, and on that subject, Bartlett takes issue with the current president.

“You have to look at some other broad-based revenue raising,” he said, “but then you run up against the problem that Obama has made the promise not to raise taxes on anyone earning less than $200,000.”

He deems that approach “irresponsible.” The rich can’t bear all the costs of government.

The answer is a value-added tax, which is basically a national sales tax. The VAT would tax consum- ption, rather than income, and at low cost to economic growth. Europeans use a VAT to pay for their cushy benefits.

Bartlett thinks Congress should commit itself to a number, say $1 trillion, for deficit savings over 10 years. Then it should ask a commission to find a third of that money from higher revenues, a third from entitlement cuts and a third from discretionary spending.

Welcome to the world of grownups, where tax cuts don’t magically pay for themselves – and where middle-class people must pay more for middle-class benefits. When it comes to addressing deficits, Democrats may be lax adolescents, but Republicans are total babies.

Froma Harrop serves on the editorial board of The Providence Journal and is a syndicated columnist. E-mail her at fharrop@projo.com.

Republican Deficit Hypocrisy

In the November 2009 Forbes article "Republican Deficit Hypocrisy," conservative Bruce Bartlett reminds readers that the current U.S. budget problem was created by Republicans:

The human capacity for self-delusion never ceases to amaze me, so it shouldn't surprise me that so many Republicans seem to genuinely believe that they are the party of fiscal responsibility. Perhaps at one time they were, but those days are long gone.

This fact became blindingly obvious to me six years ago this month when a Republican president and a Republican Congress enacted the Medicare drug benefit, which former U.S. Comptroller General David Walker has called "the most fiscally irresponsible piece of legislation since the 1960s."

Recall the situation in 2003. The Bush administration was already projecting the largest deficit in American history--$475 billion in fiscal year 2004, according to the July 2003 mid-session budget review. But a big election was coming up that Bush and his party were desperately fearful of losing. So they decided to win it by buying the votes of America's seniors by giving them an expensive new program to pay for their prescription drugs.

Recall, too, that Medicare was already broke in every meaningful sense of the term. According to the 2003 Medicare trustees report, spending for Medicare was projected to rise much more rapidly than the payroll tax as the baby boomers retired. Consequently, the rational thing for Congress to do would have been to find ways of cutting its costs. Instead, Republicans voted to vastly increase them--and the federal deficit--by $395 billion between 2004 and 2013.

However, the Bush administration knew this figure was not accurate because Medicare's chief actuary, Richard Foster, had concluded, well before passage, that the more likely cost would be $534 billion. Tom Scully, a Republican political appointee at the Department of Health and Human Services, threatened to fire him if he dared to make that information public before the vote. (See this report by the HHS inspector general and this article by Foster.)

It's important to remember that the congressional budget resolution capped the projected cost of the drug benefit at $400 billion over 10 years. If there had been an official estimate from Medicare's chief actuary putting the cost at well more than that, then the legislation could have been killed by a single member in either the House or Senate by raising a point of order. Then-Senate Majority Leader Trent Lott, R-Miss., later said he regretted not doing so.

Even with a deceptively low estimate of the drug benefit's cost, there were still a few Republicans in the House of Representatives who wouldn't roll over and play dead just to buy re-election. Consequently, when the legislation came up for its final vote on Nov. 22, 2003, it was failing by 216 to 218 when the standard 15-minute time allowed for voting came to an end.

What followed was one of the most extraordinary events in congressional history. The vote was kept open for almost three hours while the House Republican leadership brought massive pressure to bear on the handful of principled Republicans who had the nerve to put country ahead of party. The leadership even froze the C-SPAN cameras so that no one outside the House chamber could see what was going on.

Among those congressmen strenuously pressed to change their vote was Nick Smith, R-Mich., who later charged that several members of Congress attempted to virtually bribe him, by promising to ensure that his son got his seat when he retired if he voted for the drug bill. One of those members, House Majority Leader Tom DeLay, R-Texas, was later admonished by the House Ethics Committee for going over the line in his efforts regarding Smith.

Eventually, the arm-twisting got three Republicans to switch their votes from nay to yea: Ernest Istook of Oklahoma, Butch Otter of Idaho and Trent Franks of Arizona. Three Democrats also switched from nay to yea and two Republicans switched from yea to nay, for a final vote of 220 to 215. In the end, only 25 Republicans voted against the budget-busting drug bill. (All but 16 Democrats voted no.)

Otter and Istook are no longer in Congress, but Franks still is, so I checked to see what he has been saying about the health legislation now being debated. Like all Republicans, he has vowed to fight it with every ounce of strength he has, citing the increase in debt as his principal concern. "I would remind my Democratic colleagues that their children, and every generation thereafter, will bear the burden caused by this bill. They will be the ones asked to pay off the incredible debt," Franks declared on Nov. 7.

Just to be clear, the Medicare drug benefit was a pure giveaway with a gross cost greater than either the House or Senate health reform bills how being considered. Together the new bills would cost roughly $900 billion over the next 10 years, while Medicare Part D will cost $1 trillion.

Moreover, there is a critical distinction--the drug benefit had no dedicated financing, no offsets and no revenue-raisers; 100% of the cost simply added to the federal budget deficit, whereas the health reform measures now being debated will be paid for with a combination of spending cuts and tax increases, adding nothing to the deficit over the next 10 years, according to the Congressional Budget Office. (See here for the Senate bill estimate and here for the House bill.)

Maybe Franks isn't the worst hypocrite I've ever come across in Washington, but he's got to be in the top 10 because he apparently thinks the unfunded drug benefit, which added $15.5 trillion (in present value terms) to our nation's indebtedness, according to Medicare's trustees, was worth sacrificing his integrity to enact into law. But legislation expanding health coverage to the uninsured--which is deficit-neutral--somehow or other adds an unacceptable debt burden to future generations. We truly live in a world only George Orwell could comprehend when our elected representatives so easily conflate one with the other.

Of course, there are good reasons conservatives oppose expanding the government, as the pending health legislation would do, even if it adds nothing to the deficit. But anyone who voted for the drug benefit, especially someone who switched his vote to make its enactment possible, has zero credibility. People like Franks ought to have the decency to keep their mouths shut forever when it comes to blaming anyone else for increasing the national debt.

Franks is not alone among Republicans for whom fiscal responsibility never consists of anything other than talk. The worst, undoubtedly, is DeLay, who actually went so far as to attack Sen. John McCain, R-Ariz., last year for his principled vote against the drug benefit, one of only nine Republican senators to do so. (By my count, there are still 24 Republicans in the Senate who voted for the drug benefit, including such alleged conservatives as Jim Bunning and Mitch McConnell of Kentucky, John Cornyn of Texas, Mike Crapo of Idaho, Orrin Hatch of Utah and Jon Kyl of Arizona.)

Amazingly, leading Republicans still defend the drug benefit. Just the other day, former Senate Majority Leader Bill Frist, R-Tenn., celebrated its passage, and at a recent American Enterprise Institute forum, former House Ways and Means Committee Chairman Bill Thomas, R-Calif., berated me for criticizing it. In each case, their main argument was that it ended up costing a little less than originally projected. Somehow, I doubt that Frist or Thomas would feel the same way if their wives thought it was OK to buy a closet full of expensive new shoes just because they were on sale.

I don't mean to suggest that Democrats are any better when it comes to the deficit, although they have a better case for saying so based on the contrasting fiscal records of Bill Clinton and George W. Bush. The national debt belongs to both parties. But at least the Democrats don't go on Fox News day after day proclaiming how fiscally conservative they are, and organize tea parties to rant about deficits, without ever putting forward any plan for reducing them. Nor do they pretend that they have no responsibility whatsoever for projected deficits, at least half of which can be traced directly to Republican policies, according to Office of Management and Budget Director Peter Orszag.

It astonishes me that a party enacting anything like the drug benefit would have the chutzpah to view itself as fiscally responsible in any sense of the term. As far as I am concerned, any Republican who voted for the Medicare drug benefit has no right to criticize anything the Democrats have done in terms of adding to the national debt. Space prohibits listing all their names, but the final Senate vote can be found here and the House vote here.

Bruce Bartlett is a former Treasury Department economist and the author of Reaganomics: Supply-Side Economics in Action and Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy. Bruce Bartlett's new book is: The New American Economy: The Failure of Reaganomics and a New Way Forward. He writes a weekly column for Forbes.

Federal deficit: Trail of broken promises

In the October 29, 2009 CNNMoney article "Federal deficit: Trail of broken promises," Jeanne Sahad reports that "Republicans and Democrats rage about the long-term deficit, as if they had nothing to do with it. But both parties undermine efforts to get it under control."

NEW YORK (CNNMoney.com) -- When it comes to figuring out what has caused the country's record accumulation of debt, just about every politician in Washington has a theory.

The theories usually boil down to this: The other guy did it. The other party's White House. A previous Congress. You get the picture.

In reality, growing the deficit has been very much a bipartisan effort. Members of Congress from both parties and presidents past and present have all contributed to the problem.

And it is a problem. By 2019 the total debt accrued over the past several decades is on track to approach an unhealthy 82% of gross domestic product. That's one reason why those who own U.S. debt and credit ratings agencies will be looking for lawmakers to put together a plausible deficit-reduction plan in the next few years. (Clock is ticking on debt ceiling.)

But if Congress and the president are going to stick to it, they better curb the budget trickery. Here are 5 common tricks that undermine fiscal responsibility.

Great idea! Let's ignore it.
The trick: Bypass rule to rein in spending and then overturn it

In 1997, Congress passed a provision that aimed to limit overall Medicare spending. When spending exceeds a certain target, an automatic reduction in physicians' reimbursement fees kicks in -- unless lawmakers act to block the reduction.

And they do, almost every time a cut to doctors is in the offing.

They usually don't bother to cut spending or raise revenue elsewhere to make up for it. And when they do, they aren't exactly realistic about it.

Four years ago, they decided to pay for rescinding a cut by promising to cut rates even more steeply in the future, said Donald Marron, an acting director of the Congressional Budget Office during the last Bush Administration.

Well, welcome to the future. Those steeper rate cuts aren't flying either. Lawmakers now want to pass a permanent "fix" so that physician payment rates don't drop. The estimated cost of doing so: $247 billion over 10 years.

The proposal was voted down last week in part because there were no provisions in the bill to pay for the cost. But don't expect that to be the end of it.

How about a quickie?
The trick: Enact a one-year "fix" that really fixes nothing

Few lawmakers want to see physician rates cut. They need physicians' support for health reform and there is concern that more physicians would refuse to treat Medicare patients if their rates are cut further.

So lawmakers may just pass another one-year fix to prevent near-term cuts, just like they've done in years past.

The one-year "fix" for perennial issues makes the cost of what Congress is doing look less expensive because well, it's only for one year, right?

The classic example is how Congress deals with the pernicious Alternative Minimum Tax. Without congressional action, an increasing number of middle class families will have to pay the tax, originally created to extract tax payments from the wealthy.

So every year Congress enacts a "patch" to protect those middle-class families. Those one-year patches have recently cost in the neighborhood of $70 billion. A permanent patch, which President Obama has called for, would cost at least $448 billion over 10 years, according to the Congressional Budget Office.

Let's play make-believe
The trick: Count on future taxes everyone knows will never be collected

The AMT patches are not paid for through reduced spending or increased revenue elsewhere.

The argument is that the AMT was never supposed to hit so many people and generate so much revenue. So why pay for the loss of revenue that was never supposed to be collected in the first place?

It's a good theory. The problem is that Congress, in deciding which policies to pursue, uses budget and deficit projections that assume the AMT will raise lots and lots of revenue.

As a result that phantom AMT revenue makes the deficit look better than it is.

While the estimated cost of permanently patching the AMT is $448 billion, the real price goes up by hundreds of billions if it's done in conjunction with extending the 2001 and 2003 tax cuts. And odds are high they will be extended.

This is just temporary. Honest.
The trick: Call a tax cut or spending hike temporary

Like the one-year fix, implementing a "temporary" tax cut or spending increase often disguises the true cost, since there will be pressure to make the measure permanent -- or to "temporarily" renew it every year.

"There's a ton of effort to get things into law because once there, they're hard to get rid of," said Marron, who is now a visiting professor at the Georgetown Public Policy Institute.

The 2001 and 2003 Bush tax cuts are a good example.

No one really expected the cuts to expire, even though they're slated to do so by 2011. In fact, President Obama has called for them to be made permanent for the majority of Americans. The cost: $2.3 trillion in forgone revenue over the next 10 years.

We'll pay for everything ... except some things
The trick: Promise to pay for some tax cuts and not others

In a speech this week, Christina Romer, head of Obama's Council of Economic Advisers, pointed to research that found nearly half of the long-run fiscal shortfalls is due to the policies that cut taxes and increased spending under the Bush administration.

"Obviously, we can't go back eight years and make more responsible choices," she said.

Well, yes, the past is past.

But what about future choices? Obama has promised to pay for any new tax cuts or spending increases he proposes. Yet he is not calling on Congress to pay for his $2.3 trillion proposal to extend the Bush tax cuts.

By not doing so, he joins a not-so-select club of politicians, according to Diane Rogers, chief economist at the deficit watchdog group Concord Coalition.

"[T]he clever idea to hide the permanent costs of spending or tax cuts by making them temporary, and then later extending them while refusing to pay for the costs of extending them ... is something government policymakers have been practicing in a bipartisan manner for awhile," Rogers wrote in her blog EconomistMom.com.

Obama wants domestic spending cuts in next budget

In the November 14, 2009 article "Obama wants domestic spending cuts in next budget" Associated Press writers Tom Raum and Andrew Taylor outline the challenges of managing the current U.S. economy that needs short-term stimulus to fight the recession, but subsequently needs reduced budget deficits to minimize the burdensome effect of public debt on long-term economic growth.

WASHINGTON – The Obama administration, mindful of public anxiety over the government's mushrooming debt, is shifting emphasis from big-spending policies to deficit reduction. Domestic agencies have been told to brace for a spending freeze or cuts of up to 5 percent as part of a midterm election-year push to rein in record budget shortfalls.

Yet with the economy still in distress and unemployment pushing past 10 percent, prospects for making a dent in a trillion-dollar-plus annual deficit seem slight. And since the Pentagon and Department of Veterans Affairs would likely be shielded from such cuts, overtures toward trimming the deficit may hold more symbolic value than substance.

President Barack Obama is expected to make post-recession spending restraint a key theme of his State of the Union address in January and an important element of the budget he submits to Congress a few weeks later. He is under increasing pressure, including from moderate and conservative members of his own party, to show he is serious about tackling a deficit that has become both an economic and political liability.

Not since billionaire Ross Perot made budget-balancing the centerpiece of his 1992 third-party presidential bid has so much public concern been voiced over the gulf between what the government spends and what it takes in.

White House budget director Peter Orszag on Friday told The Associated Press it is imperative to start curbing the flow of red ink. But he called it a balancing act and said acting too fast could undercut what appears to be a fledgling economic recovery.

Orszag has said the spending blueprint, for the budget year that begins Oct. 1, 2010, would put the nation "back on a fiscally sustainable path" and suggested it would include a mix of spending cuts and new revenue-producing measures.

Democratic officials in the White House and on Capitol Hill say options for locking in budget savings include caps on the amount of money Congress gets to distribute each year for agency operating budgets. They spoke on condition of anonymity to frankly discuss internal deliberations.

The White House told agencies to submit spending plans that would, at the very least, freeze their budgets, and to prepare for cuts as high as 5 percent. That edict is but one round in internal administration deliberations on the budget. Cabinet heads are sure to seek exemptions, and Orszag warned that firm budget decisions haven't been made.

The administration also is weighing committing to debt reduction any unspent funds from the $700 billion bank bailout program. However, such a move would be largely a bookkeeping shift and not likely to yield much in the way of deficit reduction.

The new emphasis at the White House on deficit-reduction follows last month's report showing the economy surged at a 3.5 percent annual pace in the July-September quarter after contracting for four consecutive quarters. That suggested the recession is likely over — even though job losses are expected to continue for some time.

Congress will soon vote on legislation to raise the debt ceiling — the limit on how much the government can borrow — above the present $12.1 trillion. On Friday, the nation's overall debt stood at $11.99 trillion. Some fiscally conservative lawmakers have said they would not vote for further increases in the debt ceiling until the administration took deficit-cutting steps.

The national debt is the accumulation of annual budget deficits. The deficit for the 2009 budget year, which ended on Sept. 30, set an all-time record in dollar terms at $1.42 trillion.

The flow of red ink has been increased by war spending for Iraq and Afghanistan, recession-fighting stimulus and bank bailout spending and by reduced tax revenues from high unemployment and reduced personal and business income.

Polls show rising public concern over deficits. Exit polls from elections earlier this month showed clear majorities of Virginia and New Jersey voters said they were worried about the direction of the nation's economy. In both states, Republicans won gubernatorial seats that had been held by Democrats.

Republicans are seeking to capitalize on this month's Democratic election setbacks and rising voter concerns over the burst in federal spending. House Minority Leader John Boehner, R-Ohio, said the Democrats' "so-called `war on deficits' comes about a year late and more than a trillion dollars short."

"Spending in Washington has been out of control for years, and instead of changing it as they promised they would, Speaker Nancy Pelosi and President Obama have stepped on the accelerator," Boehner said in a statement.

Pollster Andrew Kohut, director of the Pew Research Center, said increasingly "the percentage of people naming the deficit as a problem is pretty substantial."

"It may be approaching the level of concern we had in the early 1990s when Ross Perot rode that horse for quite some time politically," Kohut said.

Still, politicians have typically avoided politically painful deficit-cutting steps in election years.

Stanley Collender, a budget expert at Qorvis Communications and a former staff aide to House and Senate budget committees, said if the administration could actually accomplish cuts in discretionary spending on the order of 5 percent — a big "if" — it would be a notable step toward bringing down deficits.

Despite today's hard times, putting such measures in play sooner rather than later makes sense since they wouldn't take effect until next Oct. 1, when jobs hopefully will be coming back and the economy humming again, Collender said. "It's sort of like an outfielder trying to catch a fly ball. You try to get to where the ball's going to be rather than where it is at that particular moment."

The deficit-cutting drive comes as Obama traveled to Asia where several nations, especially China, have expressed concerns about the size of U.S. deficits. China is the largest foreign holder of U.S. debt and policymakers worry that alarm over deficits could push foreigners into cutting back on their purchases of Treasury securities.

The Difficulty Balance Between the Short-Term Need to Stimulate the Economy and the Long-Term Need to Reduce Deficits & Debt

In the November 11, 2009 National Public Radio (NPR) article "Orszag: Deficit Can Help But Slows Recovery," Peter Orszag, the Director of the Office of Management and Budget, explains that budget deficits are appropriate fiscal policy for fighting recessions, but in the long run there is a need to reduce deficits and the public debt to avoid its burdensome impact on future economic growth.

White House budget director Peter Orszag has his hands full these days trying to wrangle down a deficit that has ballooned to an estimated $1.4 trillion. Part of that borrowing was necessitated by the recession, while part of it was designed to shorten the economic crisis.

Orszag says the federal deficit needs to be cut to about 3 percent of economic growth in the coming years to reduce the sea of debt. At the same time, the U.S. has to guard against sending the economy into a tailspin by pulling back too soon on stimulus programs.

Striking a balance is "extraordinarily challenging," Orszag tells NPR's Steve Inskeep.

But he says it's important to note that the economy has made significant progress in the past year.

"On the one hand, [you have] the GDP gap, the gap between how much the economy is producing and how much it could produce, and, on the other hand, these deficits," he says.

"If we only faced one or the other, the way forward would be clearer. But balancing between the two keeps me up at night."

Sometime around 2011 to 2013, "that's where we're going to start to need some transition from the extraordinary assistance that the federal government has been providing to try to jump-start the economy," he says. "We're working through [this], and we haven't made final decisions on the best path to walk down from where we are now to where we need to get."

He says the deficits needed to be wound down from their current 10 percent of the economy to "something around 3 percent" but that it should be "done in a way that avoids the risks of 1937 — where you pulled fiscal support away from the economy too quickly and threw the economy back into a recession."

The current era of high deficits is "exceptional times," notes Orszag, an economist who led the Congressional Budget Office before being tapped to head the Office of Management and Budget. In fact, he says, the national economic situation is more precarious than at any time in the past 50 years.

Orszag makes no apologies for not projecting a balanced budget anytime in the near-term: "You have to remember the situation that we inherited."

The Medicare Prescription Drug Benefit and the 2001 and 2003 tax cuts weren't paid for, he points out. That was compounded by the reduction in tax revenue from the economic downturn, the cost of the economic stimulus and the need for increased spending on unemployment benefits and food stamps.

"So, the point being, we inherited a big hole," Orszag says.

But he says the economy has been pulled back from the brink, and the past year has seen an amazing turnaround.

"I do think it's important to step back," he says. "If in November 2008, someone told you that credit spreads would be back to normal levels and the economy would be growing by 3.5 percent, you probably would have looked at them like they were a little bit crazy."

Orszag, who studied health care policy at the Washington-based Brookings Institution, says he thought the House and Senate health care legislation had "captured important opportunities."

"Given the need to actually enact legislation, we are doing about as much as could be done," he says.

But the budget chief is circumspect about the difficulty of getting budget priorities through Congress.

"The thing about the politics of the deficit is that the deficit is unpopular, but so are many specific steps to reduce it," Orszag says. "There are some that will decry the deficit but are unwilling to embrace anything that will actually bring it down."

Social Security strained by early retirements

In the September 27, 2009 article "Social Security strained by early retirements," Associate Press writer Stephen Ohlemacher reports:

WASHINGTON – Big job losses and a spike in early retirement claims from laid-off seniors will force Social Security to pay out more in benefits than it collects in taxes the next two years, the first time that's happened since the 1980s.

The deficits — $10 billion in 2010 and $9 billion in 2011 — won't affect payments to retirees because Social Security has accumulated surpluses from previous years totaling $2.5 trillion. But they will add to the overall federal deficit.

Applications for retirement benefits are 23 percent higher than last year, while disability claims have risen by about 20 percent. Social Security officials had expected applications to increase from the growing number of baby boomers reaching retirement, but they didn't expect the increase to be so large.

What happened? The recession hit and many older workers suddenly found themselves laid off with no place to turn but Social Security.

"A lot of people who in better times would have continued working are opting to retire," said Alan J. Auerbach, an economics and law professor at the University of California, Berkeley. "If they were younger, we would call them unemployed."

Job losses are forcing more retirements even though an increasing number of older people want to keep working. Many can't afford to retire, especially after the financial collapse demolished their nest eggs.

Some have no choice.

Marylyn Kish turns 62 in December, making her eligible for early benefits. She wants to put off applying for Social Security until she is at least 67 because the longer you wait, the larger your monthly check.

But she first needs to find a job.

Kish lives in tiny Concord Township in Lake County, Ohio, northeast of Cleveland. The region, like many others, has been hit hard by the recession.

She was laid off about a year ago from her job as an office manager at an employment agency and now spends hours each morning scouring job sites on the Internet. Neither she nor her husband, Raymond, has health insurance.

"I want to work," she said. "I have a brain and I want to use it."

Kish is far from alone. The share of U.S. residents in their 60s either working or looking for work has climbed steadily since the mid-1990s, according to data from the Bureau of Labor Statistics. This year, more than 55 percent of people age 60 to 64 are still in the labor force, compared with about 46 percent a decade ago.

Kish said her husband already gets early benefits. She will have to apply, too, if she doesn't soon find a job.

"We won't starve," she said. "But I want more than that. I want to be able to do more than just pay my bills."

Nearly 2.2 million people applied for Social Security retirement benefits from start of the budget year in October through July, compared with just under 1.8 million in the same period last year.

The increase in early retirements is hurting Social Security's short-term finances, already strained from the loss of 6.9 million U.S. jobs. Social Security is funded through payroll taxes, which are down because of so many lost jobs.

The Congressional Budget Office is projecting that Social Security will pay out more in benefits than it collects in taxes next year and in 2011, a first since the early 1980s, when Congress last overhauled Social Security.

Social Security is projected to start generating surpluses again in 2012 before permanently returning to deficits in 2016 unless Congress acts again to shore up the program. Without a new fix, the $2.5 trillion in Social Security's trust funds will be exhausted in 2037. Those funds have actually been spent over the years on other government programs. They are now represented by government bonds, or IOUs, that will have to be repaid as Social Security draws down its trust fund.

President Barack Obama has said he would like to tackle Social Security next year.

"The thing to keep in mind is that it's unlikely we are going to pull out (of the recession) with a strong recovery," said Kent Smetters, an associate professor at the University of Pennsylvania's Wharton School. "These deficits may last longer than a year or two."

About 43 million retirees and their dependents receive Social Security benefits. An additional 9.5 million receive disability benefits. The average monthly benefit for retirees is $1,100 while the average disability benefit is about $920.

The recession is also fueling applications for disability benefits, said Stephen C. Goss, the Social Security Administration's chief actuary. In a typical year, about 2.5 million people apply for disability benefits, including Supplemental Security Income. Applications are on pace to reach 3 million in the budget year that ends this month and even more are expected next year, Goss said.

A lot of people who had been working despite their disabilities are applying for benefits after losing their jobs. "When there's a bad recession and we lose 6 million jobs, people of all types are going to be part of that," Goss said.

Nancy Rhoades said she dreads applying for disability benefits because of her multiple sclerosis. Rhoades, who lives in Orange, Va., about 75 miles northwest of Richmond, said her illness is physically draining, but she takes pride in working and caring for herself.

In June, however, her hours were cut in half — to just 10 a week — at a community services organization. She lost her health benefits, though she is able to buy insurance through work, for about $530 a month.

"I've had to go into my retirement annuity for medical costs," she said.

Her husband, Wayne, turned 62 on Sunday, and has applied for early Social Security benefits. He still works part time.

Nancy Rhoades is just 56, so she won't be eligible for retirement benefits for six more years. She's pretty confident she would qualify for disability benefits, but would rather work.

"You don't think of things like this happening to you," she said. "You want to be in a position to work until retirement, and even after retirement."
___

On the Net:
Social Security retirement planner: http://www.ssa.gov/retire2/retirechart.htm

Washington's selective deficit disorder

In the September 19, 2009 Salon article "Washington's selective deficit disorder," David Sirota reports that "they blew billions on wars and bailouts, but spending cash that actually helps people seems to bother politicians."

Watching the healthcare debate unfold these days is a little like watching scenes from "One Flew Over the Cuckoo's Nest" -- the ones showing a collage of strung-out, deranged or otherwise incapacitated patients rotting away in a squalid psychiatric ward.

As the insurance industry's Nurse Ratched lurks in the background, congressional Democrats cower in the corner, fearing the phantom menace of their own shadows. Standing next to the window, suicidal Republican leaders rant about "death panels" and threaten to splatter their electoral prospects onto the pavement below. Nearby, White House officials struggle with multiple-personality ailments as they mumble contradictory statements about the public option. Meanwhile, tea party protesters lie on the floor in a fetal position, soiling their hospital diapers as they throw incoherent tantrums about everything from socialism to communism to czarism to Nazism. And, not surprisingly, Washington reporters just stare off into the distance, having been long ago lobotomized in the wake of their Watergate heyday.

Clearly, the inmates in America's political sanitarium are each struggling with different maladies. However, they are all suffering from Selective Deficit Disorder -- an illness whose symptoms can be particularly difficult to detect.

When we see tea party activists bemoan deficit spending or watch rank-and-file senators like Blanche Lincoln, D-Ark., say, "I'm not going to vote for a [healthcare] bill that's not deficit-neutral," it is easy to think these poor souls are perfectly healthy. When President Obama promises to "not sign a [health] plan that adds one dime to our deficit" and then New York Times writers such as David Brooks praise this "dime standard" as the epitome of "pragmatism" and "fiscal sanity," these victims seem absolutely sane.

Yet, Selective Deficit Disorder is a sickness of omission. Attacking the neural synapses that maintain rudimentary logic, it presents itself not in what its carriers say and do, but in what they refuse to say and do.

Where, for instance, were conservative organizations marching on Washington when President Bush vastly expanded the deficit with his massive tax cuts for the wealthy? Where was Sen. Lincoln's concern for "deficit neutrality" when she voted to give $700 billion to the thieves on Wall Street? Where was Obama's "dime standard" when he proposed a budget that spends far more on maintaining bloated Pentagon budgets than on any universal healthcare proposal being considered in Congress? Where were demands for "fiscal sanity" by Brooks and other right-wing pundits when they cheered on the budget-busting war in Iraq? Where were any calls for raising taxes from these supposed "deficit hawks" when they backed all this profligate spending? And where were the journalists asking such painfully simple questions?

They were nowhere, because those plagued by Selective Deficit Disorder (as the name suggests) are only selectively worried about deficits.

When it comes to spending on priorities like healthcare reform that would help ordinary Americans, the illness's victims scream about deficits and overspending. But when it comes to handing over trillions of dollars to financial firms, defense contractors and other corporate interests, deficits suddenly don't matter to the disease-addled politicians, protesters and journalists underwritten by those interests.

Luckily, while almost every significant voice in politics is stricken with Selective Deficit Disorder, the majority of the country's citizens are not. That doesn't mean Americans love unbalanced budgets, of course. It just means we know there is something very wrong with those who decry deficit spending on healthcare for millions of people, but ignore far bigger deficit expenditures on giveaways to a tiny handful of fat cats.

Now, all we have to do is stop flying over the cuckoo's nest and start breaking into the asylum.

Most red ink ever: $9 trillion over next decade

In the August 26, 2009 article "Most red ink ever: $9 trillion over next decade," Associated Press writer Jim Kuhnhenn reports the new forecasts of upcoming U.S. federal budgets project larger deficits than previously expected:

WASHINGTON – In a chilling forecast, the White House is predicting a 10-year federal deficit of $9 trillion — more than the sum of all previous deficits since America's founding. And it says by the next decade's end the national debt will equal three-quarters of the entire U.S. economy.

But before President Barack Obama can do much about it, he'll have to weather recession aftershocks including unemployment that his advisers said Tuesday is still heading for 10 percent.

Overall, White House and congressional budget analysts said in a brace of new estimates that the economy will shrink by 2.5 to 2.8 percent this year even as it begins to climb out of the recession. Those estimates reflect this year's deeper-than-expected economic plunge.

The grim deficit news presents Obama with both immediate and longer-term challenges. The still fragile economy cannot afford deficit-fighting cures such as spending cuts or tax increases. But nervous holders of U.S. debt, particularly foreign bondholders, could demand interest rate increases that would quickly be felt in the pocketbooks of American consumers.

Amid the gloomy numbers on Tuesday, Obama signaled his satisfaction with improvements in the economy by announcing he would nominate Republican Ben Bernanke to a second term as chairman of the Federal Reserve. The announcement, welcomed on Wall Street, diverted attention from the budget news and helped neutralize any disturbance in the financial markets from the high deficit projections.

The White House Office of Management and Budget indicated that the president will have to struggle to meet his vow of cutting the deficit in half in 2013 — a promise that earlier budget projections suggested he could accomplish with ease.

"This recession was simply worse than the information that we and other forecasters had back in last fall and early this winter," said Obama economic adviser Christina Romer.

The deficit numbers also could complicate Obama's drive to persuade Congress to enact a major overhaul of the health care system — one that could cost $1 trillion or more over 10 years. Obama has said he doesn't want the measure to add to the deficit, but lawmakers have been unable to agree on revenues that would cover the cost.

What's more, the high unemployment is expected to last well into the congressional election campaign next year, turning the contests into a referendum on Obama's economic policies.

Republicans were ready to pounce.

"The alarm bells on our nation's fiscal condition have now become a siren," said Senate Minority Leader Mitch McConnell of Kentucky. "If anyone had any doubts that this burden on future generations is unsustainable, they're gone — spending, borrowing and debt are out of control."

Even supporters of Obama's economic policies said the long-term outlook places the federal government on an unsustainable path that will force the president and Congress to consider politically unpopular measures, including tax increases and cuts in government programs.

"The numbers today portend the biggest budget fight we've probably had in decades in the United States," said Stan Collender, a former congressional budget official.

The summer analyses by the White House budget office and by the Congressional Budget Office reached similarly bleak conclusions. The CBO's 10-year deficit figure was smaller — $7 trillion — but that is because it assumes that all tax cuts put into place in the administration of former President George W. Bush will expire on schedule by 2011. Obama's budget baseline, however, hews to his proposal to keep the tax cuts in place for families earning less than $250,000 a year.

Both budget offices see the national debt — the accumulation of annual budget deficits — as more than doubling over the next decade. The public national debt, made up of amounts the government owes to the public, including foreign governments, stood Tuesday at a staggering $7.4 trillion. White House budget officials predicted it would reach $17.5 trillion in 2019, or 76.5 percent of the gross domestic product. That would be the highest proportion in six decades.

Congressional Budget Office director Douglas Elmendorf said if Congress doesn't reduce deficits, interest rates are likely to rise, hurting the economy. But if Congress acts too soon, the economic recovery — once it arrives — could be thwarted.
"We face perils in acting and perils in not acting," Elmendorf told reporters.

David Walker, former head of the Government Accountability Office, said the numbers illustrated the need for a national commission that would review spending and taxing options and present lawmakers with a deficit reduction plan that Congress could approve or reject.

"We're going to have to do a hard course correction once we turn the corner on the economy," Walker, now president and CEO of the Peter G. Peterson Foundation, said.

Both Romer and Obama budget director Peter Orszag said this year's contraction would have been far worse without money from the $787 billion economic stimulus package that the president pushed through Congress as one of his first major acts.

At the same time, the continuing stresses on the economy have, in effect, increased the size of the stimulus package because the government will have to spend more in unemployment insurance and food stamps, Orszag said. He said the cost of the stimulus package — which spends most of its money in fiscal year 2010 — will grow by tens of billions of dollars above the original $787 billion.

The White House also credited the $3 billion cash-for-clunkers auto program for contributing to recent economic growth.

Orszag, anticipating backlash over the deficit numbers, conceded that the long-term deficits are "higher than desirable." The annual negative balances amount to about 4 percent of the gross domestic product, a number that many economists say is unsustainable.

But Orszag also argued that overhauling the health system would reduce health care costs and address the biggest contributor to higher deficits.

"I know there are going to be some who say that this report proves that we can't afford health reform," he said. "I think that has it backward."

At the same time, 10-year budget projections can be "wildly inaccurate," said Collender, now a partner at Qorvis Communications. Collender noted that there will be five congressional elections over the next 10 years and any number of foreign and domestic challenges that will make actual deficit figures very different from the estimates.

David M. Walker, the former Comptroller General of the United States, holds a B.S. degree in accounting from Jacksonville University.

Geithner: Lower deficit key to sustaining recovery

According to Associated Press writer Richard Lardner's August 2, 2009 article "Geithner: Lower deficit key to sustaining recovery":

WASHINGTON – Treasury Secretary Timothy Geithner says the U.S. must cut the annual federal budget deficit, now more than $1 trillion, for the economy to have a sustained recovery and he's not ruling out new taxes.

He said the country needs to understand the Obama administration will do what's necessary. He did not detail how the government plans to shrink the deficit, though he said overhauling the health care system and lowering costs are essential.

"When we have recovery established, led by the private sector, then we have to bring these deficits down very dramatically," he told ABC's "This Week" in an interview broadcast Sunday. "And that's going to require some very hard choices. And we're going to have to do that in a way that does not add unfairly to the burdens that the average American already faces."

Geithner also said private economists generally expect to see growth later this year and unemployment to ease in the second half of next year.

Any sustained recovery must rely on business investment and hiring, he said. Geithner said the administration will stick with its economic efforts until there a strong private sector-led recovery is in place.

Geithner said the White House wants a health care bill that has broad support on Capitol Hill. But he said the decision of whether "to help shape this and be part of it" is up to lawmakers.

"Or do they want this country . . . to go another several decades without doing what every other serious country has done. Which is to give their citizens access to basic quality of care," Geithner said.

On revamping the financial sector, Geithner rejected Republican claims that the government is assuming too much control over Wall Street.

The House passed a bill Friday prohibiting pay and bonus packages that encourage bankers and traders to take risks so big they could bring down the entire economy. Republican opponents of the legislation said the restrictions should apply only to banks that accept government aid. They criticized Democrats for creating government bureaucracies to make decisions better left to the private sector.

"I think that really everybody understands that we cannot have our financial system go back to the practices that brought this economy to the brink of collapse," Geithner said.

Geithner also said that extending unemployment benefits again is something the administration and Congress are going to "look very carefully at as the end of this year approaches."

Deficit: What caused it, why it matters

In the July 30, 2009 CNNMoney article, "Deficit: What caused it, why it matters," Alan J. Auerbach and William G. Gale report that "the government is spending more than it's bringing in. A lot more. The result is a deficit. Here's why that gap must be brought under control."

WASHINGTON (CNNMoney.com) -- When George Bush took office at the beginning of 2001, the federal government was running a substantial budget surplus and projected rising surpluses "as far as the eye could see." Now, the United States is facing massive current deficits -- as a share of the economy, the largest since World War II -- and an increasingly dire and unsustainable outlook over the next 10 years and beyond.

How did we get into this fiscal mess? To quote a character in Ernest Hemingway's classic novel, "The Sun Also Rises," when asked by another how he lost his wealth, "Two ways. Gradually and then suddenly."

The gradual part was a series of policy actions adopted during the Bush administration. In 2001, the Congressional Budget Office projected that the 2008 budget would show a surplus equal to 4.5% of gross domestic product. The actual 2008 budget ran a deficit of 3.2% of GDP. Almost all of the reversal was the result of policy changes -- tax cuts and spending increases.

Then, in 2009, the bottom fell out.

Financial markets collapsed and the economy went into a free fall. While the economy is beginning to show signs of stabilizing, the deficit has deepened and is on course to be roughly 13% of GDP this year. About two-thirds of the swing is due to the troubled economy and the other third due to policy responses to the downturn.

During a strong cyclical downturn, big deficits are not just a necessary evil but can actually do a fair amount of good. So, while the current deficit is striking, it is not a problem in and of itself, especially if it falls to more typical levels in the next few years.

Looking into the future, it ain't pretty

The real problem is the medium- and long-term outlook.

Analysts have long emphasized that the country faces a long-term budget problem as a consequence of our rapidly growing old-age entitlement programs.

But now even the 10-year outlook is unsustainable. By 2019, even if everything goes the way the Obama administration wants, and the economy recovers and grows steadily over the next decade, the deficit will be 5.5% of GDP, an extremely high figure in good times, and the debt-to-GDP ratio will hit 82%, its highest level since just after World War II, and will keep rising.

And things aren't as likely to go as well as President Obama hopes. The economy has already performed worse than was assumed in the budget projections, and the projections are based on heroically optimistic assumptions about the political discipline Congress will impose on itself. And, of course, the problem will deepen, continually and inexorably, after 2019, as spending on Medicare, Medicaid and Social Security will grow rapidly.

Large chronic deficits are a serious economic problem. While much attention is given to the effect of deficits on interest rates, that effect is a symptom of a problem, not the problem itself.

If they are financed domestically, deficits will gradually divert capital from productive domestic uses, through a rise in interest rates. This diversion reduces the amount of capital available to U.S. workers, lowering their wages and hence their living standards. If our deficits are financed from abroad, interest rates may not rise as much, but interest payments on these deficits will flow back abroad.

In either case, the future national income of the United States and its citizens is reduced, businesses will find it harder to expand and homeowners will find it tougher to get credit.

Deficits can also affect the economy more suddenly. The prospect of large or out-of-control deficits can spark investors' fears and cause a run on the dollar and a sharp rise in interest rates.

Time to act, but it won't be easy

President Obama and Congress need to address these looming fiscal shortfalls. But it's not that simple. The economy's health must be their primary concern, particularly with most projections seemingly pointing toward a slow, muted recovery after the current recession ends.

And this continuing economic weakness creates a difficult balancing act. Fiscal stimulus can help the economy in the short run, but fiscal discipline is needed in the long run.

So when should policymakers make the switch?

Imposing fiscal discipline too late risks precipitating a crisis in financial markets. Imposing fiscal discipline too soon risks weakening the recovery or worsening the recession, as actually happened in the United States in the 1930s.

The Great Depression actually consisted of two severe downturns, the second starting in 1937 when the federal government imposed fiscal restraint.

Policymakers can thread this needle by committing now to future spending cuts and tax increases, while at the same time being careful not to undo the current stimulus or hurt economic prospects right now. Getting this mix right will require luck, discipline, imagination and leadership.

Alan J. Auerbach is a professor of economics and law and director of the Burch Center for Tax Policy and Public Finance at the University of California, Berkeley. William G. Gale is vice president of the Brookings Institution and co-director of the Urban Institute-Brookings Institution Tax Policy Center, a nonpartisan organization that aims to educate and inform tax and fiscal issues for policy makers and the public.

American Voters To Congress: Reduce The Deficit, Don’t Raise Taxes, And Don’t Cut Services

In the July 29, 2009 CBS News article "Poll: Americans Want Deficit Reduced," Brian Montopoli reports that U.S. citizens say they want the federal government budget deficits reduced, yet they are unwilling to make the necessary sacrifices or higher taxes or reduced government services:

A majority of Americans believe that the federal government should focus on reducing the budget deficit rather than spending to stimulate the economy, a new CBS News/New York Times poll finds.

Asked whether the government should focus on deficit reduction or stimulus spending, 58 percent of those surveyed cited deficit reduction. Thirty-five percent, meanwhile, said the government should spend more to stimulate the economy.

Republicans and independents were more likely than Democrats to favor deficit reduction. Seventy-nine percent of Republicans and 59 percent of independents preferred that the government focus on reducing the deficit, while nearly half of Democrats cited a preference for more stimulus spending.

While Americans overall favor deficit reduction, however, a majority are not willing to pay more in taxes or give up services in areas such as health care, education, and defense spending to do so.

Read The Complete Poll (pdf)

Only 31 percent said they supported a cut in services to lower the deficit, while 53 percent opposed it. And while 41 percent said they would be willing to pay higher taxes to reduce the deficit, 56 percent said they would not.

Blogger Doug Mataconis responded by saying:

This is exactly what’s wrong with American politics, and it’s exactly what got us into the mess that we’re in today.
Americans like to tell themselves that they believe in limited government and don’t like the massive deficits and national debt that we’ve run up over the past several decades. The dirty little secret, though, is that most of us are lying to ourselves. We like the government subsidies — and, yes, things like the home mortgage interest deduction and the charitable contribution tax deduction are subsidies — and we like the government programs. And, of course, we all hate paying higher taxes. So, when push comes to shove, nobody wants to do the hard things that will be necessary to return the nation to fiscal sanity.
As these poll internals reveal, it’s something that cuts across party lines:

Saying that you want to see the budget deficit reduced, but being against the only two methods of doing so is nothing more than phony political posturing. Which is apparently what America is reduced to these days.

Jacksonville's Mayor Lobbies for Solutions to its Budget Crisis

Mayor John Peyton presented his proposed budget to the Jacksonville, Florida City Council in July 2009 and faced strong opposition, primarily because it called for increases in the property tax rate. Peyton, a conservative Republican, advocated the tax increase because Florida citizens voted on January 29, 2008 to increase the amount of property excluded from taxation. (With less property subject to taxation, the tax rate needs to increase to generate the same level of revenues.) This seems to be part of a broader issue in which U.S. citizens clamor for tax reductions, yet do not want government services reduced either.

A Message From Mayor John Peyton

Dear Friends,

Jacksonville is facing a financial crisis. Cuts from Tallahassee, global economic instability and an unsustainable pension system have created a $170 million budget problem. On July 13, I presented my proposed fiscal year 2009-2010 budget to the Jacksonville City Council.

It includes a three-part plan to solve Jacksonville’s budget crisis by making $40 million in operational cuts, taking on important pension reform and implementing a modest revenue increase. A millage rate increase of 1.02 mills will simply bring the property tax rate back to where it would’ve been before Tallahassee meddled in local government affairs.

As part of this year’s budget process, I will be hosting a series of community conversations about city finances. Please visit the Bulletin Board section of this Web site to see dates and times of town hall meetings, brown bag lunches and live media appearances.

I encourage you to explore this Web site, read my budget address , and ask yourself what kind of city you want to live in. Is it one without cultural events, museums or recycling? Is it one that lacks vital services for the most vulnerable members of our community like the hungry, homeless and those who are crime victims? I don’t want to live in that kind of city, and I don’t think you do either.

If you support my budget plan, I urge you to make your voice heard. Join the Fix It Now! movement and make your City Councilmembers aware of the kind of city you want for yourself and your children.

John Peyton
Mayor

For an in-depth analysis of the city’s finances, please read a report recently released by the Jacksonville Community Council, Inc. (JCCI). The report is called “Our Money, Our City: Financing Jacksonville’s Future” and provides a comprehensive overview of our current budget crisis.

Budget deficit tops $1 trillion for first time

Budget deficit tops $1 trillion for first time

By MARTIN CRUTSINGER, AP Economics Writer – Mon Jul 13, 6:05 pm ET
WASHINGTON — The federal deficit has topped $1 trillion for the first time ever and could grow to nearly $2 trillion by this fall, intensifying fears about higher interest rates, inflation and the strength of the dollar.
The deficit has been widened by the huge sum the government has spent to ease the recession, combined with a sharp decline in tax revenues. The cost of wars in Iraq and Afghanistan also is a major factor.
The soaring deficit is making Chinese and other foreign buyers of U.S. debt nervous, which could make them reluctant lenders down the road. It could also force the Treasury Department to pay higher interest rates to make U.S. debt attractive longer-term.
"These are mind-boggling numbers," said Sung Won Sohn, an economist at the Smith School of Business at California State University. "Our foreign investors from China and elsewhere are starting to have concerns about not only the value of the dollar but how safe their investments will be in the long run."
The Treasury Department said Monday that the deficit in June totaled $94.3 billion, pushing the total since the budget year started in October to $1.09 trillion. The administration forecasts that the deficit for the entire year will hit $1.84 trillion in October.
Government spending is on the rise to address the worst financial crisis since the Great Depression and an unemployment rate that has climbed to 9.5 percent.
Congress already approved a $700 billion financial bailout for banks, automakers and other sectors, and a $787 billion economic stimulus package to try to jump-start a recovery. Outlays through the first nine months of this budget year total $2.67 trillion, up 20.5 percent from the same period a year ago.
There is growing talk among some Obama administration officials that a second round of stimulus may eventually be necessary.
That has many Republicans and deficit hawks worried that the U.S. could be setting itself up for more financial pain down the road if interest rates and inflation surge. They also are raising alarms about additional spending the administration is proposing, including its plan to reform health care.
President Barack Obama and Treasury Secretary Timothy Geithner have said the U.S. is committed to bringing down the deficits once the economy and financial sector recover. The Obama administration has set a goal of cutting the deficit in half by the end of his first term in office.
In the meantime, the U.S. debt now stands at $11.5 trillion. Interest payments on the debt cost $452 billion last year — the largest federal spending category after Medicare-Medicaid, Social Security and defense.
The overall debt is now slightly more than 80 percent of the annual output of the entire U.S. economy, as measured by the gross domestic product. During World War II, it briefly rose to 120 percent of GDP.
The debt is largely financed by the sale of Treasury bonds and bills.
Many private economists say the administration had no choice but to take aggressive action during the financial crisis.
"We have a deep recession hammering tax revenues and forcing the government to provide a lot of help to the economy," said Mark Zandi, chief economist at Moody's Economy.com. "But without this help, the downturn would be even more severe."
History shows the dangers of assuming too soon that economic downturns have ended.
President Franklin D. Roosevelt made that mistake in 1936. Believing the Depression largely over, he sought to reduce public spending and to balance the federal budget, but that undermined a fragile recovery, pushing the economy back under water in 1937.
Japanese leaders made a similar mistake in the 1990s when they temporarily withdrew government stimulus spending, prolonging Japan's recession into one that lasted a full decade.
Republicans in Congress are seizing on the deficit — and the persistence of the recession — to attack Democrats.
"Washington Democrats keep borrowing and spending money we don't have," said House Republican Leader John Boehner of Ohio.
So far, interest rates have remained low.
This is partly because the Federal Reserve has kept a key short-term rate at a record near zero. Also, all the economic troubles in housing and the rest of the economy have depressed demand for credit by the private sector, meaning the government's borrowing costs are relatively low.
The benchmark 10-year Treasury security has risen by about a percentage point in recent weeks, but analysts note it is still trading at historically low levels of around 3.35 percent.
Geithner travels later this week to Saudi Arabia and the United Arab Emirates, where he is expected to face questions about the U.S. deficit. As he did during a visit to China last month, Geithner will try to reassure investors in the Middle East that their U.S. holdings are safe from a calamitous bout of inflation.
The deficit of $1.09 trillion so far this year compares to an imbalance of $285.85 billion through the same period a year ago. The deficit for the 2008 budget year, which ended Sept. 30, was $454.8 billion, the current record in dollar terms.
Revenues so far this year total $1.59 trillion, down 17.9 percent from a year ago, reflecting higher unemployment, which cuts into payroll taxes and corporate tax receipts.
Under the administration's budget estimates, the $1.84 trillion deficit for this year will be followed by a $1.26 trillion deficit in 2010, and will never dip below $500 billion over the next decade. The administration estimates the deficits will total $7.1 trillion from 2010 to 2019.