Deficits on pace to hit $2.58 trillion

By DAVID ROGERS | 1/26/11 10:21 AM EST Updated: 1/27/11 6:10 AM EST

New budget estimates Wednesday paint a grim picture of the nation’s fiscal state, with the government on pace to rack-up back-to-back deficits totaling $2.58 trillion over the life of this new Congress. With the Treasury already warning it will have exhausted the government’s borrowing authority this spring, the Congressional Budget Office report is the most up-to-date analysis of just how big an increase in the debt ceiling will be needed prior to the 2012 elections. The numbers add fuel to the Republican fire for deep spending cuts and are a reminder too of the price paid by President Barack Obama for his year-end bargain with the GOP expanding on Bush-era tax breaks and adding payroll tax relief to try to boost economic growth. Obama has since held firm to his position that he wants to freeze domestic spending at current 2010 levels—a difficult task in itself. And liberal Senate Democrats, who bristled at the December tax cut accord, warned Wednesday that the deep spending cuts—as called for by some House conservatives—could cost as many as 1 million jobs. For all sides, the CBO deficit numbers are not just big but worse than last summer. In the current 2011 fiscal year ending Sept. 30, CBO projects a deficit of $1.48 trillion, or $414 billion more than it assumed last August prior to the December deal. And in fiscal 2012—for which Obama will submit his budget next month—CBO’s baseline now assumes a deficit of $1.1 trillion compared to $665 billion in August. The nearly $1.5 trillion deficit for 2011 will equal 9.8 percent of GDP, almost matching the 10 percent of GDP at the height of the economic downturn in 2009. The fact that it remains so severe even under improved economic conditions is a warning of the larger structural problem facing budget writers, and CBO says the government’s annual spending on net interest on the accumulating debt will more than double over the next decade from 1.5 percent of GDP this year to 3.3 percent in 2021. The report, following so quickly on the president’s State of the Union address, also underscores concerns from moderates in both parties that Obama has not yet conveyed enough urgency about the mounting debt problem. The typically friendly Washington Post editorial page took the president to task Wednesday morning for having missed an opportunity “to prepare Americans for fiscal austerity.” And Sen. Lamar Alexander (R-Tenn.), a member of the Senate leadership and important voice on budget matters, signaled that the pressure is now on Obama to do more when he submits his new 2012 spending plan next month. “What we need from him is a greater sense of urgency and a plan to reduce spending and debt at a time when Washington borrows 42 cents of every dollar it spends,” Alexander said. And Senate Budget Committee Chairman Kent Conrad (D-N.D.) warned, “We can’t continue to put this off. We need to reach an agreement this year.” “The President’s Fiscal Commission provided a model for a bipartisan way forward,” said Conrad of the recommendations made last month. “Now it is up to the Administration and members on both sides of the aisle in Congress to come together to finish the job.” Matched against these pressures are Democratic fears that sudden, deep spending cuts will only make it harder to deal with stubbornly high unemployment. CBO is projecting that the economy will add roughly 2.5 million jobs over the next five years, but the unemployment rate will still be near 8.2 percent in the fourth quarter of 2012 and only by 2016 does it reach 5.3 percent or close to the agency’s estimate of the natural rate of joblessness. These numbers are most relevant now to the building fight over proposed Republican cuts from discretionary appropriations for domestic programs. The House GOP leadership has vowed to roll back spending below Obama’s 2010 freeze to the same levels set by the Bush Administration three years ago. And the conservative Republican Study Committee is urging the leadership to go a big step further by setting an even lower target: the 2006 spending cap when the GOP last controlled Congress. Senate Democrats countered Wednesday morning with their own analysis, warning that the RSC plan is so severe that it could cost as many as 1 million jobs. And the challenge now for Speaker John Boehner (R-Ohio) and House Budget Committee Chairman Paul Ryan (R-Wis.) is find some safe ground that will advance the GOP’s cause without provoking such a huge backlash that the party loses its momentum. The House Appropriations Committee will be the first to contend with the question, when it marks up a stop-gap spending bill next month that will govern appropriations for the remainder of this fiscal year. But within the panel itself, there is still considerable uncertainty as to what the right target should be. “Right now we have the public goodwill, we have the momentum, we have the enthusiasm,” Rep. Jack Kingston (R-Ga.) told POLITICO. “Take the big hits now. We’ve got to capture the momentum of November…and take as many tough hits as we can right now and then work through it.” Matched against this approach are two obstacles. First, Senate Democrats are sure to resist and second, even fellow Republicans like Alexander are warning that that the party’s single-minded focus on discretionary spending misses the larger problem of spending for entitlements like Medicare and Medicaid. Yet after seeming to chew on Obama’s leg so long on appropriations spending, Republicans appear to be waiting on the president, more than attacking him, since the political risks are too great to move on entitlements on their own. “The president had an opportunity to give budget and entitlement reform real momentum but stopped short,” said Sen. Tom Coburn (R-Okla.) of Obama’s speech Tuesday night. “No doors were slammed, and areas for cooperation remain open. Yet, the task of putting our nation on a sustainable path will be much more difficult absent strong presidential leadership.”