The U.S. national debt will nearly double over the next 10 years, government forecasts showed on Tuesday (9/1/2009), challenging President Barack Obama's economic and healthcare overhaul agenda. REUTERS/Graphics
News Article: The Washington Post Online
"Spending Surge Pushing Deficit Toward $1 Trillion"
By Lori Montgomery and Dan Eggen, Washington Post Staff Writers
Saturday, October 18, 2008; A01
Congressional leaders and both presidential candidates are proposing billions of dollars in tax breaks and other measures to stoke economic growth, a surge in spending that could send the federal deficit soaring toward $1 trillion this year, creating the deepest well of red ink since the end of World War II.
The government already has embarked on an unprecedented spending spree to halt the implosion of the U.S. financial system and is borrowing money at levels that some economists fear could undermine the nation's economic security for years to come. Congress could consider additional spending as soon as next month, potentially digging the nation's hole even deeper.
"We're going to make Ronald Reagan look like a piker in terms of deficit creation, I think," said Rudolph Penner, a senior fellow at the Urban Institute who served as director of the Congressional Budget Office during the Reagan administration.
The numbers are adding up fast. Since President Bush signed an economic stimulus package in February, authorizing billions of dollars in rebates for American taxpayers, the government has pledged as much as $1.5 trillion to prop up the teetering economy. It has approved new mortgages for struggling homeowners, salvage operations for faltering financial institutions and a historic $700 billion bailout plan to pump money into banks paralyzed by the financial crisis.
The Treasury Department so far has borrowed nearly $500 billion from pension plans, foreign governments and other investors to replenish the coffers of the Federal Reserve. Since the end of August, the national debt has jumped from $9.6 trillion to $10.3 trillion, with borrowing for the bank bailout yet to come.
Meanwhile, the budget deficit -- the annual difference between government spending and tax collections -- has risen rapidly. It jumped from $162 billion last year to $455 billion in the fiscal year that ended in September, largely because of the cost of the stimulus package, as well as slowing tax revenues and rising expenses in Iraq and Afghanistan.
The budget picture looking forward is even bleaker. While the deficit is projected to be about $550 billion for the fiscal year that began Oct. 1, budget analysts have yet to figure in the effects of a recession, which could easily tack on another $100 billion. They also have not included the first $250 billion being spent on the bailout plan, which the White House budget office said this week must be added, even though much if not all of the money is eventually expected to be returned to the Treasury.
And with options for a second round of stimulus spending starting at $52 billion -- the size of the package proposed earlier this week by Republican presidential candidate John McCain -- it's not hard to imagine the deficit rising to $1 trillion. That would approach 7 percent of the economy, a yawning budget hole not seen since 1946.
Some economists say that prospect should dampen talk of further spending. Others say it's better to spend the money now in an effort to protect jobs and smooth over the harshest effects of a recession than to lose the money later through sharply lower tax collections and higher unemployment payments. Economists advising House Democrats are urging a spending package of as much as $300 billion, arguing that the economy could shrink by about that much over the next year.
"The rationale is that the economy is in recession and a lot more people are going to lose their jobs and we can prevent some of that -- not all of it, but some of it -- by raising government spending and cutting taxes. And that's worth doing," said Douglas Elmendorf, a former Federal Reserve economist now at the Brookings Institution, who argues for as much as $150 billion in stimulus spending.
For months, Democrats have been calling somewhat halfheartedly for additional spending to assist the unemployed and other struggling consumers. The House passed a second stimulus measure last month, but the $61 billion package drew a veto threat from the White House and died in the Senate. Calls to revive the measure grew more insistent after Congress approved the $700 billion bailout, prompting Democrats to argue that if the government could afford so much money for Wall Street it could afford to direct some to Main Street, too.
With the Nov. 4 election less than three weeks away, stimulus plans are proliferating like Halloween pumpkins.
McCain this week unveiled his $52 billion package, which includes tax breaks for Americans withdrawing money from retirement accounts, the elimination of taxes on unemployment benefits, and a cut in capital-gains taxes for investors who sell long-held stocks. McCain also proposed using nearly half of the money from the $700 billion bailout to buy mortgages held by distressed homeowners, renegotiate their debt and help them stay in their homes.
Democratic presidential candidate Barack Obama had initially proposed directing billions of dollars to road projects, aid to state governments struggling with budget shortfalls and a broad tax rebate worth $500 to individuals and $1,000 to families. This week, he tacked on a temporary tax credit for companies that hire workers in the United States, raising the price of his plan to $175 billion.
The spending proposals come on top of promises by both candidates to dramatically cut taxes. In addition, Obama has pledged to pursue expensive new initiatives to expand health care coverage and improve education. The candidates' top economic advisers, Jason Furman of the Obama campaign and Douglas Holtz-Eakin for McCain, said they have no plans to reconsider those promises in light of the new economic realities.
In the final presidential debate on Wednesday, McCain even repeated his pledge to balance the budget by the end of his first term, though Holtz-Eakin acknowledged that "the events of the past few weeks have made that considerably more difficult."
On Capitol Hill, House Speaker Nancy Pelosi (D-Calif.) had been calling for $150 billion in new spending until a summit this week with Elmendorf and other economists. On Thursday, Pelosi told interviewer Charlie Rose that her "economic recovery" package could grow to "a couple hundred billion dollars" and would include many of the same measures Obama has proposed, as well as an extension of unemployment insurance and an increase in spending on food stamps.
House Minority Leader John A. Boehner (R-Ohio) jumped aboard the stimulus bandwagon this week, issuing a proposal that included many of McCain's ideas. Aides said a cost estimate for the GOP plan was not available.
The White House has reacted coolly to talk of a second stimulus package, though there are signs that its opposition is softening. White House press secretary Dana Perino this week left the door open to further stimulus, though she emphasized that the president remains leery of calls for new spending on roads and infrastructure, arguing that such projects generally take too long to have an immediate economic impact.
"To us, that doesn't sound like the stimulus we need," said Steve McMillin, deputy director of the White House budget office. "We don't rule out anything forever. But what they're talking about is not something we think is going to be helpful for the economy and is something that will create further pressure and risk for our budget situation."
Vincent Reinhart, the former chief monetary economist at the Fed and a resident scholar at the American Enterprise Institute, said that, in principle, "a targeted, timely stimulus package that could be put in place quickly" would make sense for the economy right now. The danger, he said, is a political environment that has both raised the desire for government action and expectations about what it can accomplish.
With the financial bailout plan, "we have a new high watermark as to how much the government should do. And that's a very high watermark," Reinhart said. "The chances we overdo [stimulus] are pretty high."
"US debt may jump $2 trillion in 2009"
January 3, 2009
WASHINGTON - With President-elect Barack Obama and congressional Democrats considering a massive spending package aimed at pulling the nation out of recession, the national debt is projected to jump by as much as $2 trillion this year, an unprecedented increase that could test the world's appetite for financing US government spending.
For now, investors are frantically stuffing money into the relative safety of the US Treasury, which has come to serve as the world's mattress in troubled times. Interest rates on Treasury bills have plummeted to historic lows, with some short-term investors literally giving the government money for free.
But about 40 percent of the debt held by private investors will mature in a year or less, according to Treasury officials. When those loans come due, the Treasury will have to borrow more money to repay them.
With the government planning to roll over its short-term loans into more stable, long-term securities, analysts say investors are likely to demand a greater return on their money, saddling taxpayers with huge new interest payments for years to come.
Some analysts also worry that foreign investors, the largest US creditors, may prove unable to absorb the skyrocketing debt, undermining confidence in the United States as the bedrock of the global financial system.
After the nation slipped into recession in the wake of a housing foreclosure crisis, Washington approved $168 billion in spending to spur economic activity, $700 billion to prevent the collapse of the US financial system, and multibillion-dollar bailouts for a variety of financial institutions, including insurer American International Group and mortgage financiers Fannie Mae and Freddie Mac.
Now, Washington is debating as much as $850 billion in new federal spending, as well as tax cuts, to stimulate the economy.
"In $3.6 Trillion Budget, Obama Signals Broad Shift in Priorities: Bold Agenda for Social Spending, Energy and Taxes Faces Fierce Fight"
By Lori Montgomery, Washington Post Staff Writer, Friday, February 27, 2009; A01
President Obama delivered to Congress yesterday a $3.6 trillion spending plan that would finance vast new investments in health care, energy independence and education by raising taxes on the oil and gas industry, hedge fund managers, multinational corporations and nearly 3 million of the nation's top earners.
The blueprint, meanwhile, would overhaul programs across the federal bureaucracy to strengthen assistance for millions of people who have borne the consequences of what Obama called "an era of profound irresponsibility," helping them pay for college, train for better jobs and save for retirement while taking less of their earnings in taxes.
The ambitious agenda for the fiscal year that begins in October would not come cheap. This year's budget deficit, swollen by spending to combat a severe recession, would hit a record $1.75 trillion, or 12.3 percent of the overall economy, under the president's plan, the highest since 1945. While Obama inherited the bulk of that gap, his budget would make room for a fresh round of spending that could hit $750 billion to prop up troubled financial institutions.
Next year's deficit would approach $1.2 trillion. But Obama proposes to cut that figure roughly in half by the end of his first term, in large part by levying nearly $1 trillion in new taxes over the next decade on the nation's highest earners, defined as families with gross income of more than $250,000 a year.
In unveiling the 134-page volume that outlines his spending priorities, Obama acknowledged that his proposal would "add to our deficits in the short term to provide immediate relief to families and get our economy moving." But he argued that the economic crisis should not be used as an excuse to delay costly investments intended to modernize the nation's economy, enhance its workforce and, ultimately, reduce government spending.
"What I won't do is sacrifice investments that will make America stronger, more competitive and more prosperous in the 21st century -- investments that have been neglected for too long," Obama said. Citing the need to "break free" from foreign oil, reduce "crushing health-care costs," and improve public education, Obama said: "These investments must be America's priorities, and that's what they will be when I sign this budget into law."
With its immense scope and bold prescriptions, Obama's agenda seeks to foster a redistribution of wealth, with the government working to narrow the growing gap between rich and poor. It is likely to spark fierce political battles on an array of fronts, from social spending to energy policy to taxes.
Alice M. Rivlin, a Brookings Institution economist who served as former president Bill Clinton's budget director, called the plan "gutsy and quite good."
"It has a strong flavor of the Obama philosophy, which is tilting the playing field away from upper income and toward the rest of America," she said.
Republicans quickly attacked the document as a recipe for economic disaster, saying it would raise taxes on businesses and consumers in the middle of a recession in order to bankroll a massive government expansion.
"The era of big government is back, and Democrats are asking you to pay for it," said House Minority Leader John A. Boehner (R-Ohio). "The administration's plan, I think, is a job killer, plain and simple."
White House budget director Peter Orszag rejected that analysis, saying none of the tax increases would take effect until 2011. But some economists worry that even in 2011 the economy may be too fragile to absorb a tax increase. Meanwhile, some Democrats joined Republicans in complaining that the budget plan does not go far enough to narrow the yawning budget gap. While Obama predicts the deficit would fall to $533 billion by the end of his first term, it would quickly begin to rise again and the national debt would remain elevated throughout the next decade.
Obama is expected to send Congress a complete plan in April, and Democratic leaders said they hope to approve it later this spring. But House Majority Leader Steny H. Hoyer (D-Md.) predicted that finding the votes will be "tough." With Democrats in control of both the White House and Congress, their budget will have real meaning for the first time in 15 years, he said, and lawmakers will fight hard to advance favored causes.
"These are real votes, real consequences," Hoyer said. "You're playing with real money."
Obama's spending proposal contains plenty to fight over.
It calls on lawmakers to enact major new programs across the government, including one that would establish a national infrastructure bank to prioritize federal investments and another that would set new mandates on employers to enroll millions of workers for the first time in voluntary retirement savings accounts.
The budget seeks approval of a cap-and-trade program to curb U.S. greenhouse gas emissions by 14 percent by 2020. The program, similar to one used to slash emissions that cause acid rain, would auction permits to companies that emit greenhouse gases and allow them to trade those allowances.
The administration is counting on the program to produce a big new stream of revenue, amounting to $646 billion over the next decade. About $15 billion a year would be set aside to pay for "clean energy technologies" while the rest would go toward making Obama's signature "Making Work Pay" tax credit permanent. The tax credit, worth as much as $800 a year to low- and middle-income workers, was enacted in the stimulus package.
In what the president called an "historic commitment to comprehensive health care reform," the budget proposes to create a $634 billion reserve fund that lawmakers could use to finance a major expansion of health coverage for the uninsured.
The fund would include savings from proposed efficiencies in Medicare and Medicaid, the federal health programs for the elderly and the poor, as well as $318 billion in new taxes on families in the highest income brackets, who would see new limits on the value of the tax breaks from itemized deductions.
That proposal is a fraction of the new taxes Obama proposes to heap on the nation's highest earners. Individuals who earn more than $200,000 a year and families who make more than $250,000 would also lose the tax cuts enacted during the Bush administration, meaning their top income tax rate would rise to 39.6 percent from 35 percent, their investment income would be taxed at 20 percent rather than 15 percent and their deductions for mortgage interest, state and local taxes and charitable contributions would be reduced.
If Obama's tax plan is approved, a family making $500,000 a year would see its annual tax bill rise to nearly $132,000 from about $120,000, a 10 percent increase, said Clint Stretch, managing principal of tax policy at Deloitte Tax.
Hedge fund managers would take an even bigger hit. Much of their multimillion-dollar earnings would be taxed as regular income rather than capital gains, causing their tax rate to rise from 15 percent to as much as 39.6 percent. Oil and gas companies would be asked to pay an extra $31 billion over the next 10 years through an excise tax on offshore production in the Gulf of Mexico as well as new fees for drilling on federal land. Corporations that operate overseas could expect to pay $210 billion more over the next 10 years as a result of new limits on their ability to defer taxation on foreign earnings.
John Castellani, president of the Business Roundtable, an association of executives, praised Obama's commitment to health care and deficit reduction, but said his tax plans could hinder American competitiveness. Calling the president's proposals "aspirational," Castellani said he would "work with Congress" to produce a balanced tax plan that would "help the economy grow and create jobs."
Staff writers Steven Mufson and Shailagh Murray contributed to this report.
The President's Budget would raise taxes on the highest-earning Americans, create a $1.2 trillion deficit in 2010 and curtail Medicare payments to insurance companies to pay for a $634 billion health care fund for the uninsured and a $150 billion energy package. A look at both sides of the balance sheet:
"Big Numbers: Mr. Obama's budget relies on some heavy lifting yet undone."
The Washington Post, Editorial, A16, Friday, February 27, 2009
THERE ARE many metrics for judging a president's budget proposal. Is it honest in accounting for known costs over a reasonable time frame? Would its approach put the country on a sustainable fiscal course? Are its tax and spending provisions good policy -- and politically plausible? In this dire economic climate, there's another important question: Is the administration concentrating enough on the task at hand, which is helping to right the economy, or does it overreach in envisioning new taxes and programs?
On the honesty scale, President Obama's budget offers some improvements. It acknowledges some huge expenses that Bush administration budgets studiously ignored, such as the cost of providing relief from the alternative minimum tax. It provides $130 billion in war funding for 2010, a reasonable estimate. It provides for the contingency that the administration will seek another $750 billion (reflected as $250 billion on the budget books on the theory that some of the spending will be recouped) in emergency funding for financial stabilization.
But the assumption that war spending will drop to $50 billion per year after 2010 is wildly at odds with Mr. Obama's stated commitment to success in Afghanistan and Iraq. His self-congratulatory claim of having identified $2 trillion in "savings" relies almost entirely on the presumed lower war costs and a long-promised rollback of the Bush administration's high-end tax cuts.
Yesterday's budget shows a gargantuan deficit of $1.75 trillion, 12.3 percent of gross domestic product, in this fiscal year. The budget projects deficits declining to around 3 percent of GDP from 2013 through 2019, but they may be far higher if Mr. Obama's projections of economic growth prove optimistic. Long-term fiscal stability will require more than getting rising health-care costs under control, as important as that is. Mr. Obama's statement Tuesday that the country should "begin a conversation" about Social Security was disappointingly anemic. The conversation has been going on for a long time. It is action that has been, and remains, missing.
Mr. Obama proposes a "down payment" of $634 billion over 10 years on expanding health insurance, about half of what he says is required. His outline leaves open for discussion with Congress big questions about the shape of the plan and the source of additional funding. His proposals to reduce Medicare costs by instituting competitive bidding among private Medicare Advantage programs, cutting payments for home health care and prescription drugs, and raising premiums for higher-income beneficiaries are certain to produce the usual howls. The same is true of Mr. Obama's suggestion to pay for part of his health program by reducing the value of mortgage, charitable and other deductions for the highest-income taxpayers. Under the current fiscal circumstances, it is critical that Mr. Obama and Congress hew to the principle, set out in this budget, that health-care reform not add to the deficit.
Mr. Obama proposes to pay for the additional tax credits he promised to lavish on 95 percent of Americans with revenue generated by a cap-and-trade system for carbon emissions -- a kind of indirect tax on oil, gas and coal. Since this will raise expenses for all Americans, marrying these two initiatives makes sense, philosophically and fiscally. Once again, however, the trick will be resisting the inevitable political demands to use the revenue to cushion the blow for polluting industries.
Mr. Obama has reached for a lot in this budget; he needs to make certain that he remains focused on the economic crisis and to adjust his ambitious aims if the recovery does not proceed as he hopes.
"Congress passes stopgap bill to keep government running"
By New York Times, March 7, 2009
WASHINGTON - With 12 hours or so to spare, Congress approved a stopgap budget resolution yesterday to avoid a shutdown of the federal government for at least another five days.
The House approved the measure, 328 to 50, and the Senate rushed it through on a unanimous voice vote. President Obama signed it later in the day.
The stopgap measure became necessary after Senate Republicans blocked a $410 billion spending measure Thursday night. The government has already been running on a stopgap budget measure, which was approved by Democrats to avoid a fight with the Bush White House and was set to expire yesterday.
The ability of the diminished minority to delay the $410 billion bill signaled growing unease in Congress, among both Democrats and Republicans, over the levels of government spending in recent months and the staggering increase in the federal deficit.
The delay of the bill was an embarrassment for Democrats and a striking, if temporary, victory for critics of earmarks, who had said the bill was wasteful. But Republicans and Democrats would lose home-state projects if it did not pass eventually.
Among those critics were Senator John McCain of Arizona, the Republican presidential candidate last year, and two Democrats, Senators Evan Bayh of Indiana and Russ Feingold of Wisconsin, who opposed the measure Thursday night.
Yesterday, 224 House Democrats and 104 Republicans voted for the stopgap measure, while 48 Republicans and two Democrats, Bart Stupak of Michigan and Bill Pascrell Jr. of New Jersey, voted against it.
Reasons quite apart from money explained why Democrats came up short of the 60 votes needed to advance the omnibus bill late Thursday. Two Hispanic senators - one Democrat, one Republican - opposed it over provisions that would have eased some travel and trade restrictions on Cuba.
"Senate Approves $410 Billion Bill to Fund Federal Government"
By Shailagh Murray, Washington Post Staff Writer, A03, Wednesday, March 11, 2009
The Senate gave final approval last night to a $410 billion spending bill to fund most of the federal government for the remainder of the year after overcoming a resilient Republican opposition and several Democratic defections.
The bill, which includes thousands of controversial earmarks inserted by members of both parties, was approved on a voice vote after eight Republicans joined 54 Democrats in backing a procedural measure to bring the long and rancorous debate to a close. President Obama has indicated that he will sign the legislation despite having misgivings about the earmarks.
The bill was six months overdue, a victim of partisan gridlock at the end of George W. Bush's presidency but also sticker shock. Congress already has approved a $700 billion financial bailout and a $787 billion economic stimulus package. And Obama has said he is likely to ask for more money.
"This has taken far too long," Senate Majority Leader Harry M. Reid (D-Nev.) said before the final vote. The multiple hurdles that blocked the bill were "surprising to me," he said. "It's been difficult. But we're going to get it done."
The measure would provide fiscal 2009 funding for nine federal departments, covering all government activities other than defense and homeland security-related agencies, whose funding was approved last fall. Many agencies would see big increases, in some cases 10 percent or more above fiscal 2008 levels.
Dissent over the measure was widespread. Some Republicans waged a high-profile battle against 8,500-plus spending provisions, known as earmarks. Other GOP lawmakers objected to generous funding increases in the midst of an economic crisis. Three Democrats opposed the bill: Sens. Russell Feingold (Wis.) and Claire McCaskill (Mo.), both earmark opponents, and Evan Bayh (Ind.), who objected to its cost.
In an important policy shift, the bill includes a loosening of restrictions on travel to and imports from Cuba that the Bush administration imposed. The issue proved explosive among supporters of the trade embargo. Sen. Robert Menendez (D-N.J.), the leader of the group, voiced strong objections last week on the chamber floor and withdrew his support for the underlying legislation, forcing Reid to delay a final vote from Thursday until last night.
But Menendez, along with Sens. Bill Nelson (D) and Mel Martinez (R), who are both from Florida, said they were reassured by a letter from Treasury Secretary Timothy F. Geithner pledging that the Cuba provision would be interpreted narrowly, and the two Democrats supported the final bill.
Another contentious provision targets the District's school voucher program, a Republican favorite that provides 1,700 low-income students with the equivalent of a $7,500 grant to attend a private school. Sen. John Ensign (R-Nev.) sought unsuccessfully to strike language from the bill that would require its reauthorization after the 2009-2010 school year, a move he said would leave current recipients in limbo.
"We're talking about real children here," Ensign said on the Senate floor before his amendment was defeated yesterday, pointing to a poster-size photo of two voucher beneficiaries at Sidwell Friends School, where Obama's daughters, Malia and Sasha, are students.
Sen. Richard J. Durbin (D-Ill.) defended the reauthorization requirement as a routine review to determine whether the voucher approach works. "Congress will take a look at the program and decide if the money is well spent," he said.
The bill represents a bonanza for federal agencies that felt a budget squeeze for much of Bush's two terms. Mass transit, public housing, the National Institutes of Health, Head Start and the Pell grant program are all among the Democratic priorities that would see new federal money flow into their coffers. The Food and Drug Administration would receive nearly $335 million more than it did in fiscal 2008. The supplemental nutrition program for women, infants and children, known as WIC, would grow by $1.2 billion, a 21 percent jump from the $5.7 billion appropriated last year.
The debate also gave renewed prominence to Sen. John McCain (R-Ariz.), the chief critic of the bill's earmarks. "This evil has grown, and it has grown, and it has grown," said McCain, who called the earmarking process a "gateway drug" to more egregious, and possibly illegal, forms of influence peddling.
But as debate unfolded over the past week, Republican members of the Senate Appropriations Committee teamed up with most Democrats to reject efforts to remove any earmarks from the bill, including items connected to a lobbying firm under federal investigation. One reason for their solidarity was an announcement by House Speaker Nancy Pelosi (D-Calif.) that any changes would render the measure dead, limiting current funding to 2008 levels.
The independent watchdog group Taxpayers for Common Sense found 8,570 disclosed earmarks in the bill, worth $7.7 billion. Only five senators did not add pet projects to the measure, including Republicans McCain, Jim DeMint (S.C.) and Tom Coburn (Okla.), and Democrats Feingold and McCaskill.
The bill appeared in jeopardy again last night after Sen. David Vitter (R-La.) demanded a vote on his amendment to force Congress to approve its own cost-of-living increases each year, rather than allowing them to take effect automatically. The measure was politically attractive to members of both parties, but failed after Reid warned that it would sink the bill and vowed to bring the pay issue to the floor separately.
Earmarks account for just 1 percent of the bill's overall cost, but House Minority Leader John A. Boehner (R-Ohio) said they had become wrapped into the larger debate about the size of the federal government, along with concerns about the soaring deficit.
Speaking to reporters, he tallied up $2 trillion in spending in five months, including the omnibus spending bill, the stimulus and the financial bailout, just as Obama's advisers revealed deficit projections of $1.8 trillion, major banks and auto companies teetered on the brink, and the stock markets remained near historic lows despite yesterday's rally.
"We're betting trillions of dollars that we're doing the right thing. So far, the bet's not paying off," Boehner said. "Had it not been for the stimulus and the budget proposal, [the omnibus] might have been noncontroversial. . . . This little iceberg came along and caused them all sorts of problems."
Staff writer Paul Kane contributed to this report.
"Budget deficit reaches $765B in 5 months"
By Associated Press, Wednesday, March 11, 2009, www.bostonherald.com, Business & Markets
WASHINGTON — Lower tax revenue and massive government spending on the bank bailout pushed the federal deficit to $765 billion in the first five months of the budget year, well on its way to hitting the Obama administration’s projection of a record annual imbalance of $1.75 trillion.
The Treasury Department also said Wednesday that the February deficit reached $192.8 billion. That’s a record for the month and up 10 percent from a year ago, but below analysts’ expectations of $205.7 billion.
With seven months left in the current budget year, which ends Sept. 30, the deficit already has shattered last year’s record annual gap of $454.8 billion.
The huge deterioration in the government’s finances is due to the recession, which has cut into tax revenues, and the large amounts of money being spent from the $700 billion financial rescue plan that Congress passed in October.
The slow economy sharply reduced the government’s tax revenue last month to $87.3 billion, 17 percent below the previous year. The government has collected $860.8 billion in revenue through February, 11 percent below the year-ago period.
Spending, meanwhile, was flat last month at $280.1 billion. But total spending in the first five months of the budget year jumped 32 percent to $1.63 trillion compared with the same period last year.
The red ink this year also will reflect the $787 billion economic stimulus package that Congress passed last month in an effort to jump-start an economy in the grips of the worst recession in decades. None of that spending is included in the February figures.
The administration’s first budget projects the deficit will drop to $1.17 trillion in 2010, and then to $912 billion in 2011. It projects the deficit will plunge to $581 billion in 2012, and $533 billion in 2013, the year the administration has promised to cut the deficit in half.
But many private forecasters believe the deficit projections, gigantic as they are, will prove optimistic because the administration based them on economic assumptions that are too rosy. If the rebound from the current recession proves to be slower than the administration is currently forecasting, it will mean that tax revenues will be lower and future deficits higher.
Article URL: www.bostonherald.com/business/general/view.bg?articleid=1157896
"China Worried About U.S. Debt: Biggest Creditor Nation Demands A Guarantee"
By Anthony Faiola, Washington Post Staff Writer, Saturday, March 14, 2009; A01
Exerting its new influence as the U.S. government's largest creditor, China yesterday demanded that the Obama administration "guarantee the safety" of its $1 trillion in American bonds as Washington goes further into debt to combat the economic crisis.
Chinese Premier Wen Jinbao made the demand at the end of the National People's Congress in Beijing at a time when relations between the two nations show fresh signs of strain.
"We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets," Wen said. "To be honest, I am definitely a little worried."
China surpassed Japan last year as the largest foreign holder of Treasury bonds. Any indication that it intends to cease those purchases -- or, worse, stage a sell-off -- could drive up the cost of borrowing for the U.S. government, as well as send mortgage rates higher for millions of Americans.
That reality, experts say, has given China more leverage in its dealings with Washington, with some seeing Wen's comments yesterday as amounting to economic saber-rattling. The words came only days after a confrontation in international waters between a U.S. military ship and five Chinese vessels that sparked recriminations on both sides of the Pacific. Chinese officials have also signaled alarm over a growing "protectionist" sentiment in the U.S. Congress that could further endanger its exports, now in sharp decline as world demand spirals during the global economic crisis.
Those circumstances illustrate the pitfalls the Obama administration is facing as it charts its relationship with China. In January, for instance, the administration signaled that it would confront Beijing on the manipulation of its currency, the yuan, which has been kept artificially low against the U.S. dollar, making Chinese products cheaper around the world. Critics call that one of the major factors behind the U.S. trade deficit.
"The power that China now has is that its actions are seen as a leading indicator of the confidence that foreign investors will have in the ability of the U.S. government to pay the debt," said Eswar Prasad, senior fellow at the Brookings Institution. "These comments are saber-rattling in the sense that they are using that leverage to tell the U.S. to back off on currency policy and trade policy."
A number of Chinese officials have expressed concern about the future of Beijing's holdings of U.S. debt. American officials have sought to ease those concerns, effectively acknowledging the importance of China's role as Washington's banker. Last month, Secretary of State Hillary Rodham Clinton urged the Chinese to keep buying U.S. bonds. Asked about the increasingly jittery reaction in China to the rising U.S. debt, White House economic adviser Lawrence H. Summers yesterday defended the expensive policies that are forcing the nation to borrow a record $2.5 trillion this year, by White House estimates.
"In the short run, the need is to get the economy going again," Summers told a packed auditorium at the Brookings Institution, a Washington think tank. Summers acknowledged that fiscal stimulus and various financial-sector bailouts are forcing the nation to borrow massive sums, but the alternative, he said, would be much worse. "If deflation sets in, if the GDP collapses further . . . if that happens, the magnitude of the federal borrowing, as large as it is today, will be dwarfed. It will be far, far larger."
But concern is rising about the value of U.S. bonds. Though they remain the choice for investors seeking a safe haven in hard economic times, analysts are already murmuring about a possible downgrade on the rating of U.S. Treasurys in the future. The talk comes as Washington is issuing more debt and printing more dollars to stimulate the economy -- something that could bring down the value of the dollar in the months to come. That, in turn, would dilute the value of the U.S. dollar-denominated bonds held by the Chinese and other investors. Wen called on the United States to "maintain its good credit, to honor its promises and to guarantee the safety of China's assets."
Wen, however, stopped far short of saying China would cease purchasing Treasurys. Although analysts say China may already be moving to curb some purchases of U.S. debt, any move to sell off its current holdings would severely deflate their value on world markets -- hurting the Chinese as well as the Americans. Years of red-hot growth have allowed China to build up the world's largest reserves -- some $2 trillion. But analysts say almost half are held in U.S.-government-backed debt.
The White House sought to reassure global investors about the safety of U.S. Treasury securities. "There is no safer investment in the world than in the United States," White House spokesman Robert Gibbs said.
Longer-term Treasurys weakened slightly in trading after Wen's comments about soaring U.S. debt.
Additionally, it is not in China's interest to enter into economic confrontation with its largest client -- the United States -- particularly as its exports are in free fall worldwide. Though the Department of Commerce yesterday said the U.S. trade deficit narrowed 9.7 percent in January to its smallest level since October 2002, the deficit with China alone actually increased slightly, to $20.57 billion.
"I think what they're trying to say right now is, 'Don't take any steps that would impair our ability to access your market,' " said Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition, an organization of U.S. businesses critical of China's trade policies. "The Chinese are starting to flex their muscles, they are becoming more powerful commercially and economically, and they want us to know it."
Staff writers Lori Montgomery in Washington and Ariana Eunjung Cha in Shanghai contributed to this report.
"Obama budget will generate huge deficits, analysis finds: White House stands by spending plan"
By Andrew Taylor, Associated Press, March 21, 2009
WASHINGTON - Despite new estimates that say President Obama's budget would generate unsustainable deficits averaging almost $1 trillion a year, the White House insisted yesterday that the flood of red ink won't swamp its costly agenda.
The Congressional Budget Office figures released yesterday predict Obama's budget would produce federal deficits totaling $9.3 trillion between 2010 and 2019. That's $2.3 trillion higher than the administration predicted in its budget proposal just last month.
The CBO says the deficit under Obama's policies would never go below 4 percent of the size of the economy, figures that economists agree are unsustainable. By the end of the decade, the deficit would exceed 5 percent of gross domestic product, a dangerously high level.
The latest figures throw a major monkey wrench into efforts to enact Obama's budget, which promises universal healthcare, and higher spending for domestic programs such as education and renewable energy.
The dismal deficit figures, if they prove to be accurate, inevitably raise the prospect that Obama and his allies controlling Congress would have to consider raising taxes after the recession ends or else pare back his agenda.
White House budget chief Peter Orszag said that CBO's economic projections are more pessimistic than those of the White House, private economists, and the Federal Reserve, and that he remained confident that Obama's budget, if enacted, would produce smaller deficits.
Even so, Orszag acknowledged that if the CBO projections prove accurate, Obama's budget would produce deficits that could not be sustained.
"Deficits in the, let's say, 5 percent of GDP range would lead to rising debt-to-GDP ratios that would ultimately not be sustainable," Orszag told reporters.
Deficits so big put upward pressure on interest rates as the government offers more attractive rates to attract borrowers. "It will lead to higher interest rates to the point where it will force policymakers to make changes," said economist Mark Zandi, chief economist at moodyseconomy.com.
Republicans immediately seized on the numbers. They say Obama's budget plan taxes, spends, and borrows too much, and they have been sharply critical of his $787 billion economic stimulus measure and a just-passed $410 billion spending bill that gave big increases to domestic agency budgets.
"This report should serve as the wake-up call this administration needs," said House GOP leader John Boehner of Ohio. "We simply cannot continue to mortgage our children and grandchildren's future to pay for bigger and more costly government."
But Obama insisted yesterday that his agenda is still on track. "What we will not cut are investments that will lead to real growth and prosperity over the long term," he said.
Obama's allies in Congress and among liberal and labor advocacy groups agreed, asserting that the worsening deficit figures show the need for the sweeping change and that the way to dig out from all the red ink is to make costly investments.
"The best way to reduce the deficit is to grow our economy; the best way to grow our economy is to act on the priorities in the president's budget," House Speaker Nancy Pelosi said in a statement. She said she expects the Democrat-controlled House to approve "a budget resolution that reflects the president's priorities and will help usher in a new era of job creation and lasting prosperity for the American people."
Obama's $3.6 trillion budget for the 2010 fiscal year beginning Oct. 1 contains ambitious programs to overhaul the healthcare system and initiate new "cap-and-trade" rules to combat global warming.
Both initiatives involve raising federal revenues sharply higher, but those dollars wouldn't be used to defray the burgeoning deficit and would instead help pay for Obama's health plan and implement Obama's $400 tax credit for most workers and $800 for individuals.
Many Democrats were already uncomfortable with Obama's budget, which promises to cut the deficit to $533 billion in five years. The CBO says the red ink for that year will total $672 billion.
Most disturbing to Obama allies, including Senate Budget Committee Chairman Kent Conrad, are the longer-term projections, which climb above $1 trillion again by the end of the next decade and approach 6 percent by 2019.
Among about a dozen major changes to Obama's budget, Conrad is looking to curb Obama's 9 percent increase for non-defense appropriations to show short-term progress.
He insists that the long-term deficit and debt crisis will have to be addressed via a special bipartisan commission.
"The budget that I'll submit will cut the deficit by more than two-thirds over these first five years," Conrad. "These imbalances are just absolutely unsustainable."
The worsening economy is responsible for the even deeper fiscal mess inherited by Obama.
As an illustration, CBO says the deficit for the current budget year, which began Oct. 1, will top $1.8 trillion, $93 billion more than foreseen by the White House. That would equal 13 percent of GDP, a level not seen since World War II.
"Federal budget deficit sets March record $192.3B"
By Martin Crutsinger, Ap Economics Writer, April 10, 2009
WASHINGTON – The Treasury Department said Friday that the budget deficit increased by $192.3 billion in March, and is near $1 trillion just halfway through the budget year, as costs of the financial bailout and recession mount.
Last month's deficit, a record for March, was significantly higher than the $150 billion that economists expected.
The deficit already totals $956.8 billion for the first six months of the budget year, also a record for that period. The Obama administration projects the deficit for the entire year will hit $1.75 trillion.
A deficit at that level would nearly quadruple the previous annual record of $454.8 billion set last year. The March deficit was nearly four times the size of the imbalance in the same month last year.
Nearly $300 billion provided to the nation's banks and other companies to cope with the most severe financial crisis in seven decades has pushed government spending higher.
The Treasury report said that through the end of March, $293.4 billion had been provided to support companies through the $700 billion bailout fund Congress passed last October. That support has been provided primarily to banks, although insurance giant American International Group Inc. and auto companies General Motors Corp. and Chrysler LLC also have received assistance.
Besides the bailout fund, Fannie Mae and Freddie Mac received $46 billion last month, bringing the total assistance provided to the mortgage finance companies to $59.8 billion since October. The government took control of both last September after they had suffered billions of dollars in losses on mortgage loans.
Through the first six months of the budget year that began Oct. 1, tax revenues have totaled $989.8 billion, down 13.6 percent from the year-ago period. The government's receipts have been reduced sharply by the recession, which is shaping up to be the longest of the post World War II period. The downturn began in December 2007.
Government outlays totaled $1.95 trillion through March, 33.4 percent higher than the year-ago period. Besides higher payments for the financial rescue, the government is paying more in such areas as unemployment benefits and food stamps.
The Treasury report showed benefit payments from the unemployment trust fund totaled $44.6 billion so far this budget year, up from $19.4 billion last year.
The Congressional Budget Office estimated last month that President Barack Obama's budget proposals would produce $9.3 trillion in deficits over the next decade, a figure $2.3 trillion higher than estimates made in February in the administration's first budget proposal.
The CBO review projected Obama's budget would generate deficits averaging almost $1 trillion annually over the decade ending in 2019.
The administration said it remained confident its forecasts for declining deficits over that same period could be achieved. But private economists have faulted those estimates for relying on economic assumptions they believe are too optimistic.
The administration projects that after hitting $1.75 trillion this year, the gap between spending and tax revenues will dip to $1.17 trillion in 2010, and plunge to $533 billion in 2013. If accurate, that would fulfill Obama's pledge to cut the deficit he inherited in half by the end of his current term in office.
Some economists have expressed concerns that the massive deficits being forecast could push interest rates up sharply, especially if foreign investors worry about the size of the U.S. deficit projections.
Lawrence Summers, director of Obama's National Economic Council, said Thursday there have been no indications that investors are growing worried about the size of the deficits. On the contrary, he said yields on Treasury securities have been pushed lower by increased demand from investors seeking to hold Treasury bonds as a safe haven in uncertain economic times.
"Revealing tax protest mathematics"
The Berkshire Eagle, Letters, Tuesday, April 14, 2009
The demonstration on Wednesday (4/15) over taxes manifests the frustration that many people have over our government's priorities. We seem to pay out an awful lot in taxes, but don't seem to get much in return.
We should consider the budget before jumping to rash conclusions. The federal government recently published its proposed budget for 2010.
The federal budget has two basic expenditures, discretionary and mandatory. Mandatory spending includes programs required by legislation, primarily Social Security, Medicare, and Medicaid. Mandatory spending also includes interest payments on the debt. Discretionary spending covers the basic day-to-day operating costs of the government, encompassing expenditures for everything from subsidizing school lunches, maintaining the nation's parks, funding our court system to securing our borders. This is the portion of the budget Congress debates.
In the 2010 budget, mandatory spending will be $2.014 trillion, excluding the $178 billion debt service. Discretionary spending will be $1.403 trillion. The portion of this part of the budget dedicated to the Department of Defense will be $728 billion, leaving $675 billion to fund the balance of the federal government. Note that the Defense Department has received more than 50 percent of the discretionary budget for years.
Expressed more simply, when we pay a dollar in taxes, the government will use $0.56 to cover mandatory spending, $0.05 for debt service, $0.20 to the Department of Defense, and $0.19 to fund all the other federal programs.
So, standing on April 15 to protest the budget, if you believe we must fund the Defense Department to the extent we do, you're protesting over $0.19.
"More Funds Sought for Iraq and Afghanistan"
By Mary Beth Sheridan and Scott Wilson, Washington Post Staff Writers, Friday, April 10, 2009; A04
President Obama sent Congress an $83.4 billion spending request yesterday to fund his administration's strategies in Iraq and Afghanistan through the summer, in what officials promised would be the last such off-budget proposal to pay for the wars.
Obama has pledged to send more troops and diplomats to turn around the faltering Afghan effort, while drawing down U.S. troops in Iraq through next year.
Administration officials and others have derided the use of emergency troop-funding bills, noting that they are not subject to usual budget ceilings and often have been rushed through Congress. Since September 2001, Congress has approved 17 emergency funding measures for the two wars, for a total of $822 billion, the White House said.
"We must break that recent tradition and include future military costs in the regular budget so that we have an honest, more accurate and fiscally responsible estimate of federal spending," Obama said in a letter to House Speaker Nancy Pelosi (D-Calif.) that accompanied the request.
White House press secretary Robert Gibbs said the special measure was needed because the conflicts in Iraq and Afghanistan had been funded through only half of the fiscal year.
"This will be the last supplemental for Iraq and Afghanistan," he said.
Obama urged lawmakers not to add "unnecessary spending" to the measure and to return it to him quickly. Congressional staffers said the White House asked lawmakers to pass the bill by Memorial Day.
Some antiwar Democrats were expected to balk at the multibillion-dollar request. But the measure was expected to pass with support from most Republicans and many Democrats.
"I believe that there is very broad bipartisan support in the Congress for the decisions the president has made with respect to both Iraq and Afghanistan," Defense Secretary Robert M. Gates told reporters yesterday. "The alternative to the supplemental is a sudden and precipitous withdrawal [of U.S. troops] . . . from both places."
House Minority Leader John A. Boehner (R-Ohio) said his party is "ready to work with the president to again ensure quick passage of a clean troop-funding bill. Micromanaging the wars in Iraq or Afghanistan from the U.S. Capitol is a recipe for disaster, and I hope my Democratic colleagues understand that."
But Rep. Lynn Woolsey (D-Calif.), the co-chairman of the Congressional Progressive Caucus, said the proposal will "prolong our occupation of Iraq through at least the end of 2011, and it will deepen and expand our military presence in Afghanistan indefinitely. I cannot support either of these scenarios."
Nearly $76 billion of the request would go to the Defense Department, while about $7 billion would be sent to the State Department and the U.S. Agency for International Development, according to the White House Office of Management and Budget.
While most of the emergency funding is designated for military equipment and operations, the request also includes $1.6 billion for economic help and a "surge" of diplomatic and civilian personnel for Afghanistan, part of Obama's recently announced strategy for tackling the conflict there. The White House also asked for $1.4 billion for economic assistance and more diplomats and development experts for Pakistan.
The document seeks $800 million to strengthen the Palestinian Authority and assist people affected by the crisis in Gaza, and $400 million to address the impact of the financial crisis in developing countries. It includes nearly $90 million to safeguard "loose nukes" worldwide and dismantle North Korea's plutonium program. About $30 million would go toward closing the military prison at Guantanamo Bay, Cuba, and a review of U.S. procedures there.
The request also calls for $66 million, recently announced by Secretary of State Hillary Rodham Clinton, to help buy three helicopters for Mexican anti-drug efforts.
If the request is approved, the total emergency funding for the wars in 2009 would be about $150 billion, compared with $171 billion in 2007 and $188 billion in 2008.
Staff writer Paul Kane and researcher Julie Tate contributed to this report.
"Deficit Nears $1 Trillion, Sets Records"
By Martin Crutsinger, Associated Press, The Washington Post (Online) - A06, Saturday, April 11, 2009
The Treasury Department said yesterday that the budget deficit increased by $192.3 billion in March and is near $1 trillion just halfway through the budget year, as the costs of the financial bailout and the recession mount.
Last month's deficit, a record for March, was significantly higher than the $150 billion that economists expected and nearly four times the size of the imbalance in the same month last year.
The deficit totals $956.8 billion for the first six months of the budget year, also a record for that period. The Obama administration projects that the deficit for the entire year will hit $1.75 trillion. That would nearly quadruple the previous annual record of $454.8 billion, set last year.
Nearly $300 billion provided to banks and other companies to cope with the most severe financial crisis in seven decades has pushed government spending higher. The Treasury report said that through the end of March, $293.4 billion had been provided to support companies through the $700 billion bailout fund passed in October.
Besides the bailout fund, Fannie Mae and Freddie Mac received $46 billion last month, bringing the total assistance provided to the mortgage finance companies to $59.8 billion since October. The government took control of both in September after they lost billions of dollars on mortgage loans.
Through the first six months of the budget year that began Oct. 1, tax revenue has totaled $989.8 billion, down 13.6 percent from the year-ago period. The government's receipts have been reduced sharply by the recession, which is shaping up to be the longest of the post-World War II period. The downturn began in December 2007.
Government outlays totaled $1.95 trillion through March, 33.4 percent higher than the year-ago period. Besides payments for the financial rescue, the government is spending more in such areas as unemployment benefits and food stamps.
The Treasury report showed that benefit payments from the unemployment trust fund totaled $44.6 billion so far this budget year, up from $19.4 billion last year.
"Analysis: Deficit threatens Obama's popularity"
By Jennifer Loven And Liz Sidoti, Associated Press Writers, Thursday, June 18, 2009
WASHINGTON – The solid armor of President Barack Obama's popularity may have a crack — a nearly $2 trillion-sized one.
There's continued and considerable public restiveness over eye-popping federal budget deficits, a potential danger for both Obama's ambitious agenda and his political fortunes.
About $1.3 trillion when Obama took office, this year's deficit now is on track to soar to a record $1.85 trillion after his massive influx of federal spending to stimulate the moribund economy, help struggling homeowners, stabilize frozen credit markets and bail out troubled banks, automakers and insurers.
With those actions, Obama has greatly expanded the government's reach — and, polls say, stoked people's concerns.
From the start, Obama has been sensitive about skyrocketing deficits. He's grown only more so lately.
Shortly after his November election, the president-elect said: "We shouldn't worry about the deficit next year or even the year after" because righting the economy should take precedence. Seven months later, he declared that the deficit problem "keeps me awake at night."
He's mindful of this: The public's lingering wariness over a government plunging deeper into the red threatens to turn into a major liability. As he said in April: "We also have a deficit — a confidence gap — when it comes to the American people."
Recent polls indicate as much.
The nonpartisan Pew Research Center reported Thursday that a majority of Americans — 55 percent — are optimistic that Obama will eventually reduce the budget deficit. But that's a smaller slice than the 61 percent of people who approve of him generally.
And according to a new New York Times/CBS News poll, 60 percent of Americans don't believe the president has a strategy for dealing with the deficit.
Also, 58 percent in an NBC/Wall Street Journal poll want Obama to make controlling the deficit a higher priority than a speedy economic recovery. And, nearly half expressed a "great deal" of concern about the increase of government intervention in American life that Obama has overseen, from taking over companies to influencing corporate bonuses and seeking to add government-sponsored insurance to the health care system.
Those growing more wary are mostly political independents, the fickle swing voters who decide close elections. They were critical to the winning coalition Obama assembled last fall and certainly will be critical again if he runs in 2012.
In the nearer term, if voters turn on Obama, it could threaten the Democrats' comfortable majority in Congress and make it difficult for the president to secure approval for his ambitious proposals to overhaul health care, revamp energy policy and institute sweeping economic reforms. Democrats up for re-election in 2010 will gladly attach themselves to Obama if he's successful — but they also will just as quickly distance themselves from him amid failure.
So far, the reservoir of concern hasn't dragged down Obama's overall approval ratings. Despite disappointing economic progress and international turmoil, solid majorities still view the president favorably and larger numbers than in years say the country is on the right track. And, for now at least, people blame former President George W. Bush for the deficit more than they blame Obama, by far.
But the GOP senses a rare opportunity for a potent message against the popular president. Republicans are hammering Obama as a big-spending, big-government, big-deficit leader.
Democrats argue the public's anxiety is temporary.
"We're in an intermediate period where people have seen government take action but they haven't seen the impact yet. They will," said Matt Bennett, vice president of the centrist Democratic group Third Way. "The concerns will drop when it starts looking like the government's action is helping their families and communities."
Not wanting to chance it, the White House repeatedly looks for ways to stress its commitment to reducing both deficits and government intervention.
Obama has promised to cut the deficit by half within his four-year term. He also focuses just as much on the need to drastically cut the expense of health care as he does on expanding coverage. He pledges at every turn that he won't accept any plan that increases the deficit. Expect this to continue as the debate heats up into the summer and fall.
Critics have mocked some of his efforts.
Using his first formal Cabinet meeting in April for a frugality push, Obama gave agency chieftains 90 days to find $100 million in savings. Calculators immediately revealed the figure as a pittance representing just one-twentieth of 1 percent of the federal deficit for March alone.
Last week, he proposed requiring Congress to pay for new spending programs and tax cuts without further exploding deficits. It was quickly criticized as significantly weaker than a "pay-as-you-go" proposal Obama had put forth just a month before that carved out trillions in exceptions and extended the timeframe.
It's also not clear the public will buy Obama's pledge that a health care overhaul won't be a budget-buster. The estimated price tag is shockingly huge — $1 trillion over 10 years by Obama's estimation and $1.6 trillion for one bill under serious consideration.
The White House strategy is to take the long view, hoping that pushing ahead with the kind of policies on which Obama campaigned will win him points with voters and that the economy will right itself in time for public ire to fade.
"The president would tell you that he's going to do what he thinks is in the best interest of the American economy," White House press secretary Robert Gibbs said. "Some of those things will be ... more popular than others."
EDITOR'S NOTE — Loven is the AP's chief White House correspondent. Sidoti has covered national politics for the AP since 2003. AP Polling Director Trevor Tompson
contributed to this report.
"Budget deficit tops $1 trillion for first time"
By Martin Crutsinger, AP Economics Writer, July 13, 2009
WASHINGTON – Nine months into the fiscal year, the federal deficit has topped $1 trillion for the first time.
The imbalance is intensifying fears about higher interest rates and inflation, and already pressuring the value of the dollar. There's also concern about trying to reverse the deficit — by reducing government spending or raising taxes — in the midst of a harsh recession.
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 nearly $1.1 trillion.
The deficit has been propelled by the huge sum the government has spent to combat the recession and financial crisis, combined with a sharp decline in tax revenues. Paying for wars in Iraq and Afghanistan also is a major factor.
The country's soaring deficits are making Chinese and other foreign buyers of U.S. debt nervous, which could make them reluctant lenders down the road. It could 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."
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 and a $787 billion economic stimulus package to try and jump-start a recovery, and there is growing talk among some Obama administration officials that a second round of stimulus may be necessary.
This 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 other administration officials, including Treasury Secretary Timothy Geithner, have said the U.S. is committed to bringing down the deficits once the country has emerged from the current recession and financial crisis.
"Geithner: Lower deficit key to sustaining recovery"
By Richard Lardner, Associated Press Writer, Sunday, August 2, 2009
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."
"Geithner Asks Congress for Higher U.S. Debt Limit: U.S. Treasury Secretary Timothy Geithner formally requested that Congress raise the $12.1 trillion statutory debt limit on Friday, saying that it could be breached as early as mid-October."
By David Lawder, Reuters, August 7, 2009
WASHINGTON - U.S. Treasury Secretary Timothy Geithner formally requested that Congress raise the $12.1 trillion statutory debt limit on Friday, saying that it could be breached as early as mid-October.
"It is critically important that Congress act before the limit is reached so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations," Geithner said in a letter to Senate Majority Leader Harry Reid that was obtained by Reuters.
A Treasury spokeswoman declined to comment on the letter.
Treasury officials earlier this week said that the debt limit, last raised in February when the $787 billion economic stimulus legislation was passed, would be hit sometime in the October-December quarter. Geithner's letter said the breach could be two weeks into that period, just as the 2010 fiscal year is getting underway.
The latest request comes as the Treasury is ramping up borrowing to unprecedented levels to fund stimulus and financial bailout programs and cope with a deep recession that has devastated tax revenues.
It is expected to issue net new debt of as much as $2 trillion in the 2009 fiscal year ended September 30 and up to $1.6 trillion in the 2010 fiscal year, according to bond dealer forecasts.
The request to increase the debt limit will likely raise the ire of Republicans who have accused President Barack Obama of runaway spending. They may try to hold up the legislation in effort to win concessions on Obama's health care reform plan.
Geithner urged Reid to not let politics hamper U.S. credit-worthiness and said he looked forward to working with the Nevada Democrat to secure enactment of legislation on the debt limit as early as possible.
"Congress has never failed to raise the debt limit when necessary. Because members of both parties have long recognized the need to keep politics away from this issue, these actions have traditionally received bipartisan support," he wrote. "This is clearly a moment in our history that calls for continuation of that tradition."
(Reporting by David Lawder; editing by Carol Bishopric)
Wednesday afternoon, August 12, 2009
Breaking News from ABCNEWS.com:
Federal Deficit Tops $1.27 Trillion, a New Record
"Buffett says unchecked U.S. debt threatens economy: report"
August 19, 2009
WASHINGTON (Reuters) – Billionaire investor Warren Buffett said the U.S. economy has avoided a meltdown and appears on a slow path to recovery, but Congress must now deal with enormous amounts of debt that threaten to erode U.S. purchasing power.
In an opinion column published on Wednesday by the New York Times, Buffett wrote that he "resoundingly applauds" actions by the Federal Reserve and the Bush and Obama administrations to pump trillions of dollars into the financial system.
But the "gusher of federal money" has run up a high level of debt that could fuel inflation, he said.
"The United States economy is now out of the emergency room and appears to be on a slow path to recovery," Buffett wrote.
"But enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects. For now, most of those effects are invisible and could indeed remain latent for a long time. Still, their threat may be as ominous as that posed by the financial crisis itself."
Buffett, who runs insurance and investment company Berkshire Hathaway Inc, likened the economic threat of "greenback emissions" to the environmental threat of greenhouse gas emissions, leaving the United States with a deficit of $1.8 trillion or 13 percent of gross domestic product this year.
In July, the government posted a $180.68 billion monthly budget deficit, a record for July, marking only the third time in the past 30 years that the government ran a deficit for 11 months in a row.
Buffett said a revived economy will not be able to generate enough revenues to bridge the gap between outlays and receipts, so changes in taxes and spending will be required.
Politicians will not likely have the will to raise taxes or slow spending, so they may opt to quietly let inflation increase, a move that will "confiscate" wealth and allow the United States to evolve into a "banana republic economy", he said.
"Our immediate problem is to get our country back on its feet and flourishing -- 'whatever it takes' still makes sense," Buffet said in the paper.
But once recovery is gained, Congress must end the rise in the debt-to-GDP ratio and keep its growth in obligations in line with its growth in resources, he wrote.
"Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollar's destiny lies with Congress," he said.
Last month, in a newspaper column of his own, Federal Reserve chairman Ben Bernanke, said the huge amounts of money the U.S. central bank has pumped into the economy will not undercut its ability to push borrowing costs higher when the time is ripe.
Stressing that the weak U.S. economy will likely warrant exceptionally easy monetary policies for a long time to come, Bernanke outlined in a Wall Street Journal opinion article how the Fed could raise interest rates even with cash flooding the financial system.
"At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road," Bernanke wrote.
The outline of the Fed's "exit strategy" from the extraordinary monetary policy easing it has undertaken in the past two years to deal with the global financial crisis was the subject of testimony to Congress by Bernanke in his twice-a-year economic report on July 21.
(Reporting by David Lawder in Washington and S. John Tilak in Bangalore)
"The Greenback Effect"
By WARREN E. BUFFETT, Op-Ed Contributor, The New York Times, August 19, 2009
IN nature, every action has consequences, a phenomenon called the butterfly effect. These consequences, moreover, are not necessarily proportional. For example, doubling the carbon dioxide we belch into the atmosphere may far more than double the subsequent problems for society. Realizing this, the world properly worries about greenhouse emissions.
The butterfly effect reaches into the financial world as well. Here, the United States is spewing a potentially damaging substance into our economy — greenback emissions.
To be sure, we’ve been doing this for a reason I resoundingly applaud. Last fall, our financial system stood on the brink of a collapse that threatened a depression. The crisis required our government to display wisdom, courage and decisiveness. Fortunately, the Federal Reserve and key economic officials in both the Bush and Obama administrations responded more than ably to the need.
They made mistakes, of course. How could it have been otherwise when supposedly indestructible pillars of our economic structure were tumbling all around them? A meltdown, though, was avoided, with a gusher of federal money playing an essential role in the rescue.
The United States economy is now out of the emergency room and appears to be on a slow path to recovery. But enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects. For now, most of those effects are invisible and could indeed remain latent for a long time. Still, their threat may be as ominous as that posed by the financial crisis itself.
To understand this threat, we need to look at where we stand historically. If we leave aside the war-impacted years of 1942 to 1946, the largest annual deficit the United States has incurred since 1920 was 6 percent of gross domestic product. This fiscal year, though, the deficit will rise to about 13 percent of G.D.P., more than twice the non-wartime record. In dollars, that equates to a staggering $1.8 trillion. Fiscally, we are in uncharted territory.
Because of this gigantic deficit, our country’s “net debt” (that is, the amount held publicly) is mushrooming. During this fiscal year, it will increase more than one percentage point per month, climbing to about 56 percent of G.D.P. from 41 percent. Admittedly, other countries, like Japan and Italy, have far higher ratios and no one can know the precise level of net debt to G.D.P. at which the United States will lose its reputation for financial integrity. But a few more years like this one and we will find out.
An increase in federal debt can be financed in three ways: borrowing from foreigners, borrowing from our own citizens or, through a roundabout process, printing money. Let’s look at the prospects for each individually — and in combination.
The current account deficit — dollars that we force-feed to the rest of the world and that must then be invested — will be $400 billion or so this year. Assume, in a relatively benign scenario, that all of this is directed by the recipients — China leads the list — to purchases of United States debt. Never mind that this all-Treasuries allocation is no sure thing: some countries may decide that purchasing American stocks, real estate or entire companies makes more sense than soaking up dollar-denominated bonds. Rumblings to that effect have recently increased.
Then take the second element of the scenario — borrowing from our own citizens. Assume that Americans save $500 billion, far above what they’ve saved recently but perhaps consistent with the changing national mood. Finally, assume that these citizens opt to put all their savings into United States Treasuries (partly through intermediaries like banks).
Even with these heroic assumptions, the Treasury will be obliged to find another $900 billion to finance the remainder of the $1.8 trillion of debt it is issuing. Washington’s printing presses will need to work overtime.
Slowing them down will require extraordinary political will. With government expenditures now running 185 percent of receipts, truly major changes in both taxes and outlays will be required. A revived economy can’t come close to bridging that sort of gap.
Legislators will correctly perceive that either raising taxes or cutting expenditures will threaten their re-election. To avoid this fate, they can opt for high rates of inflation, which never require a recorded vote and cannot be attributed to a specific action that any elected official takes. In fact, John Maynard Keynes long ago laid out a road map for political survival amid an economic disaster of just this sort: “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.... The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
I want to emphasize that there is nothing evil or destructive in an increase in debt that is proportional to an increase in income or assets. As the resources of individuals, corporations and countries grow, each can handle more debt. The United States remains by far the most prosperous country on earth, and its debt-carrying capacity will grow in the future just as it has in the past.
But it was a wise man who said, “All I want to know is where I’m going to die so I’ll never go there.” We don’t want our country to evolve into the banana-republic economy described by Keynes.
Our immediate problem is to get our country back on its feet and flourishing — “whatever it takes” still makes sense. Once recovery is gained, however, Congress must end the rise in the debt-to-G.D.P. ratio and keep our growth in obligations in line with our growth in resources.
Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollar’s destiny lies with Congress.
Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.
"AP source: Deficit to be $1.58 trillion this year"
By Philip Elliott and Jim Kuhnhenn, Associated Press Writers, August 19, 2009
WASHINGTON --The White House plans to announce the federal deficit will be about $262 billion less than officials predicted earlier this year -- in part because the administration has provided less aid than expected to Wall Street.
The federal deficit this year will total $1.58 trillion, a senior White House official said late Wednesday. That's three times more red ink than last year. The official spoke on the condition of anonymity to discuss the report before its release next Tuesday while President Barack Obama will be on vacation in Massachusetts.
The nonpartisan Congressional Budget Office is expected to release its mid-session review the same day. It estimated in June that it expected a deficit of $1.825 trillion.
The report for the budget year that ends Sept. 30 also will predict Washington to spend $3.653 trillion this year, the official said. Revenue, however, would reach only $2.074 trillion.
The new deficit numbers are record shattering, but would give the administration the opportunity to say that its policies have avoided a more extreme financial crisis and eliminated the need for further bank infusions.
Still, the deficit amount is a tremendous obstacle for an administration trying to undertake massive policy overhauls in health care and the environment.
"Whether it's $1.6 trillion or $1.8 trillion, it's pretty bad," said Robert Bixby, executive director of the bipartisan fiscal watchdog The Concord Coalition. "I hope no one tries to spin that as good news."
But Stan Collender, a former congressional budget staffer, said the White House's new deficit numbers can't be blamed on Obama. Collender, now with Qorvis Communications, a Washington consulting firm, noted that when President George W. Bush left office the deficit estimate for this fiscal year was $1.2 trillion and that didn't include a tax adjustment and additional spending for operations in Iraq and Afghanistan, approved this year, that Bush also would have sought.
The midsummer report was supposed to have been released in mid-July, but was delayed, leading to speculation the White House was delaying the bad news until Congress left on an August recess. Other administrations delayed releasing their versions of this report during their first year.
Obama's budget had included a $250 billion placeholder for a second bailout of the nation's troubled banks but he did not ask Congress for it amid concerns the administration was spending too heavily. The administration also had anticipated more banks failing, but the survival of most banks saved billions for Washington.
The report comes during a rough patch for Obama's presidency. The rancor surrounding the Democrats' proposed health care overhaul came during a monthlong break when much of Washington is in a lull.
The administration earlier this year predicted that unemployment would peak at about 9 percent without a big stimulus package and 8 percent with one. Congress did pass a $787 billion two-year stimulus measure, yet unemployment soared to 9.4 percent in July and appears headed for double digits. Most of that stimulus will occur in the coming fiscal year.
The nation's debt now stands at $11.7 trillion. In the scheme of things, that's more important than talking about the deficit, which only looks at a one-year slice of bookkeeping and ignores previous debt that is still outstanding.
Economists predict that an improved economic climate could help reduce the deficit in the 2010 fiscal year to $1.3 trillion, though White House economists had forecast a slightly smaller figure of $1.26 for the next fiscal year. Obama has promised to reduce the budget deficit to $512 billion in the 2013 fiscal year.
"The deficit is obviously very large and a problem," said economist Mark Zandi of Moody's Economy.com. "But it's not quite as bad as what expectations were a few months ago."
Earlier this year, Zandi, whose observations are frequently cited by administration and congressional officials, had predicted that the administration would have to get congressional approval for additional rescue funds for financial institutions.
"It's working out better than I anticipated," he said.
(This version CORRECTS the projected deficit in 2013 to $512 billion, not $533 billion.)
"Obama to hike 10-year deficit to $9 trillion"
By Reuters, August 21, 2009
The Obama administration will raise its 10-year budget deficit projection to roughly $9 trillion from $7.108 trillion in a report next week, a senior administration official told Reuters Friday.
"The new forecasts are based on new data that reflect how severe the economic downturn was in the late fall of last year and the winter of this year," said the official, who is familiar with the plans.
"Our budget projections are now in line with the spring and summer projections that the Congressional Budget Office put out."
The CBO said in June that deficits between 2010 and 2019 would total $9.1 trillion. The official said the 2010-2019 cumulative deficit projection replaces the administration's previous estimate of $7.108 trillion.
The record-breaking deficits have raised concerns about U.S. ability to finance that debt and whether the United States can maintain its top-tier AAA credit rating.
The United States relies on large foreign buyers such as China and Japan to cheaply finance its debt, and they may demand higher interest rates if they begin to doubt that the government can control its deficits.
The White House budget office is also expected to lower its deficit forecast next week for the current fiscal year to $1.58 trillion from $1.84 trillion after removing $250 billion set aside for bank bailouts.
"The Man Who Sells America’s I.O.U.’s"
By ROBERT PEAR, The New York Times, August 24, 2009
WASHINGTON — The brightly illuminated room looks like mission control for a space flight. Seven people, wearing headphones, stare intently at computer screens. Three minutes before the deadline, a disembodied voice exclaims, “We have coverage.”
This is no shuttle launch. It is an auction of United States Treasury securities, and $32 billion has just been sold in a blink. It was another successful operation for Van Zeck, the commissioner of the public debt, who has the world’s biggest credit card.
Mr. Zeck has worked for the federal government for 38 of his 60 years. He is a very busy man these days because the government is floating on a sea of red ink, as it borrows more and more money to stimulate the economy, bail out banks, shore up auto companies, aid struggling homeowners and fight foreign wars.
In a city full of pompous politicians and bombastic bureaucrats, Mr. Zeck quietly runs one of the government’s truly indispensable operations. He is not a policy maker. He does not decide how much to borrow. He just makes sure the money is borrowed, in a regular and predictable way, at the lowest possible cost to the government over time.
“We are the back office, the plumbing,” Mr. Zeck said. “We are borrowing a ton of money. It has to be done right.”
Public attention will focus on the debt this week because the White House and the Congressional Budget Office plan to issue dueling estimates of federal spending and revenue for the next 10 years. In a preview, the White House said Friday that it saw the cumulative total of deficits over the next 10 years adding up to $9 trillion, or $2 trillion more than it anticipated in February. That means much more government borrowing.
Last year alone, Mr. Zeck auctioned off $5.5 trillion of Treasury securities, to replace maturing debt and to meet new borrowing needs. Wall Street dealers expect the figure to exceed $8 trillion this year — an average of more than $253,000 every second.
In the first eight months of the current fiscal year, the government issued more Treasury bills, notes and bonds than in all of last year. Mr. Zeck expects to conduct more than 280 auctions this year, up from 263 last year and about 220 a year from 2004 to 2007.
Mr. Zeck and his colleagues have a passion for precision. They keep track of federal debt to the penny.
Debt held by the public stood at $3.4 trillion when President George W. Bush took office in 2001. When President Obama was inaugurated in January, the debt was $6.3 trillion. Since then, it has grown by $1 trillion, to $7.3 trillion.
When Mr. Zeck tells people he works at the Bureau of the Public Debt, he said, they often quip, “You will have work forever.”
Even when the economy begins to expand, the bureau will still have plenty to do, as tax receipts typically lag in a recovery. Moreover, the government will need to borrow money to help finance entitlement programs for baby boomers.
Mr. Obama’s budget predicts that debt held by the public will soar, exceeding 60 percent of the gross domestic product in a few years. The share has never exceeded 50 percent in the last 50 years.
“Debt as a percentage of G.D.P. is rising and nearing a postwar high,” the Treasury said this month.
Treasury auctions are an arcane business, and Mr. Zeck runs them so smoothly that Treasury secretaries and Congress rarely interfere. Mr. Zeck said he had not been called to testify before Congress in about 15 years.
Other agencies have lost track of large sums because their financial records were a mess. “That’s just not acceptable to us,” Mr. Zeck said.
Referring to the accountants who keep a daily tally of the federal debt, Mr. Zeck said: “These are people who reconcile their checkbooks. The idea of missing a penny would drive them crazy.”
Treasury auctions have become larger and more frequent. The auction calendar is extremely crowded. On almost every work day, the Treasury is announcing, conducting or settling auctions.
“Historically,” Mr. Zeck said, “we did not do auctions on Fridays. But now we are doing some.”
In February, the Treasury announced it was bringing back the seven-year note, for the first time since 1993, and it doubled the number of 30-year bond auctions, to eight a year. Just three months later, it announced a further increase in the frequency of 30-year bond auctions, to 12 a year.
On Aug. 5, the Treasury told investors they “should expect auction sizes to continue to rise in a gradual manner over the medium term.”
When Treasury officials plan these auctions, they try to keep the size and mix of securities predictable for investors and prevent any surprises that could disrupt the market and thereby increase borrowing costs.
Mr. Zeck, who received the government’s highest civil service award 10 years ago, borrows huge sums from big investors on Wall Street and around the world. But he is also mindful of small investors who entrust their retirement savings to the government.
“We have a fiduciary responsibility to individuals who have invested $1,000 or $5,000 or $10,000 in savings bonds and other Treasury securities,” Mr. Zeck said.
The Treasury installed a completely automated electronic auction system in April 2008, just in time for the surge in borrowing.
“From an operational standpoint,” Mr. Zeck said, “it’s just about as easy to sell $30 billion as $20 billion” of government securities.
Federal officials have been pleasantly surprised to see the demand for Treasury securities keep pace with the growing supply. Invariably, they get “coverage,” meaning that the bids exceed the amount of securities being offered — a great relief to federal money managers. When the government auctioned $32 billion of four-week Treasury bills last week, the bids totaled $114 billion.
Foreign investors have generally shown a strong appetite for federal debt. China, the largest foreign holder of Treasury securities, sent a chill through credit markets in March when its prime minister said he was “a little bit worried” about China’s investments in the United States. The Treasury secretary, Timothy F. Geithner, quickly assured the Chinese that their assets were “very safe” here.
The federal government enjoys economies of scale, and it is borrowing on a scale never seen before, so the cost per auction has gone down slightly. The cost of running a Treasury auction — an average of $237,636 per auction — is tiny compared with the amounts borrowed. The cost includes safety precautions to make sure auctions are not disrupted by power failures, terrorism, cyberattacks, natural disasters or pandemic illness.
When Mr. Zeck began working for the Bureau of the Public Debt in 1971, he never expected to be there 38 years later.
“I love the organization,” Mr. Zeck said. “Somewhere along the way, I got captured by it, captured by the mission and the customer service we were able to provide, and I realized that I was an operations guy. That’s what I really enjoyed.”
Even when the government runs a surplus, as it did from 1998 to 2001, it still has to auction Treasury securities to replace maturing debt.
Mr. Zeck’s hobbies include computers. “My favorite new toy,” he said, “is the Amazon Kindle, which brings together my love of technology and my enjoyment of reading.” He favors fiction, including mysteries, and books about organizational culture.
The bureau has an annual budget of $187 million and nearly 2,000 employees. Only 65 work in Washington. The rest are at an operations center in Parkersburg, W.Va.
Besides borrowing money from the public, Mr. Zeck manages more than $4 trillion of investments for more than 240 federal trust funds that finance Medicare, Social Security, highway construction and other programs. Assets of these trust funds are invested in special-issue government securities not available to the public.
Outside his office, Mr. Zeck has a collection of government securities dating to the 1770s. Colonists borrowed money to fight the Revolution, and one of the first major decisions of the new national government was to assume debts incurred by the states.
“No pecuniary consideration is more urgent than the regular redemption and discharge of the public debt,” George Washington told Congress in 1793. Mr. Zeck lives by that motto.
"Federal deficit hits $1.38 trillion through August"
By Martin Crutsinger, Ap Economics Writer, September 11, 2009
WASHINGTON – The federal deficit surged higher into record territory in August, hitting $1.38 trillion with one month left in the budget year.
The soaring deficits have raised worries about the willingness of foreigners to keep purchasing Treasury debt. The Chinese, now the largest foreign owners of U.S. Treasury securities, have expressed concerns about runaway deficits. Treasury Secretary Timothy Geithner and other administration officials have sought to address those concerns by insisting that once the recession is over and the financial system is stabilized, the administration will move forcefully to get the deficits under control.
However, Republican critics contend the administration does not have a credible plan to address future deficits. Private economists worry the country could face the grim prospect of seeing interest rates soar in future years and the dollar weaken as foreigners dump their U.S. holdings.
The Treasury Department said Friday that last month's deficit was $111.4 billion, below the $152 billion that economists expected. Still, the imbalance added to a flood of red ink already accumulated through the recession and massive spending needed to stabilize the banking system.
The Obama administration last month trimmed its forecast for this year's deficit to $1.58 trillion, from an earlier $1.84 trillion. The recovery of the banking system led to the reduced estimate as it meant the administration did not need to get an additional $250 billion in bailout support for banks.
The $1.58 trillion estimate for the full budget year signals that that administration expects the imbalance in September to be around $200 billion. That would be a sharp deterioration from September 2008 when the government closed out that budget year with a $45.7 billion surplus.
Many private economists have slightly smaller deficit estimates for the full year but all agree that 2009 will be a record-holder by a large margin. The previous record deficit in dollar terms was $454.8 billion last year.
The administration's revised budget forecasts issued last month also underscored how much the government's fiscal picture has deteriorated. It is now projecting the deficit over the next decade will total $9 trillion, $2 trillion more than its estimates from a few months ago.
The deterioration partly reflects the country's deep recession, the worst since the 1930s. That downturn has cut into government receipts and pushed up spending in such areas as unemployment benefits and food stamps, along with the cost of fighting wars in Iraq and Afghanistan.
In addition, the government is using a $787 billion economic stimulus program passed by Congress last February to jump-start growth and is spending massive amounts from the $700 billion financial bailout package passed in October 2008 to stabilize the financial system.
The Treasury Department budget report for August showed the government collected $145.5 billion in revenues, a drop of 7.3 percent from August 2008.
It marked the 16th consecutive month that revenues have been lower than the previous year, a string that reflects how much the recession, which began in December 2007, has cut into personal income and corporate taxes.
Spending in August totaled $256.9 billion, down 4.5 percent from the year before. However, that comparison was misleading because the deficit last month was lowered by timing shifts which saw some payments shifted into July because Aug. 1 fell on a Saturday.
Primarily because of the timing shifts, last month's deficit was 0.5 percent lower than in August 2008.
For the first 11 months of the budget year, spending totals $3.26 trillion, up 18.7 percent from a year ago, while tax receipts fell 16.1 percent to $1.89 trillion.
The spending increases include the administration's estimate that $174.2 billion has been tapped from the financial bailout fund and another $84.9 billion went toward propping up mortgage giants Fannie Mae and Freddie Mac. In addition, federal spending on unemployment benefits totaled $104.7 billion through August, up from $41.4 billion in the year-ago period.
Breaking News from ABCNEWS.com:
Federal Deficit Breaks New Record: $176.4B in October Due to Slumping Revenues, High Spending
Date: November 12, 2009.
"Worried about U.S. debt? Send your donation here"
By Emily Kaiser, November 12, 2009
WASHINGTON (Reuters) – Not sure what to give Uncle Sam this Christmas? How about a nice, fat check to help whittle away at the $7.6 trillion national debt?
The U.S. Treasury Department accepts gifts, payable to the Bureau of the Public Debt. Just mail them to the attention of Department G, Post Office Box 2188, Parkersburg, West Virginia, 26106-2188. Make a note in the memo section that it is a gift to reduce the debt held by the public.
Checks can be made out to the Bureau of the Public Debt and sent to Bureau of the Public Debt, Dept. G, P.O. Box 2188, Parkersburg, W.Va., 26106-2188.
It's all on the Treasury's website, at the end of the list of frequently asked questions. http://www.treasurydirect.gov/govt/resources/faq/faq_publicdebt.htm
Which raises a few more questions. Do people really send in checks? How much and what reasons do they give for voluntarily paying more than just their taxes? And why are the checks directed to a post office box in West Virginia?
According to Treasury spokesman Kim Treat, people do send checks. In the last fiscal year they added up to a little over $3 million, which was the highest total since at least 1996.
Some include notes. Common reasons for donating include a sense of patriotism and immigrants expressing their thanks to the United States for giving them an opportunity, he said.
The growing debt burden has become a more pressing political issue this year as the White House strains to pull the economy out of a deep recession and bring the jobless rate down from its current 26-year high of 10.2 percent.
The federal budget hole grew even deeper in October, according to monthly figures released on Thursday.
WHY WEST VIRGINIA?
As for why the checks go to West Virginia, the town of Parkersburg happens to be where the majority of public debt employees work.
It is a small city where "crime is low, happiness is high," the Treasury boasts on its careers website (although it shows no public debt jobs currently open to the general public).
Parkersburg Mayor Bob Newell said having the public debt office there meant a couple thousand good-paying jobs, helping to insulate the city from the heavy manufacturing job losses suffered in nearby Ohio and surrounding areas.
He credits Senator Robert Byrd, who was elected to an unprecedented ninth term in 2006, with bringing the debt office to Parkersburg more than 30 years ago.
Workers there are responsible for a number of tasks beyond just managing the large and growing national debt, including tracking savings bonds and doing some accounting work for other government agencies such as the U.S. Mint.
Because of that, people in town don't necessarily associate the public debt office with the debt burden itself, which has become an increasing source of angst, particularly among conservatives who are worried about rising government spending and how the debt will be repaid.
Newell said the "Tea Party" group, which has sponsored protests around the country against government spending, has held a few rallies in a downtown park between two of the city's public debt office buildings.
"They'll gather and have a little rally about the economy and the (bank) bailouts and, more recently, health care," he said in a telephone interview. "They never relate it to the Bureau of Public Debt here locally. Frankly, it employs a lot of people and they realize that and they appreciate it."
(Editing by Kenneth Barry)
"Payback Time: Wave of Debt Payments Facing U.S. Government"
By EDMUND L. ANDREWS, The New York Times, November 23, 2009
WASHINGTON — The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true.
But that happy situation, aided by ultralow interest rates, may not last much longer.
Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.
Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.
With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.
In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.
The potential for rapidly escalating interest payouts is just one of the wrenching challenges facing the United States after decades of living beyond its means.
The surge in borrowing over the last year or two is widely judged to have been a necessary response to the financial crisis and the deep recession, and there is still a raging debate over how aggressively to bring down deficits over the next few years. But there is little doubt that the United States’ long-term budget crisis is becoming too big to postpone.
Americans now have to climb out of two deep holes: as debt-loaded consumers, whose personal wealth sank along with housing and stock prices; and as taxpayers, whose government debt has almost doubled in the last two years alone, just as costs tied to benefits for retiring baby boomers are set to explode.
The competing demands could deepen political battles over the size and role of the government, the trade-offs between taxes and spending, the choices between helping older generations versus younger ones, and the bottom-line questions about who should ultimately shoulder the burden.
“The government is on teaser rates,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates lower deficits. “We’re taking out a huge mortgage right now, but we won’t feel the pain until later.”
So far, the demand for Treasury securities from investors and other governments around the world has remained strong enough to hold down the interest rates that the United States must offer to sell them. Indeed, the government paid less interest on its debt this year than in 2008, even though it added almost $2 trillion in debt.
The government’s average interest rate on new borrowing last year fell below 1 percent. For short-term i.o.u.’s like one-month Treasury bills, its average rate was only sixteen-hundredths of a percent.
“All of the auction results have been solid,” said Matthew Rutherford, the Treasury’s deputy assistant secretary in charge of finance operations. “Investor demand has been very broad, and it’s been increasing in the last couple of years.”
The problem, many analysts say, is that record government deficits have arrived just as the long-feared explosion begins in spending on benefits under Medicare and Social Security. The nation’s oldest baby boomers are approaching 65, setting off what experts have warned for years will be a fiscal nightmare for the government.
“What a good country or a good squirrel should be doing is stashing away nuts for the winter,” said William H. Gross, managing director of the Pimco Group, the giant bond-management firm. “The United States is not only not saving nuts, it’s eating the ones left over from the last winter.”
The current low rates on the country’s debt were caused by temporary factors that are already beginning to fade. One factor was the economic crisis itself, which caused panicked investors around the world to plow their money into the comparative safety of Treasury bills and notes. Even though the United States was the epicenter of the global crisis, investors viewed Treasury securities as the least dangerous place to park their money.
On top of that, the Fed used almost every tool in its arsenal to push interest rates down even further. It cut the overnight federal funds rate, the rate at which banks lend reserves to one another, to almost zero. And to reduce longer-term rates, it bought more than $1.5 trillion worth of Treasury bonds and government-guaranteed securities linked to mortgages.
Those conditions are already beginning to change. Global investors are shifting money into riskier investments like stocks and corporate bonds, and they have been pouring money into fast-growing countries like Brazil and China.
The Fed, meanwhile, is already halting its efforts at tamping down long-term interest rates. Fed officials ended their $300 billion program to buy up Treasury bonds last month, and they have announced plans to stop buying mortgage-backed securities by the end of next March.
Eventually, though probably not until at least mid-2010, the Fed will also start raising its benchmark interest rate back to more historically normal levels.
The United States will not be the only government competing to refinance huge debt. Japan, Germany, Britain and other industrialized countries have even higher government debt loads, measured as a share of their gross domestic product, and they too borrowed heavily to combat the financial crisis and economic downturn. As the global economy recovers and businesses raise capital to finance their growth, all that new government debt is likely to put more upward pressure on interest rates.
Even a small increase in interest rates has a big impact. An increase of one percentage point in the Treasury’s average cost of borrowing would cost American taxpayers an extra $80 billion this year — about equal to the combined budgets of the Department of Energy and the Department of Education.
But that could seem like a relatively modest pinch. Alan Levenson, chief economist at T. Rowe Price, estimated that the Treasury’s tab for debt service this year would have been $221 billion higher if it had faced the same interest rates as it did last year.
The White House estimates that the government will have to borrow about $3.5 trillion more over the next three years. On top of that, the Treasury has to refinance, or roll over, a huge amount of short-term debt that was issued during the financial crisis. Treasury officials estimate that about 36 percent of the government’s marketable debt — about $1.6 trillion — is coming due in the months ahead.
To lock in low interest rates in the years ahead, Treasury officials are trying to replace one-month and three-month bills with 10-year and 30-year Treasury securities. That strategy will save taxpayers money in the long run. But it pushes up costs drastically in the short run, because interest rates are higher for long-term debt.
Adding to the pressure, the Fed is set to begin reversing some of the policies it has been using to prop up the economy. Wall Street firms advising the Treasury recently estimated that the Fed’s purchases of Treasury bonds and mortgage-backed securities pushed down long-term interest rates by about one-half of a percentage point. Removing that support could in itself add $40 billion to the government’s annual tab for debt service.
This month, the Treasury Department’s private-sector advisory committee on debt management warned of the risks ahead.
“Inflation, higher interest rate and rollover risk should be the primary concerns,” declared the Treasury Borrowing Advisory Committee, a group of market experts that provide guidance to the government, on Nov. 4.
“Clever debt management strategy,” the group said, “can’t completely substitute for prudent fiscal policy.”
"What a good country or a good squirrel should be doing is stashing away nuts for the winter. The United States is not only not saving nuts, it's eating the ones left over from the last winter." WILLIAM H. GROSS (J. Emilio Flores for The New York Times)
MEASURE TO BE IN DEFENSE BILL
"Democrats to seek higher limit on the federal debt: House Republicans vow to block Pelosi's plan"
By Lori Montgomery and Ben Pershing, Washington Post Staff Writer, December 11, 2009
With the national debt projected to soar by nearly $1.4 trillion this year, congressional Democrats are planning a year-end push to dramatically increase the legal debt limit so they don't have to revisit the politically uncomfortable issue before facing voters in November.
House Speaker Nancy Pelosi (D-Calif.) said Thursday that she will include legislation to raise the debt ceiling in a must-pass defense spending bill headed to the House floor next week.
"We need to have a vehicle so that the Senate can vote on it, and it is our intention to have something on the Department of Defense bill," she told reporters at her weekly news conference.
House leaders have not settled on how much to raise the debt ceiling, now at $12.1 trillion. Figures as high as an additional $1.925 trillion are under discussion, aides and lawmakers said.
Republicans vowed to block such a move, despite the potential consequences.
"It will be an opportunity for us to point out the excessive spending that's going on in this Congress," said House Minority Leader John A. Boehner (Ohio).
Treasury officials have told congressional leaders that they must raise the cap before Dec. 31 or risk running out of money for Social Security checks and veterans' payments due in early January, Democrats said. By law, the Treasury can borrow no more than Congress legally permits.
The House voted this year to raise the debt limit to nearly $13 trillion, but the Senate never acted on the matter. Now, the issue is complicated by the competing demands of moderates in both chambers, who are expressing increasing concern about the nation's rising debt load.
President Obama called this week for a jobs bill to combat the nation's 10 percent unemployment rate. That could add billions of dollars to budget deficits already driven to record heights by the worst recession in a generation and the emergency measures intended to ease its effects.
Senate Budget Chairman Kent Conrad (N.D.) and other moderate Democrats have threatened to vote against a higher debt limit unless Congress creates a bipartisan task force, composed primarily of lawmakers, to address the budget problem. Conrad and Sen. Judd Gregg (R-N.H.) introduced legislation Wednesday that would invest such a body with broad power to force tax increases or spending cuts through Congress.
"We understand in the short term you add to debt to avert [economic] collapse. We understand that. We also understand at some point you need to pivot to address our long-term debt, because at some point, it's unsustainable," Conrad said Thursday.
Fiscal conservatives in the House known as "blue dog" Democrats say that any plan to raise the debt ceiling should include a new pay-as-you-go law that would prohibit lawmakers from approving tax cuts or spending increases without offsetting the cost elsewhere.
"If we're going to have to take a vote that acknowledges our fiscal irresponsibility, let's add something that changes our habits in the future," said Rep. Walt Minnick (D-Idaho).
The Senate opposes the proposed pay-go rules, and Pelosi opposes giving an independent task force the power to make budget decisions.
Treasury Secretary Timothy F. Geithner and other White House officials met Thursday with Conrad, Senate Majority Leader Harry M. Reid (D-Nev.) and more than a dozen other senators to develop a version of the task force that Obama and Pelosi might accept. One possibility: Obama could appoint a task force by executive order, although that body would be significantly weaker than one created by law. After the meeting, Conrad said he would consider the idea, but only if lawmakers rejected his original proposal.
"The first thing we want is a vote," he said.
"The coming debt panic: Only bipartisan action can avoid it."
The Washington Post (Online), Editorial, Monday, December 14, 2009
IT'S TIME to stop worrying about the deficit -- and start panicking about the debt. To put it another way, short-term deficits aren't the real problem. The punishing hangover of borrowed money is. The ballooning national debt once looked like a long-term problem. Now, the long-term has become the middle-term, fast-forwarded by the cratering economy and the unavoidable and immense spending in the service of saving it.
Consider: In the space of a single fiscal year, 2009, the debt soared from 41 percent of the gross domestic product to 53 percent. By way of comparison, the average for the past half-century has been 37 percent. This sum, which does not include what the government has borrowed from its own trust funds, is on track to rise to a crushing 85 percent of the economy by 2018. Getting the debt back down to a reasonable level will require extraordinary, almost unimaginable, fiscal discipline and political cooperation. Failing to do so will lower the national standard of living and ultimately threaten America's economic stability.
The fiscal situation was serious before the recession. It is now dire. An important proposal being released Monday by the Peterson-Pew Commission on Budget Reform urges Congress and the White House to commit immediately to stabilizing the debt at 60 percent of GDP by 2018; come up with a credible plan for getting there; and begin phasing in the necessary policy changes in 2012, once the recovery is fully underway. Warnings about fiscal danger may sound familiar, but one reflection of the current circumstances comes in the composition of the group that signed on to this report and agreed that both tax increases and spending cuts would be required. They range from a liberal former chair of the House Budget Committee, William H. Gray III of Pennsylvania, to a conservative former chair, Jim Nussle of Iowa. The recommendations envision annual benchmarks, enforceable by a debt trigger that would impose spending cuts and a surtax if the specified reductions were not achieved. Once the debt is stabilized in 2018, the goal would be to set it on a glide path to further reduction, closer to the historical average of below 40 percent.
The concept of setting specific goals with automatic and serious consequences for non-performance is intriguing. Gauzy promises to cut the deficit in half in five years are both unconvincing and inadequate; stronger medicine is required, and it will have to be more skillfully designed than previous doses have been. As the report notes, "Past automatic policy changes failed in part because so many programs were exempt from the trigger and it was so easy to bypass the restrictions. A debt trigger should be punitive enough to cause lawmakers to act but realistic enough that it can be enacted as a last resort if policymakers fail to act or select policies fall short of the goal."
Last week Sens. Kent Conrad (D-N.D.) and Judd Gregg (R-N.H.) introduced a new version of their proposal to create a "fiscal task force" to recommend a package of tax and spending changes. Marrying the notion of enforceable debt levels to a commission that could come up with ways to achieve these goals would be an interesting, and potentially productive, union. Both concepts are premised on the notion, sadly correct, that the fiscal picture is too daunting and too politically sensitive to be addressed under the regular order. As the Peterson-Pew report grimly underscores, time is running out to come to grips with that unpleasant fact.
"Senate votes down panel to cut deficit"
By AP Wire, 1/27/2010
WASHINGTON - The Senate on Tuesday rejected a proposal to establish a potentially powerful commission to reduce the federal budget deficit, despite President Barack Obama's endorsement and swelling voter anger about government spending and debt.
The bipartisan measure would have required Congress to accept or reject the commission's recommendations without making changes, a provision designed to prevent lawmakers from dodging the most politically risky proposals.
The vote came hours after the Congressional Budget Office issued a report predicting that the 2010 budget deficit would be $1.35 trillion, a slight improvement from 2009's $1.4 trillion, but still higher as a share of the economy than any other year since World War II. It predicted the pace of economic recovery would be slow.
In addition, the CBO reported the government is on course to double the national debt in five years and to triple it in a decade.
Political pressure to rein in federal spending has intensified in the wake of the Democratic Party's surprising loss of the late Edward M. Kennedy's Senate seat last week. Many analysts blamed the outcome of the Massachusetts special election on voter frustration at federal spending and debt.
Against that backdrop, the White House said Monday that it would try to curb deficits by imposing a three-year freeze on government spending. But critics derided that as a fig leaf because the freeze would apply only to a small part of the budget.
Obama is also likely to tell Congress in his State of the Union address today that he will freeze the salaries of his top White House aides and of appointees across the government, according to a senior administration official who spoke on condition of anonymity to discuss the speech in advance.
Obama has said he is willing to set up a deficit-reduction commission by executive order. But critics say a presidentially created panel would be toothless because it could not force Congress to act.
Even as Democrats scramble to show their commitment to deficit reduction, they are contemplating major new spending initiatives. Those include legislation to spur job creation, the health care overhaul and a long-delayed effort to increase Medicare payments to doctors.
Proponents of the rejected deficit commission argue that the nation's fiscal problems have gotten so large that Congress cannot handle them - and the new Congressional Budget Office report laid out the stark challenges.
"Is there any doubt that we are on a collision course with economic reality?" asked Senate Budget Chairman Kent Conrad, D-N.D., sponsor of the deficit commission proposal. "There is no question that doing things the same old way that has led to this crisis is unlikely to lead to a different result."
The Senate vote was 53-46, seven short of the 60 needed for approval. The vote was a rare display of bipartisanship: Supporting the proposal were 36 Democrats, 16 Republicans and one independent. The opposition was a coalition of Republicans who worried that the panel would give new impetus to tax hikes, and Democrats concerned that it would force cuts in Medicare and other prized programs.
Others opposed the proposal because Congress would have been forced to vote on the panel's recommendations without alteration. That approach was taken years ago as a way to force Congress to allow the closure of unneeded military bases. But taking that tack on the budget, Senate Finance Committee Chairman Max Baucus, D-Mont., objected, would reduce senators to rubber-stamping bureaucrats, stripped of power and responsibility to decide how to reduce the deficit.
Sen. Judd Gregg, R-N.H., a co-sponsor of the proposal, said its defeat was "yet another indication that Congress is more concerned with the next election than the next generation." Gregg is retiring from Congress at the end of the year.
The deficit commission was proposed as an amendment to legislation that would increase the ceiling on federal borrowing by $1.9 trillion, to $14.3 trillion. The larger ceiling, Democrats hope, would be enough to last through the 2010 elections - forestalling another difficult vote during the fall campaign.
Raising the debt ceiling is an unpopular vote, and Senate Majority Leader Harry Reid, D-Nev., will have to gather 60 votes to end debate - a hurdle that could prove challenging.
In advance of Obama's State of the Union address Wednesday, his proposal for a three-year freeze in spending got mixed reviews. Liberals protested that defense spending would be exempt. Conservatives complained that it was too little too late, coming after a year in which Congress boosted discretionary spending by 17 percent.
"It's as if someone stumbled out of an all-you-can-eat buffet in a food coma and vowed to eat no more than that every day for the next three years," said John Kartch, spokesman for the conservative group Americans for Tax Reform..
White House press secretary Robert Gibbs said the proposal was a modest start to what he acknowledged would be far bigger budget battles.
"I don't think this is intended to solve all our problems," he said. But, he added, "if we can't make these steps, how are you going to go after stuff that we know is politically hard?"
Tribune Washington bureau writer Noam N. Levey contributed to this story.
"Obama proposes 5.7% spending increase"
AP - February 1, 2010
WASHINGTON (AP) - President Barack Obama sent Congress a $3.83 trillion budget on Monday that would pour more money into the fight against high unemployment, boost taxes on the wealthy and freeze spending for a wide swath of government programs. The deficit for this year would surge to a record-breaking $1.56 trillion, topping last year's then unprecedented $1.41 trillion gap. The deficit would remain above $1 trillion in 2011 although the president proposed to institute a three-year budget freeze on a variety of programs outside of the military and homeland security as well as increasing taxes on energy producers and families making more than $250,000.
The budget proposal reflects the competing pressure on Obama ahead of the November congressional elections to cut the deficit while pulling the country out of a deep recession - a step that normally requires more rather than less government spending.
Obama and the Democrats are trying to regain their political footing after the surprising loss of a Massachusetts Senate seat long held by the late Sen. Edward M. Kennedy. That vote cost them their supermajority needed to pass major legislation and has given momentum to Republicans.
With his plans to overhaul health care now unlikely to move forward soon, Obama pledged in his State of the Union address last week to make job creation his top priority.
Following up on the pledge, Obama put forward a budget that included a $100 billion jobs measure that would provide tax breaks to encourage businesses to boost hiring as well as increased government spending on infrastructure and energy projects. He called for fast congressional action to speed relief to millions left unemployed in the worst recession since the 1930s.
After a protracted battle on health care dominated his first year in office and led to a string of Democratic election defeats, the administration hopes its new budget will convince Americans the president is focused on fixing the economy.
Republicans complained about Obama's proposed tax increases and said the huge projected deficits showed he had failed to get government spending under control. But administration officials argued that Obama inherited a deficit that was already topping $1 trillion when he took office and given the severity of the downturn, the president had to spend billions of dollars stabilizing the financial system and jump-starting growth.
Obama's job proposals would push government spending in 2010 to $3.72 trillion, up 5.7 percent from last year. Obama's blueprint for the 2011 budget year, which begins Oct. 1, would increase spending further to $3.83 trillion, 3 percent higher than projected for this year.
While Obama projects that deficits from 2011 to 2020 will add $8.5 trillion to the national debt, the administration said that figure would have been $1.2 trillion higher were it not for deficit cuts the administration is proposing, including elimination of the 2001 and 2003 Bush tax cuts for families making more than $250,000 annually, something Republicans have vowed to oppose.
Much of the spending surge over the past two years reflects the cost of the $787 billion economic stimulus measure that Congress passed in February 2009 to deal with the worst economic downturn since the Great Depression. The surge in the deficits reflects not only the increased spending but also a big drop in tax revenues, reflecting the 7.2 million people who have lost jobs since the recession began and weaker corporate tax receipts.
"Having steered the economy back from the brink of a depression, the administration is committed to moving the nation from a recession to recovery by sparking job creation to get millions of Americans back to work," the administration said in a statement accompanying its budget.
The administration's $100 billion proposed jobs measure would be lower than a $174 billion bill passed by the House in December but far higher than a measure that the Senate could take up as early as this week.
"House approves $1.9 trillion increase in US debt: Bill includes new rules to curb deficit"
By Andrew Taylor, Associated Press, February 5, 2010
WASHINGTON - The House voted yesterday to allow the government to add $1.9 trillion of debt - an increase of about $6,000 for every US resident and a vivid election-year reminder of the nation’s troubled financial condition.
The huge debt increase, approved 217 to 212, is only enough to keep the government afloat for about another year as it borrows more than 40 cents of every dollar it spends on programs such as defense, health care, feeding the poor, and protecting the environment. The budget tops $3.7 trillion this year, with the deficit approaching $1.6 trillion.
The huge increase - to $14.3 trillion - to the cap on federal borrowing was designed by Democratic leaders to ensure that legislators would not have to vote again on another increase before the November midterm elections, when they could face voters increasingly angry over government spending and debt.
“This debt is being piled on the backs of our kids and grandkids with no relief in sight,’’ said the House minority leader, John Boehner of Ohio.
Economists warn that the rapidly rising debt could force interest rates higher and, if left unchecked, could have serious consequences for the economy.
The bill now goes to President Obama, who will sign it to avoid a default on US obligations.
“Defaulting is not an option,’’ said Representative James P. McGovern, a Worcester Democrat and a member of the Budget Committee. “If the United States defaults, investors will lose confidence that the US will honor its debts in the future.’’
Thirty-seven Democrats, mostly from GOP-leaning districts, voted against the measure. So did every Republican, even though they routinely supported previous increases in the borrowing cap when their party controlled Congress or when Republican George W. Bush was president. All of the representatives from Massachusetts joined McGovern in voting for the new deficit ceiling.
Senate approval last week, which fell along party lines, was only possible because Scott Brown had not assumed office. The Massachusetts Republican was sworn in yesterday.
To help win passage, Democrats also adopted, in a 233 to 187 vote, budget rules designed to curb the deficit, projected by Obama to hit a record $1.56 trillion for the budget year ending Sept. 30. The rules would require future spending increases or tax cuts to be paid for with either cuts to other programs or equivalent tax increases.
If the rules are broken, the White House budget office would force automatic cuts to such programs as Medicare, farm subsidies, and unemployment insurance. Current rules lack such enforcement and have been waived over the past few years at a cost of about $1 trillion.
Obama issued a statement praising passage of the pay-as-you-go rules but did not mention the debt limit increase.
“It is no coincidence that when we last had statutory pay-go, during the 1990s, we turned deficits into surpluses,’’ Obama said. “The passage of statutory pay-go today will help usher out an era of irresponsibility and begin putting the country back on a fiscally sustainable path.’’
Most other benefit programs - including Medicaid, Social Security and food stamps - would be exempt from such cuts, leading Republicans to charge that the new rules are just as weak as the old ones.
Paul Krugman (Fred R. Conrad/The New York Times)
"Fiscal Scare Tactics"
By PAUL KRUGMAN, Op-Ed Columnist, NY Times, February 5, 2010
These days it’s hard to pick up a newspaper or turn on a news program without encountering stern warnings about the federal budget deficit. The deficit threatens economic recovery, we’re told; it puts American economic stability at risk; it will undermine our influence in the world. These claims generally aren’t stated as opinions, as views held by some analysts but disputed by others. Instead, they’re reported as if they were facts, plain and simple.
Yet they aren’t facts. Many economists take a much calmer view of budget deficits than anything you’ll see on TV. Nor do investors seem unduly concerned: U.S. government bonds continue to find ready buyers, even at historically low interest rates. The long-run budget outlook is problematic, but short-term deficits aren’t — and even the long-term outlook is much less frightening than the public is being led to believe.
So why the sudden ubiquity of deficit scare stories? It isn’t being driven by any actual news. It has been obvious for at least a year that the U.S. government would face an extended period of large deficits, and projections of those deficits haven’t changed much since last summer. Yet the drumbeat of dire fiscal warnings has grown vastly louder.
To me — and I’m not alone in this — the sudden outbreak of deficit hysteria brings back memories of the groupthink that took hold during the run-up to the Iraq war. Now, as then, dubious allegations, not backed by hard evidence, are being reported as if they have been established beyond a shadow of a doubt. Now, as then, much of the political and media establishments have bought into the notion that we must take drastic action quickly, even though there hasn’t been any new information to justify this sudden urgency. Now, as then, those who challenge the prevailing narrative, no matter how strong their case and no matter how solid their background, are being marginalized.
And fear-mongering on the deficit may end up doing as much harm as the fear-mongering on weapons of mass destruction.
Let’s talk for a moment about budget reality. Contrary to what you often hear, the large deficit the federal government is running right now isn’t the result of runaway spending growth. Instead, well more than half of the deficit was caused by the ongoing economic crisis, which has led to a plunge in tax receipts, required federal bailouts of financial institutions, and been met — appropriately — with temporary measures to stimulate growth and support employment.
The point is that running big deficits in the face of the worst economic slump since the 1930s is actually the right thing to do. If anything, deficits should be bigger than they are because the government should be doing more than it is to create jobs.
True, there is a longer-term budget problem. Even a full economic recovery wouldn’t balance the budget, and it probably wouldn’t even reduce the deficit to a permanently sustainable level. So once the economic crisis is past, the U.S. government will have to increase its revenue and control its costs. And in the long run there’s no way to make the budget math work unless something is done about health care costs.
But there’s no reason to panic about budget prospects for the next few years, or even for the next decade. Consider, for example, what the latest budget proposal from the Obama administration says about interest payments on federal debt; according to the projections, a decade from now they’ll have risen to 3.5 percent of G.D.P. How scary is that? It’s about the same as interest costs under the first President Bush.
Why, then, all the hysteria? The answer is politics.
The main difference between last summer, when we were mostly (and appropriately) taking deficits in stride, and the current sense of panic is that deficit fear-mongering has become a key part of Republican political strategy, doing double duty: it damages President Obama’s image even as it cripples his policy agenda. And if the hypocrisy is breathtaking — politicians who voted for budget-busting tax cuts posing as apostles of fiscal rectitude, politicians demonizing attempts to rein in Medicare costs one day (death panels!), then denouncing excessive government spending the next — well, what else is new?
The trouble, however, is that it’s apparently hard for many people to tell the difference between cynical posturing and serious economic argument. And that is having tragic consequences.
For the fact is that thanks to deficit hysteria, Washington now has its priorities all wrong: all the talk is about how to shave a few billion dollars off government spending, while there’s hardly any willingness to tackle mass unemployment. Policy is headed in the wrong direction — and millions of Americans will pay the price.
"US debt will keep growing even with recovery"
By Associated Press, U.S. Politics, www.bostonherald.com - February 14, 2010
WASHINGTON — It’s bad enough that Greece’s debt problems have rattled global financial markets. In the world’s largest economic and military power, there’s a far more serious debt dilemma.
For the U.S., the crushing weight of its debt threatens to overwhelm everything the federal government does, even in the short-term, best-case financial scenario — a full recovery and a return to prerecession employment levels.
The government already has made so many promises to so many expanding "mandatory" programs. Just keeping these commitments, without major changes in taxing and spending, will lead to deficits that cannot be sustained.
Take Social Security, Medicare and other benefits. Add in interest payments on a national debt that now exceeds $12.3 trillion. It all will gobble up 80 percent of all federal revenues by 2020, government economists project.
That doesn’t leave room for much else. What’s left is the entire rest of the government, including military and homeland security spending, which has been protected and nurtured by the White House and Congress, regardless of the party in power.
The U.S. debt crisis also raises the question of how long the world’s leading power can remain its largest borrower.
Moody’s Investors Service recently warned that Washington’s credit rating could be in jeopardy if the nation’s finances didn’t improve.
Despite election-year political pressure from voters for lawmakers to restrain spending, some recent votes suggests that Congress, left to its own devices, probably isn’t up to the task of trimming deficits.
"Deficits higher than Obama forecast: CBO"
By Doug Palmer, March 5, 2010
WASHINGTON (Reuters) – President Barack Obama's budget plans would rack up $9.8 trillion more debt by 2020, or $1.2 trillion more than the White House has forecast, the Congressional Budget Office said on Friday.
Republicans seized on the estimate to fault Obama, saying his plans would raise U.S. government debt to an "alarming" 90 percent of the economy.
Obama pledged when he unveiled his budget for fiscal 2011 in early February to cut the annual deficit in half by the end of his first term.
However, he has faced criticism from Republicans for proposing to raise taxes on wealthy Americans and not doing enough to rein in spending.
On February 18, he named a bipartisan panel to tackle the exploding U.S. deficits and promised to give it broad leeway to recommend ways to put the U.S. fiscal house in order.
CBO said it would publish its full analysis of Obama's budget plan later this month.
But working with staff of the congressional Joint Committee on Taxation, it made a preliminary estimate that Obama's proposals would boost the budget deficit in fiscal 2010 to $1.5 trillion, or 10.3 percent of U.S. gross domestic product.
"Measured relative to the size of the economy, the deficit under the President's proposals would fall to about 4 percent of GDP by 2014 but would rise steadily thereafter," CBO said.
CBO said its 2010 budget deficit estimate was $56 billion less than the administration's figure. But that good news for the White House was overshadowed by CBO's longer forecast.
"Largely because it projects lower baseline revenues in future years, CBO estimates deficits that are $75 billion higher for 2011 and $1.2 trillion greater over the 2011-2020 period than what the administration anticipates under the President's budget," CBO said.
"Under the President's budget, debt held by the public would grow from $7.5 trillion (53 percent of GDP) at the end of 2009 to $20.3 trillion (90 percent of GDP) at the end of 2020," CBO said.
Republicans on the House of Representatives Budget Committee issued a statement highlighting the mammoth debt numbers, as well as CBO estimates that showed a record $3.8 trillion in spending in fiscal 2011 and tax increases of $1.8 trillion through 2020.
"Interest on the debt becomes one of the largest spending categories in the federal budget, and would more than quadruple in the next 10 years, rising from $209 billion this year to $916 billion in 2020," the Republicans said.
Obama, a Democrat, says he inherited a financial mess from his Republican predecessor President George W. Bush and had to step up government spending immediately after taking office to fight the worst U.S. recession in decades.
(Reporting by Doug Palmer; editing by Anthony Boadle)
"Budget Deficit Of $220B Sets Record In February"
By The Associated Press, March 10, 2010
The government ran up the largest monthly deficit in history in February, keeping the flood of red ink on track to top last year's record for the full year.
The Treasury Department said Wednesday that the February deficit totaled $220.9 billion, 14 percent higher than the previous record set in February of last year.
The deficit through the first five months of this budget year totals $651.6 billion, 10.5 percent higher than a year ago.
The Obama administration is projecting that the deficit for the 2010 budget year will hit an all-time high of $1.56 trillion, surpassing last year's $1.4 trillion total. The administration is forecasting that the deficit will remain above $1 trillion in 2011, giving the country three straight years of $1 trillion-plus deficits.
The administration says the huge deficits are necessary to get the country out of the deepest recession since the 1930s. But Republicans have attacked the stimulus spending as wasteful and a failure at the primary objective of lowering unemployment.
The administration defends the economic stimulus bill that Congress passed in February 2009 with a pricetag at the time of $787 billion as the right medicine to get the economy back on its feet. President Barack Obama has said even more is needed to battle an unemployment rate that remained stuck in February at 9.7 percent.
The White House says that job creation will remain a top priority, hoping to convince voters that Obama did not spend too much time during his first year in office trying to get Congress to pass health care reform.
The government's monthly budget report showed the record $220.9 billion deficit for February reflected outlays of $328.4 billion and revenues of $107.5 billion. The February receipts marked the first time that revenues are up compared with the same month a year ago since April 2008. Revenues had fallen for 21 straight months as the recession cut into both individual and corporate income tax payments.
Deficits normally shoot up in February because it is a month when the government makes large refund payments to individuals and corporations as part of the tax filing process. Those payments were boosted this year by various tax credits that were expanded or added as part of the government's stimulus efforts including the "Making Work Pay" tax credit and the first-time homebuyers tax credit.
Through the first five months of the budget year, government revenues totaled $800.5 billion, down 7 percent from a year ago, while outlays totaled $1.45 trillion, up a slight 0.1 percent from a year ago.
The deficit of $651.6 billion through February is up by 10.5 percent from the $589.8 billion deficit run up during the first five months of the 2009 budget year. The government's budget year begins on Oct. 1.
The budget that Obama sent to Congress in February projects that the deficits over the next decade will total $8.53 trillion. But the Congressional Budget Office last week put the 10-year total even higher at $9.8 trillion. Part of the reason for the $1.2 trillion difference is that the CBO is projecting slower economic growth and thus less tax revenues than the administration over the next decade.
The administration has maintained that the country must run large budget deficits until the economy has begun to grow at a sustainable pace that is bringing the unemployment rate down. Only then, the administration says, should the government focus on getting control of the deficits.
Obama has created by executive order an 18-member fiscal reform commission that has been charged with coming up with a plan to shrink the deficit to 3 percent of the economy within five years. The plan is scheduled to be unveiled in December, after the midterm congressional elections.
With the economy so weak, the interest rates that the government has to finance the flood of red ink have remained low. However, economists are worried that the favorable outlook on interest rates could change quickly if investors, including foreign investors, start to worry about the government's commitment to restraining future deficits. China is the largest foreign holder of U.S. Treasury securities.
Through the first five months of this budget year, net interest payments totaled $86.5 billion, up 15.3 percent from a year ago.
In its report last week, the CBO predicted that the government debt held by investors would climb from $7.5 trillion at the end of last year to $20.3 trillion in 2020. CBO forecast that interest payments would more than quadruple from a projected $209 billion this year to $916 billion annually by the end of the decade.
The U.S. national debt has passed the $13 trillion mark, according to USDebtClock.org, an independent website that tracks the real-time growth of U.S. revenues and spending. (usdebtclock.org)
"National Debt Soars Past $13 Trillion: Senate Minority Leader Mitch McConnell: National Debt Is 'True Emergency'"
By ALICE GOMSTYN, ABC NEWS Business Unit, May 26, 2010 —
The U.S. national debt has passed the $13 trillion mark, according to USDebtClock.org, an independent website that tracks the real-time growth of U.S. revenues and spending.
The Treasury Department has yet to update its official national debt-tracking website: TreasuryDirect.gov lists the national debt, as of Monday, May 24, as nearly $12.99 trillion.
The Treasury Department did not immediately return a request from ABC News for comment.
Senate Minority Leader Mitch McConnell, R-Ky., wasted no time in sounding an alarm about the new debt milestone. In a statement released today, McConnell cited the debt in his criticism of what's called the tax extenders bill, which would extend unemployment benefits and the amount of time unemployed workers could stay on their group health plan through COBRA, as well as certain tax cuts. McConnell said the bill would cost $130 billion.
"As early as today, we'll reach a dubious milestone in America: a $13 trillion national debt -- the first time in history we've crossed this frightening threshold. This extenders bill would add another $130 billion on top of that. ...This is fiscal recklessness.
"The true emergency here is our national debt," he said.
Addison Wiggin, the executive producer of the 2008 documentary I.O.U.S.A. and the editorial director of the website Daily Reckoning, said everything from the government's regular operations to the wars in Iraq and Afghanistan to the U.S. stimulus package to lackluster tax revenues have contributed to the recent rapid growth of the national debt.
A decade ago, he said, the national debt was $5.7 trillion. By 2005, it rose to $7.7 trillion. As of six months ago, it stood at $12 trillion. The larger the debt grows, the faster the U.S. government's interest payments pile up, which helps explain why USDebtClock.org's national debt tracker jumps hundreds of thousands of dollars in less than a minute.
"As time goes on, it's such a large figure, you can actually see the interest that we have to pay on it rise if you calculate it down to the second as this site does," Wiggin said.
Wiggin said that U.S. government's borrowing grew especially quickly during the height of the financial crisis, because investors wanted to lend money to the United States -- it was seen as a safer place to stash wealth than the stock market or even banks. The clamor for U.S. Treasury bonds meant that the government could negotiate lower interest rate payments on its debt.
"It's an odd catch-22," Wiggin said. "When there's crisis, people are willing to give money to the government, which allows [government officials] to finance extreme deficits, which they're then using to paper over the crisis."
Peter Morici, a University of Maryland business professor and a critic of the Obama administration's approach to the debt, said that the current debt situation can be traced back to President Reagan's era and can be blamed on the philosophies of both political parties.
"The Republican concept is if you cut taxes, miraculously revenues always appear to cover expenditures," he said. "Democrats believe they can spend whatever they want and anything that smacks of 'we're spending too much, the government is inefficient,' is some sort of heresy."
Morici warned that if the debt grows to about 150 percent of the gross domestic product -- the debt is about 90 percent of GDP right now -- the country will risk hyperinflation or "the Chinese buying up Wall Street," he said, referring to China's status as the U.S.'s greatest lender.
"Either way, we lose our financial situation in the world," he said.
But Wiggin believes there's hope. In the World War II era, he said, the country faced a national debt that was 125 percent of the GDP.
"After World War II, as a nation, we buckled down and paid off a large portion of the debt," he said. "I'd say there's always hope because we have done it before."
ABC News' Matthew Jaffe contributed to this report.
"Bernanke Defends Increase in Deficit but Offers Warning"
The New York Times - June 9, 2010
The chairman of the Federal Reserve, Ben S. Bernanke, warned on Wednesday that "the federal budget appears to be on an unsustainable path," but also recognized that the "exceptional increase" in the deficit had been necessary to ease the recession.
Mr. Bernanke's comments, prepared for a hearing of the House Budget Committee, reiterated his view that the economic recovery would likely be slow and painful for many Americans.
"Deficit targets: Social Security, mortgage breaks"
Erskine Bowles, left, accompanied by former Wyoming Sen. Alan Simpson, co-chairmen of President Barack Obama's bipartisan deficit commission, gestures while speaking on Capitol Hill in Washington Wednesday, Nov. 10, 2010. (AP Photo/Alex Brandon)
By Andrew Taylor, Associated Press, November 10, 2010
WASHINGTON — In a politically incendiary plan, the bipartisan leaders of President Barack Obama's deficit commission proposed curbs in Social Security benefits, deep reductions in federal spending and higher taxes for millions of Americans Wednesday to stem a flood of red ink that they said threatens the nation's very future.
The White House responded coolly, some leading lawmakers less so to proposals that target government programs long considered all but sacred. Besides Social Security, Medicare spending would be curtailed. Tax breaks for many health care plans, too. And the Pentagon's budget, as well, in a plan designed to cut total deficits by as much as $4 trillion over the next decade.
The plan arrived exactly one week after elections that featured strong voter demands for economic change in Washington. But criticism was immediate from advocacy groups on the left and, to some extent, the right at the start of the post-election debate on painful steps necessary to rein in out-of-control deficits.
The plan would gradually increase the retirement age for full Social Security benefits -- to 69 by 2075 -- and current recipients would receive smaller-than-anticipated annual increases. Equally controversial, it would eliminate the current tax deduction that homeowners receive for the interest they pay on their mortgages.
No one is expecting quick action on any of the plan's pieces. Proposed cuts to Social Security and Medicare are making liberals recoil. And conservative Republicans are having difficulty with options suggested for raising taxes. The plan also calls for cuts in farm subsidies, foreign aid and the Pentagon's budget.
The document was released by former Democrat Erskine Bowles, a former Clinton White House chief of staff, and Republican Alan Simpson, a former senator from Wyoming.
Acknowledging the controversy involved, Simpson quipped to reporters: "We'll both be in a witness protection program when this is all over, so look us up." Said Bowles: "This is a starting point."
Controversial or not, Bowles said serious action was demanded. He declared, "This debt is like a cancer that will truly destroy this country from within if we don't fix it."
The government reported separately Wednesday that the deficit for last month alone was $140.4 billion -- and that was 20 percent lower than a year earlier. The red ink for all of the past fiscal year was $1.29 trillion, second highest on record, and this year is headed for the third straight total above $1 trillion.
Current deficits require the government to borrow 37 cents out of every dollar it spends.
Still, the plan was rejected as "simply unacceptable" by House Speaker Nancy Pelosi, D-Calif., a top Obama ally.
The White House held its fire. Said spokesman Bill Burton, "The president will wait until the bipartisan fiscal commission finishes its work before commenting." He called the ideas "only a step in the process."
The Social Security proposal would change the inflation measurement used to calculate cost-of-living adjustments for benefits, reducing annual increases. It immediately drew a withering assault from advocates for seniors, who are already upset that there will be no inflation increase for 2011, the second straight year.
The plan would also raise the regular Social Security retirement age to 68 by about 2050 and to 69 in 2075. The full retirement age for those retiring now is 66. For those born in 1960 or after, the full retirement age is now 67.
Better-off beneficiaries would receive smaller Social Security payments than those in lower earning brackets under the proposal, and the amount of income subject to Social Security taxes would be increased.
"The chairmen of the Deficit Commission just told working Americans to 'Drop Dead,'" AFL-CIO President Richard Trumka said in a statement.
From the right, anti-tax activist Grover Norquist -- whose opinions carry great weight among Republicans -- blasted the plan for its $1 trillion in tax increases over the coming decade. But Bowles and Simpson say eliminating costly tax deductions could bring income tax rates way down.
For every $1 of new revenue, the plan demands $3 in spending cuts, and that was acceptable to panel member Tom Coburn, a Republican senator from Oklahoma. "If we do the cuts, I'll go for it," he said. "We may have to go for some revenues at some point."
The entire commission is supposed to report a deficit-cutting plan on Dec. 1, but panel members are unsure whether they'll be able to agree on anything approaching deficit cuts of the size proposed. And even if they could, any vote in Congress this year would be nonbinding, Simpson said.
"This is not a proposal I could support," said panel member Rep. Jan Schakowsky, D-Ill. "On Medicare and Social Security in particular, there are proposals that I could not support."
The release of the plan follows midterm elections that gave Republicans the House majority and increased their numbers in the Senate. During the campaign, neither political party talked of spending cuts of the magnitude offered Wednesday, with Republicans proposing $100 billion in cuts to domestic programs passed each year by Congress -- but with no specifics.
Wednesday's proposal would leave Obama's new health care overhaul in place, while greatly strengthening its cost control provisions, including a board with the power to make cuts in Medicare payments to providers.
For most Americans with job-based health coverage, the biggest change would be to limit or eliminate altogether the tax-free status of employer-provided health benefits, which would provide a stiff nudge to force people into cost-conscious insurance plans.
To deal with the rising costs of Medicare and Medicaid, the giant health care programs for seniors and low-income people, the proposal calls for limiting annual spending increases to no more than 1 percent above the growth rate of the economy.
It outlines a series of strategies to achieve that goal, including changing provider payments to reward quality instead of sheer volume, demanding rebates from drug companies that want to participate in Medicare and raising cost-sharing for Medicare recipients while also putting in place a limit on their out-of-pocket costs.
"It's a very provocative proposal," said a Republican panel member, Rep. Jeb Hensarling of Texas. "Some of it I like. Some of it disturbs me. And some of it I've got to study."
Other proposals by Bowles and Simpson include:
--Increasing the gasoline tax by 15 cents a gallon to finance transportation programs.
--A three-year freeze in the pay of most federal employees and a 10 percent cut in the federal work force.
--Eliminating all congressional pet projects, known as earmarks.
The plan also calls for a major overhaul of both the individual income tax and the corporate tax systems with the idea of lowering overall tax rates, simplifying the tax code and broadening the taxpayer base.
For individuals and families, the proposal would eliminate a host of popular tax credits and deductions, including the child tax credit and the mortgage interest deduction. However, it would significantly reduce income tax rates. The top rate would drop from 35 percent to 23 percent.
The deduction that companies take for providing health insurance to their employees would be eliminated, but the corporate income tax rate would be reduced from 35 percent to 26 percent, and the government would stop taxing overseas profits of U.S.-based multinational corporations.
Even with the dramatic proposals, the Bowles-Simpson plan would leave deficits of about $380 billion in 2015, the year by which Obama tasked the group with balancing the federal budget, except for interest payments on a national debt that now stands at $13.7 trillion. If the changes to Social Security are dropped, the deficit would be about $400 billion in 2015.
Associated Press writers Martin Crutsinger, Stephen Ohlemacher, Tom Raum and Ricardo Alonso-Zaldivar contributed to this report.
"US debt passes $14 trillion, Congress weighs caps"
By Tom Raum, Associated Press, January 15, 2011
WASHINGTON – The United States just passed a dubious milestone: Government debt surged to an all-time high, more than $14 trillion.
That means Congress soon will have to lift the legal debt limit to give the nearly maxed-out government an even higher credit limit or dramatically cut spending to stay within the current cap. Either way, a fight is ahead on Capitol Hill, inflamed by the passions of tea party activists and deficit hawks.
Today's debt level represents a $45,300 tab for each and everyone in the country.
Already, both sides are blaming each other for an approaching economic train wreck as Washington wrestles over how to keep the government in business and avoid default on global financial obligations.
Bills increasing the debt limit are among the most unpopular to come before Congress, serving as pawns for decades in high-stakes bargaining games. Every time until now, the ending has been the same: We go to the brink before raising the ceiling.
All bets may be off, however, in this charged political environment, despite some signs the partisan rhetoric is softening after the Arizona shootings.
Treasury Secretary Timothy Geithner says failure to increase borrowing authority would be "a catastrophe," perhaps rivaling the financial meltdown of 2008-2009.
Congressional Republicans, flexing muscle after November's victories, say the election results show that people are weary of big government and deficit spending, and that it's time to draw the line against more borrowing.
Defeating a new debt limit increase has become a priority for the tea party movement and other small-government conservatives.
So far, the new GOP majority has proved accommodating. Republicans are moving to make good on their promise to cut $100 billion from domestic spending this year. They adopted a rules change by House Speaker John Boehner that should make it easier to block a debt-limit increase.
The national debt is the accumulation of years of deficit spending going back to the days of George Washington. The debt usually advances in times of war and retreats in peace.
Remarkably, nearly half of today's national debt was run up in just the past six years. It soared from $7.6 trillion in January 2005 as President George W. Bush began his second term to $10.6 trillion the day Obama was inaugurated and to $14.02 trillion now. The period has seen two major wars and the deepest economic downturn since the 1930s.
With a $1.7 trillion deficit in budget year 2010 alone, and the government on track to spend $1.3 trillion more this year than it takes in, annual budget deficits are adding roughly $4 billion a day to the national debt. Put another way, the government is borrowing 41 cents for every dollar it spends.
In a letter to Congress, Geithner said the current statutory debt ceiling of $14.3 trillion, set just last year, may be reached by the end of March — and hit no later than May 16. He warned that holding it hostage to skirmishes over spending could lead the country to default on its obligations, "an event that has no precedent in American history."
Debt-level brinkmanship doesn't wear a party label.
Here's what then-Sen. Barack Obama said on the Senate floor in 2006: "The fact that we are here today to debate raising America's debt limit is a sign of leadership failure. It is a sign that the U.S. government can't pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance the government's reckless fiscal policies."
It was a blast by the freshman lawmaker against a Bush request to raise the debt limit to $8.96 trillion.
Bush won on a 52-48 party-line vote. Not a single Senate Democrat voted to raise the limit, opposition that's now complicating White House efforts to rally bipartisan support for a higher ceiling.
Democrats have use doomsday rhetoric about a looming government shutdown and comparing the U.S. plight to financial crises in Greece and Portugal. It's all a bit of a stretch.
"We can't do as the Gingrich crowd did a few years ago, close the government," said Senate Majority Leader Harry Reid, D-Nev., referring to government shutdowns in 1995 when Georgia Republican Newt Gingrich was House speaker.
But those shutdowns had nothing to do with the debt limit. They were caused by failure of Congress to appropriate funds to keep federal agencies running.
And there are many temporary ways around the debt limit.
Hitting it does not automatically mean a default on existing debt. It only stops the government from new borrowing, forcing it to rely on other ways to finance its activities.
In a 1995 debt-limit crisis, Treasury Secretary Robert Rubin borrowed $60 billion from federal pension funds to keep the government going. It wasn't popular, but it helped get the job done. A decade earlier, James Baker, President Ronald Reagan's treasury secretary, delayed payments to the Civil Service and Social Security trust funds and used other bookkeeping tricks to keep money in the federal till.
Baker and Rubin "found money in pockets no one knew existed before," said former congressional budget analyst Stanley Collender.
Collender, author of "Guide to the Federal Budget," cites a slew of other things the government can do to delay a crisis. They include leasing out government-owned properties, "the federal equivalent of renting out a room in your home," or slowing down payments to government contractors.
Now partner-director of Qorvis Communications, a Washington consulting firm, Collender said such stopgap measures buy the White House time to resist GOP pressure for concessions.
"My guess is they can go months after the debt ceiling is not raised and still be able to come up with the cash they need. But at some point, it will catch up," and raising the debt limit will become an imperative, he suggested.
Republican leaders seem to acknowledge as much, but first want to force big concessions. "Do I want to see this nation default? No. But I want to make sure we get substantial spending cuts and controls in exchange for raising the debt ceiling," said the chairman of the House Budget Committee, Rep. Paul Ryan, R-Wis.
Clearly, the tea party types in Congress will be given an up-and-down vote on raising the debt limit before any final deal is struck, even if the measure ultimately passes.
"At some point you run out of accounting gimmicks and resources. Eventually the government is going to have to start shutting down certain operations," said Mark Zandi, chief economist for Moody's Analytics.
"If we get into a heated, protracted debate over the debt ceiling, global investors are going to grow nervous, and start driving up interest rates. It will all become negatively self-re-enforcing," said Zandi. "No good will come of it."
The overall national debt rose above $14 trillion for the first time the last week in December. The part subject to the debt limit stood at $13.95 trillion on Friday and was expected to break above $14 trillion within days.
"Federal deficit spending to hit $1.5 trillion this year, report says"
A Congressional Budget Office report says federal debt will keep rising to unsustainable levels unless tax and spending policies change. The report also projects only a modest drop in unemployment heading into the 2012 election.
By Lisa Mascaro (firstname.lastname@example.org), Washington Bureau, January 26, 2011
Reporting from Washington — Federal deficit spending will rise to $1.5 trillion this year, according to a report released Wednesday.
The report comes on the heels of President Obama's State of the Union address and in the midst of a burgeoning debate in Washington over federal budget cuts and spending, a front-line argument between Obama and congressional Republicans.
The report from the Congressional Budget Office said federal debt over the next decade will continue to balloon to unsustainable levels unless federal tax and spending policies change.
The report also projects only a modest decrease in the nation's unemployment rate, a key metric politically as the president faces a reelection campaign. By the fourth quarter of 2011, the CBO projects unemployment will drop from 9.4% to 9.2%. By the fourth quarter of 2012, when Obama seeks reelection, the unemployment rate will dip to 8.2%.
When President Reagan sought reelection in 1984, the unemployment rate hovered in the 7% range.
On the budget deficit, the report says the current recovery should mitigate the disparity between spending and revenue, but that the tax compromise Obama and Republicans agreed to in the lame duck session last month inhibited further deficit reduction.
By 2014, the deficit could be just a third of what it is today, but only if policies like the tax cut extensions agreed to last month are allowed to expire as scheduled.
The report warns that the nation's debt, as a share of its gross domestic product, could nearly double from 40% in 2009 to 77% by 2021, without changes in policy.
Lawmakers will soon face a showdown on spending when Congress must vote to approve raising the limit on the nation's debt.
Republicans voted on Tuesday, before Obama's speech, to revert federal spending to 2008 levels. They say they will accept an increase in the debt limit only if further cuts are made.
"A few years ago, reducing spending was important. Today, it's imperative," Rep. Paul Ryan (R-Wis.), chairman of the House Budget Committee, said in the GOP's official response to Obama's speech. "Instead of restoring the fundamentals of economic growth, [Obama] engaged in a stimulus spending spree that not only failed to deliver on its promise to create jobs, but also plunged us even deeper into debt."
Democrats slammed the GOP's move Tuesday as a "budgetless resolution."
"I want Republicans to take the deficit seriously -- to join President Obama and Democrats in making the hard choices it will take to get out of debt. But so far, with the opportunity to finally back up their words, they've given our country a record of disappointment," Rep. Steny Hoyer (D-Md.), the minority whip, said in a statement.
Michael A. Memoli contributed to this report
"US, state debts reach post-WWII level"
By Steven Mufson, Washington Post, March 6, 2011
WASHINGTON — The daunting tower of national, state, and local debt in the United States will reach a level this year unmatched since just after World War II and already exceeds the size of the entire economy, according to government estimates.
But any similarity between 1946 and now ends there. The US debt levels tumbled in the years after World War II, but today they are still climbing and even deep cuts in spending won’t change that for several years.
As President Obama and Republicans squabble over whose programs to cut and which taxes to raise, slow growth and a rising tide of interest payments — largely beyond their control — are making the job of fixing the budget much harder than in the past. State houses and governors face similar challenges.
After World War II, the federal debt — including debt purchased by the Social Security Trust Fund — hit nearly 122 percent of gross domestic product. State and municipal debt back then was minimal. By the time Dwight Eisenhower was elected president six years later, the federal government’s debt had dipped to about three-fourths of GDP.
The key factor in the rapid drop in government debt, said Harvard University economist Kenneth Rogoff, was fast economic growth.
Spurred by a young labor force, world-leading manufacturers, high personal savings rates, a pent-up demand for consumer goods after years of war and the Depression, and a bout of inflation, the economy grew 57 percent in six years. Due to sharp postwar cuts in defense outlays, federal government spending also tumbled for a couple of years.
But today the US economy is in a polar opposite condition. The labor force is aging, US manufacturing often lags behind Asian and European rivals, households are in hock up to their eyeballs, and consumer appetite for goods is tepid. In addition, inflation is tame and government spending locked into entitlement programs and debt service that will be hard or impossible to alter.
“We’re not growing like we were after World War II, so the amount of debt you can bear and the trajectory are much worse,’’ Rogoff said.
Moreover, today state and municipal governments are also facing fiscal woes — another difference between now and the postwar era. State and municipal governments from Sacramento to Madison, Wis., to Harrisburg, Pa., have racked up about $2.4 trillion in debt.
Even if analysts leave aside the debt held by the Social Security Trust Fund, the total indebtedness of federal, state, and local governments is running around 85 percent, versus 108.7 percent in 1946.
"February Federal Budget Deficit Sets Record: Economists Forecast This Year's Deficit To Be Biggest Imbalance On Record"
MARTIN CRUTSINGER, AP Economics Writer, March 10, 2011
WASHINGTON -- The federal government's budget deficit grew by $222.5 billion in February, the largest one-month increase in history. Economists are forecasting the deficit for the year will be the biggest imbalance on record.
The Treasury Department says the February deficit surpassed the old record for any month, a $220.9 billion imbalance set in February 2010.
Through the first five months of this budget year, which began Oct. 1, the deficit totals $641.3 billion, 1.6 percent below the pace set last year.
However, economists are predicting the deficit for this year will exceed last year's imbalance. The Congressional Budget Office is forecasting a $1.5 trillion gap, giving the country a third straight year of $1 trillion-plus deficits.
The swollen deficits reflect the impact of a severe recession on government revenues and efforts to jump-start growth with stimulus spending and stabilize the financial system with large bailouts.
President Barack Obama, when he sent Congress his new budget request last month, forecast a deficit of $1.56 trillion for this year. The current deficit record holder is a $1.41 trillion deficit in 2009. In 2010, the deficit remained above $1 trillion at $1.29 trillion.
This year's deficit is expected to be higher than 2010 because of a package of tax cuts approved in December. The bipartisan agreement extended the Bush-era tax relief for two more years and made other changes aimed at giving the economy a boost.
The agreement provided a 2 percentage point cut in workers' Social Security taxes this year and an accelerated tax write-off for businesses who invest in new equipment this year.
The government has run a deficit in February in 45 of the last 58 years. One reason for that is that the Internal Revenue Service is mailing out refunds to taxpayers while people who owe taxes often wait to pay until the April deadline.
Through the first five months of this budget year, the government's revenues total $869 billion, up 8.6 percent from the same period a year ago, while government spending totals $1.51 trillion, a 4 percent increase.
One of the big increases in spending was in interest payments on the debt, which totals $94.5 billion so far this budget year, up 9.3 percent from the same period a year ago. That reflects the growing size of the national debt because of the huge annual deficits.
Republicans won control of the House and more seats in the Senate by tapping in to voter unhappiness over the deficits. They are pushing for more than $60 billion in spending cuts this year to help shrink the deficit.
But President Barack Obama and congressional Democrats are objecting to the level of cuts, which they say will adversely affect education, college aid and support for low-income groups.
"The Debt Dilemma"
By YUVAL LEVIN, TIME, March 25, 2011
Leaders of democracies, like bear wranglers at the circus, must be experts at reading moods. Most of the time, the leaders of our two major parties seem to have much the same sense of the voters' basic concerns. But for the past two years, the parties have been operating under very different understandings of the public temper.
Democrats believed that the economic crisis made the electorate yearn for security, thereby creating an openness to large public programs. They enacted a gargantuan stimulus bill, expensive health care reform and other expansions of government. Republicans believed that the crisis alarmed voters about runaway government and debt, thus leaving them open to paring back the state. They ran on stopping and reversing the spending binge.
The 2010 elections suggested the Republicans were closer to the mark. But the Democrats continue to bet that voters were only venting and will reject actual cuts to popular programs. And so in the great budget battle raging in Washington, we still see two very different assessments of the public on display.
On its face, the debate is about how to address the government's enormous deficits and debt while growing the economy. The problem's scale is daunting. At more than $10 trillion, our debt has doubled in the past five years and will double again by decade's end. By the early 2030s, it will be roughly twice the size of our entire economy (far larger than the largest national debt in our history, right after World War II) and still growing out of control, gravely threatening future growth and prosperity.
The biggest reason for this long-term debt explosion is our system of entitlements. Republicans and Democrats in Washington both understand that reforming those entitlements (especially Medicare) is essential to making a real dent in the debt. But both also know that entitlement reform has always been deeply unpopular with voters.
That is where the parties' readings of the public mood become crucial. Because they believe that voters are just as opposed to entitlement reform as ever, President Obama and the Democrats have basically declined to offer any solutions to the nation's fiscal crisis. In his State of the Union address, the President said it was important to confront the problem of entitlement spending but did not propose to actually do so. The 2012 budget he released in February offered no reforms either and would accelerate the growth of debt.
Republicans, on the other hand, believe this is a fundamentally new moment in our politics and that political calculations need not lead to irresponsible policy. They have therefore committed to offering entitlement reforms in their 2012 budget, due out in early April. It seems that although they will be vague about Social Security, they will propose concrete reforms to Medicare. They are likely to leave untouched the benefits of Americans now over age 55. But for those who are younger, Medicare would be transformed into a system of vouchers that recipients would use to buy approved insurance of their choice.
The vouchers would provide about the same level of coverage as seniors currently get (with a little more for the poor and less for the wealthiest) but would grow more slowly than Medicare costs have and induce efficiency by making consumers more cost-conscious. Over time, such reform would yield enormous savings. But will voters be open to it?
Recent polls suggest that both the President and House Republicans run great risks with their strategies. Voters want real action to restrain spending and borrowing, but they have not come to terms with the fact that only entitlement reforms could make any real difference. They are therefore likely to judge Obama's inaction as inadequate and the Republicans' proposals as excessive. The question is which would bother them more.
Republicans have one advantage, though: the fact that their proposal would leave all today's retirees and near retirees untouched could dramatically alter the entitlement debate. In the past, Democrats have opposed entitlement reform to great political advantage, mobilizing seniors in defense of their benefits. But this time, Republicans will be making an unusual offer to older voters: "We will leave your benefits as they are and rescue your grandchildren from debt and decline."
Republicans hope that this novel appeal will neutralize some of the strongest opposition to reform of our entitlement system, allowing them to accomplish what was once politically unthinkable and markedly improve the nation's fiscal outlook. Their political future and the next presidential election may well hinge on whether they have read the mood of the country correctly.
Levin is the editor of National Affairs magazine.
"Budget surplus to deficit: How we got here"
politico.com - March 20, 2011
George W. Bush X 2 = Barack Obama in both extra spending — and tax cuts.
It’s a crude but fair summary of the two presidents based on new data mapping how the nation moved from surpluses in 2001 to record deficits over the past decade. And it takes on special meaning given the turmoil these days in the Senate, whether in producing a budget, salvaging months of work by the bipartisan Gang of Six or expanding the Treasury’s borrowing authority to avert default.
For Republicans, the new numbers — compiled by the Congressional Budget Office — bolster the GOP’s argument that President Barack Obama has gone well past Bush’s hearty appetite for new spending. But for Democrats, the same equation underscores the fact that the growth in discretionary appropriations since 2001 has been matched almost dollar for dollar by a series of tax cuts that were also expanded under Obama.
“Starve the beast is the worst kind of diet,” an administration official joked when told of the numbers. “It shows the beast eats more.”
Indeed, from 2002 through 2011, CBO estimates that the combined tax cuts enacted by successive Congresses cost $2.8 trillion, even as increased appropriations added $2.95 trillion above projections for discretionary spending.
Breaking down these numbers for the eight years under Bush, the annual average was almost identical: Tax cuts cost an extra $230 billion a year, as did appropriations. From 2009 through 2011, under Obama, extra spending ramped up to $495 billion, but tax cuts — measured against CBO’s 2001 baseline — also jumped to about $430 billion per year on average.
Democrats wince at Obama’s record here, and with Treasury having hit the federal debt ceiling this week, they want new revenues to be part of any bargain that will surely cut from their spending priorities.
Republican leaders are insisting on no new revenues and appear content to have a shorter extension of Treasury’s borrowing authority if it gives them a second bite at Obama’s domestic appropriations — as well as limited savings from government benefit programs and retirement payments to federal workers.
This is a risky strategy because it ensures a second debt vote for House members before they run in 2012. But the politics are such that this may be inevitable in any case, and Republicans want to avoid a repeat of the government shutdown fight that already consumed so much of this year.
This explains why Senate Minority Leader Mitch McConnell (R-Ky.) was so insistent at the White House last week that before any debt ceiling vote, he wants annual caps on appropriations decided for fiscal 2012, beginning Oct. 1, as well as 2013. At the same time, McConnell signaled that any grand bargain — when revenues and tax reform might come back into play — would be pushed back past the immediate August deadline.
“My greatest fear is a minimalist deal,” Senate Budget Committee Chairman Kent Conrad (D-N.D.) told POLITICO, and rather than proceed with a markup before Memorial Day, he announced Thursday that he will wait to see what the White House talks led by Vice President Joe Biden produce.
After a morning caucus, committee Democrats insisted they aren’t just stalling. “We’ll have a Democratic budget. I’m confident of that,” said Maryland Sen. Ben Cardin. Conrad argued that by waiting, he leaves open the option of using the budget resolution as a vehicle to help implement whatever agreement emerges from the Biden talks.
This was the pattern, in fact, for the major deficit-reduction agreements in the 1990s, but the delay in this case also serves to buy time to salvage months of work by the Gang of Six, of which Conrad is a member.
This bipartisan group has flirted for weeks with a final agreement on an ambitious deficit-reduction plan akin to the presidential debt commission’s report last December, tapping both revenues and spending cuts. As such, it posed a threat to leaders like McConnell, who had to be quietly delighted this week when Sen. Tom Coburn (R-Okla.) suddenly opted out of the group, isolating the two remaining Republicans, Sens. Saxby Chambliss of Georgia and Mike Crapo of Idaho.
Putting on brave faces, the survivors continue to meet. “We’re five guys who have been meeting, talking, deliberating for five months, and it’s hard just to, bam, cut it off,” Chambliss told POLITICO, but he allowed that “maybe nothing” will come of the effort and said he had no appetite for the group now issuing a report on the progress made. “We’re not going to issue a report of any sort,” Chambliss said.
In fact, such a report would only add to the risks he and Crapo have already incurred by taking a stand on revenues being part of the deficit mix. And Chambliss said Coburn has been so “integral” to the effort that getting him back in the fold is his first priority.
Absent that, one option under consideration, according to three senators, would be to expand the group substantially by inviting in concentric circles of additional Republicans and Democrats who have watched from the outside but have expressed support for the group’s work. No decisions have been made, the senators said, but this could jump-start the effort in time for it to be a force this summer or fall — depending on the debt ceiling talks.
The $6.2 trillion in accumulated deficits from 2002 through this year are certainly a big factor in the debt today — and in the needed debt ceiling increase. And CBO’s famous projection of surpluses during the same period has almost become part of Washington’s budget lore over the years.
But the little noticed table—posted last week—is the most detailed, up-to-date snapshot of how the world changed, beginning with the economy itself.
The largest single factor is a $3.4 trillion dropoff in projected revenues attributed by CBO to “economic and technical” changes. The year-by-year data reflect the economic downturn that Bush faced in his early years, and, under Obama, it accounts on average for about $680 billion annually.
Apart from the tax cuts and discretionary spending, nearly $1.4 billion in so-called mandatory spending is a fourth factor. These costs include the Medicare prescription drug benefit begun under Bush, the 2008 financial-rescue package, as well as expanded benefits — such as food stamps and jobless benefits — that have been part of Obama’s economic recovery effort. Most striking, the added cost of paying interest on the resulting deficits is almost as large: $1.37 trillion.
"Report warns debt could equal US GDP by 2021"
June 22, 2011
WASHINGTON (AFP) – The Congressional Budget Office warned that an explosion in public borrowing could lead to debt levels as high as 100 percent of the gross domestic product by 2021, if the current course remains unchanged.
The report by the independent budgetary think tank notes that federal debt will reach roughly 70 percent of GDP by the end of the year, the highest percentage since just after World War II.
That figure compares with a debt level of 40 percent of GDP at the end of 2008, which compares favorably with the 40-year average of 37 percent.
The non-partisan CBO also said that if tax cuts enacted since 2001 continue to be extended, the country's debt could be nearly twice the GDP by 2035.
The country's total debt reached its legal limit of $14.29 trillion in mid-May, and pressure has grown to raise that level ahead of an August 2 deadline.
After that, says the US Treasury Department, the United States would be in default.
Negotiations on increasing the debt limit have been underway for several weeks, led by Vice President Joe Biden, but little progress has been made.
Since Republicans control the House of Representatives, they have refused to raise the debt limit without achieving significant budget cuts in return.
These cuts involve reducing benefits from the retirement plan known as Social Security and the government-funded medical plans known as Medicare and Medicaid, something that Democrats say they will not accept.
The CBO report says these programs will have a major impact on future deficits.
"The retirement of the baby-boom generation portends a significant and sustained increase in the share of the population receiving benefits from Social Security, Medicare, and Medicaid," said the report.
"To keep deficits and debt from climbing to unsustainable levels, policymakers will need to increase revenues substantially as a percentage of GDP, decrease spending significantly from projected levels, or adopt some combination of those two approaches," the CBO recommended.
Publicly held debt is now at its highest level than at any time in American history other than the period after World War II when the costs of the war were being paid off.
In a report last month the Congressional Budget Office said the debt “is expected to equal roughly 70 percent of the economy’s annual output, or gross domestic product (GDP), at the end of this fiscal year, up from 40 percent at the end of 2008.”
The Associated Press and Reuters contributed to this story.
Source: "Obama confers with Democratic leaders on debt: Boehner tells GOP House members no deal is yet at hand" msnbc.com staff and news service reports - July 24, 2011.
"FACT CHECK: Recession is culprit in high US debt"
By TOM RAUM - Associated Press – August 20, 2011
WASHINGTON (AP) — It's the loud and clear consensus of Republicans in Congress and on the presidential campaign trail: Runaway government spending is the problem, not taxes.
But the math isn't so simple.
The number at the heart of the battle cry of the Republicans and their tea party allies — that federal spending has risen to an alarming 25 percent of the economy — is skewed by recession dynamics.
In recessions, federal spending always goes up and tax revenues go down. And the economy contracts in recessions, shrinking the gross domestic product, which is the total output of goods and services and the broadest measure of the economy's health.
Republicans are calling for sweeping spending cuts and want to hold the line on taxes, even as the U.S. struggles through one of its slowest recoveries since the Great Depression. The jobless rate has been stuck for months at more than 9 percent. With the economy slowing again, the odds of a new recession seem to be increasing.
While spending's share of the GDP might be at a post-World War II high, tax revenues have fallen to 14.4 percent of the index, the lowest since 1950.
This disparity between what comes in and what goes out plays into the Republican argument about runaway spending.
But it also reflects the mathematical reality that during recessions, tax revenues go down sharply because people and companies make less money and so pay less in taxes. Federal spending goes up, even before stimulus programs, with an increasing demand for government help from food stamps and unemployment compensation and other safety-net programs.
At the same time, the negative economic growth associated with recessions lowers the GDP number on the bottom of the equation, further boosting the ratio of spending to GDP.
Since 1970, federal spending has averaged just over 21 percent of GDP while tax revenues have averaged over 19 percent.
The last time since World War II that federal spending exceeded 23 percent of GDP was in 1982 and 1983, when it rose to 23.1 percent and 23.5 percent, respectively, during what was then called the worst recession since the Great Depression. A Republican, Ronald Reagan, was president, and he was hardly anyone's idea of a tax-and-spend liberal.
Federal spending is even higher now as a percentage of GDP, but not by much — just between 1 and 2 percentage points. That reflects the fact that the most recent recession was far deeper than the 1981-82 downturn, which lasted 16 months.
Much of the present large gap between tax revenues and federal spending comes not from political decisions but from what happens to a nation's finances during any deep recession, economists suggest.
But you wouldn't know it from some of the recent campaign rhetoric. The Republican candidates all want to shrink government's role by slashing spending and taxes, and repealing or suspending regulations.
—Former Massachusetts Gov. Mitt Romney asserted that, because of the rise of the ratio of government spending to GDP on President Barack Obama's watch, "We're inches away from no longer having a free economy."
—Former Pennsylvania Sen. Rick Santorum: "We're now at almost 25 percent (of GDP) ... the problem is spending, not taxes."
—Reps. Ron Paul of Texas and Michele Bachmann of Minnesota insisted they would never vote to raise the U.S. debt limit and they decried the rise in federal spending. The recent bipartisan debt deal, which includes a big spending-cut component, won the support of many tea party-aligned lawmakers, however.
—Texas Gov. Rick Perry said that Federal Reserve Chairman Ben Bernanke would commit a "treasonous" act if he "prints more money" before next November's elections. "We would treat him pretty ugly down in Texas," Perry told an Iowa audience. Economists generally credit Bernanke with helping save the nation's financial system by stimulating it with a flood of new money.
Economist Bruce Bartlett, who worked in the administrations of both Reagan and President George H.W. Bush, said some of the statements by Republicans make him cringe. "And what sometimes makes me cringe more is the silence from their competitors."
Bartlett includes the solid opposition to any tax increases from the entire GOP field, citing the recent debate when not a single Republican participant would agree to accept even a mix of $1 in new taxes for every $10 in spending cuts.
"It's the cowardice of people who know they're wrong when they say these things that disturbs me more than the fact that some people say crazy things," Bartlett said. He said the Republicans were clearly playing to the party's conservative base for the primary elections "but when you repeat these things, they tend to get solidified."
He added, "The same is true in both parties. It's just that there's no primary race on the Democratic side."
The intense focus by Republicans and some conservative Democrats on cutting spending to reduce the national debt, now at nearly $14.5 trillion, helped put deficit reduction high on the priority list for both parties.
But polls continue to show that people are more concerned about the lack of jobs than they are the deficit. Nearly 15 million are jobless in the U.S.
Obama, now on vacation, plans a major speech on the economy after Congress returns in September, trying to emphasize jobs and help the poor and middle class, aides said. The plan is expected to contain a mix of tax cuts, construction projects and steps to help the long-term unemployed.
Even though the pace of recovery is painfully slow, any improvements in the jobs situation will help spur stronger economic growth, leading to more tax revenues and lower federal spending.
"If the economy starts to get better, then everything gets better," said Democratic strategist Mark Mellman.
But it will be a slog.
As the recession that began in December 2007 intensified, federal spending increased from 20.7 percent of GDP in 2008 to 25.0 percent in 2009, according to figures compiled by the White House budget office. And while the recession was officially declared over in early summer 2009, overall federal spending was 23.8 percent of GDP last year and is projected to come in at 25.3 percent for 2011 amid fears of a new, or "double dip," recession.
"Federal budget deficit to dip to $1.1T, CBO says"
By ANDREW TAYLOR, Associated Press – January 31, 2012
WASHINGTON (AP) — The government will run a $1.1 trillion deficit in the fiscal year that ends in September, a slight dip from last year but still very high by any measure, according to a budget report released Tuesday.
The Congressional Budget Office report also says that annual deficits will remain in the $1 trillion range for the next several years if Bush-era tax cuts slated to expire in December are extended, as commonly assumed — and if Congress is unable to live within the tight "caps" the lawmakers themselves placed on agency budgets last year.
The report is yet another reminder of the perilous fiscal situation the government is in, but it's commonly assumed that President Barack Obama and lawmakers in Congress will be able to accomplish little on the deficit issue during an election year. The report was slightly more pessimistic than CBO's most recent projections last summer and would mean the fourth straight year of trillion-dollar-plus deficits.
The recent wave of shocking, trillion-dollar-plus deficits has been largely a product of the recent deep recession and the slower-than-hoped recovery. The jolt to the economy has made a permanent dent in revenue estimates but the budget crunch will get even worse with the retirement of the Baby Boom generation and the resulting strain of Social Security and Medicare.
The report prompted a familiar wave of statements from lawmakers casting blame on the other for the fiscal mess.
"Four straight years of trillion-dollar deficits, no credible plan to lift the crushing burden of debt," said House Budget Committee Chairman Paul Ryan, R-Wis., "The president and his party's leaders have fallen short in their duty to tackle our generation's most pressing fiscal and economic challenges."
"We will not solve this problem unless both sides, Democrats and Republicans, are willing to move off their fixed positions and find common ground," said Senate Budget Committee Chairman Kent Conrad, D-N.D. "Republicans must be willing to put revenue on the table."
Republicans acknowledge that Obama inherited a budget mess and an economy in recession, but they say he's done little to try to keep his 2009 promise to cut the deficit in half by the end of his first term.
"We know that President Obama's policies have failed to produce the economic growth needed to pay down these massive deficits that are creating uncertainty, preventing economic recovery, and harming job creation," said House Majority Leader Eric Cantor. "When something doesn't work, you change it. Let's try something new."
The CBO study also predicts modest economic growth of 2 percent this year and forecasts that the unemployment rate will be 8.9 percent on Election Day. That is based on an assumption that President Barack Obama will fail to win renewal of payroll tax cuts and jobless benefits through the end of the year.
That jobless rate is higher than the rates that contributed to losses by Presidents Jimmy Carter (7.5 percent) and George H.W. Bush (7.4 percent). The agency also predicts that unemployment will average 9.1 percent in 2013 and remain at 7 percent or above through 2015.
CBO Director Douglas Elmendorf, however, told reporters that extending the two percentage point cut in Social Security payroll taxes would only lift the economy by perhaps one-fourth of a percentage point this year and would likely yield only a 0.1 to 0.2 percentage point drop in the jobless rate.
The agency's budget projections are worse than those issued last summer, in large part because its views on the economy are more pessimistic now. Last August, CBO predicted a $953 billion deficit for 2012 fiscal year. Corporate tax receipts are sharply lower than anticipated last year.
On the economy as a whole, CBO now predicts 2 percent growth from the fourth quarter of 2011 to the fourth quarter of this year, a 0.7 percentage point drop from its August numbers. Its predictions of the jobless rate are 0.4 percent higher.
"We have not had a period of such persistently high unemployment since the Depression," Elmendorf said.
The new figures also show that last summer's budget and debt pact has barely made a dent in the government's fiscal woes.
The pact imposed $2.1 trillion in spending cuts over 10 years, but lawmakers are already talking about easing across-the-board spending cuts required under the agreement. The modified estimates predict $11 trillion in accumulated deficits over the 2013-2022 if the Bush-era cuts in taxes on income, investments, large estates and on families with children are renewed. Obama has proposed largely extending them, but allowing them to expire for upper-income taxpayers.
Extending the full range of the Bush tax cuts costs $5.4 trillion over the coming decade, CBO says. Elmendorf said allowing tax rates to increase for families making more than $250,000 a year as Obama has proposed would shave more than $1 trillion from the 10-year costs of extending the tax cuts.
Last year, Obama and House Speaker John Boehner, R-Ohio, tried but failed to reach a "grand bargain" on the deficit, an effort that got hung up over taxes and cuts to major benefit programs like Medicare. A subsequent attempt by a congressional "supercommittee" to find smaller saving sputtered over the same issues.
What's left is a heap of unfinished business that comes to a head at the end of the year: expiring tax cuts and painful across-the-board cuts to the Pentagon and many domestic programs. To top it off, another politically toxic increase in the debt limit will have to be passed by Congress at some point early next year.
The deficit would require the government to borrow 30 cents of every dollar it spends. Put another way, the deficit will reach 7 percent of the size of the economy, a slight dip from last year's 8.7 percent of gross domestic product.
The CBO report shows that the deficit dilemma would largely be solved if the tax cuts enacted in 2001 and 2003 — and renewed in 2010 through the end of this year — were allowed to lapse. Under that scenario, the deficit would drop to $585 billion in 2013 and to $220 billion in 2017.
But expiration of those tax cuts would slam the economy, CBO said, bringing growth down to a paltry 1.1 percent next year. However, the economy would quickly rebound in 2014 and beyond.
Obama is scheduled to release his 2013 budget on Feb. 13, 2012.
"US deficit tops $1 trillion for fourth year"
By MARTIN CRUTSINGER | Associated Press – October 12, 2012
WASHINGTON (AP) — The U.S. budget deficit has topped $1 trillion for a fourth straight year, but a modest improvement in economic growth helped narrow the gap by $207 billion compared with last year.
The Treasury Department said Friday the deficit for the 2012 budget year totaled $1.1 trillion. Tax revenue rose 6.4 percent from last year to more than $2.4 trillion, helping contain the deficit.
The government's revenue rose as more people got jobs and received income. Corporations also contributed more tax revenue than in 2011.
Government spending fell 1.7 percent to $3.5 trillion. The decline reflected, in part, less defense spending as U.S. military involvement in Iraq was winding down.
Barack Obama's presidency has now coincided with four straight $1 trillion-plus annual budget deficits — the first in history and an issue in an election campaign that ends in Nov. 6.
Obama's Republican challenger, Mitt Romney, contends that Obama failed to achieve a pledge to halve the deficit he inherited by the end of his first term.
When Obama took office in January 2009, the Congressional Budget Office forecast that the deficit for that year would total $1.2 trillion. It ended up at a record $1.41 trillion.
The increase was due, in part, to higher government spending to fight the worst recession since the Great Depression of the 1930s Tax cuts enacted under President George W. Bush and wars in Iraq and Afghanistan contributed to the deficits.
The budget gaps in 2010 and 2011 were slightly lower than the 2009 deficit as a gradually strengthening economy generated more tax revenue. But the deficits still exceeded $1 trillion.
Obama is campaigning for a second term with a pledge to cut deficits by $4 trillion over the next decade. He says he would do so by ending the Bush-era income tax cuts for higher-income Americans and by restraining the growth of spending.
Romney has said he would cut spending growth to help narrow the budget gap. He would cap spending at 20 percent of the economy by 2016. Spending in 2012 accounted for about 23 percent of the economy.
The government borrowed about 31 cents of every dollar it spent in 2012. The string of $1 trillion-plus deficits has driven the national debt above $16 trillion. The magnitude of that figure has intensified debate in Congress over spending and taxes but little movement toward compromise.
Many fear the budget deadlock will send the economy over a "fiscal cliff" next year, when tax increases and deep spending cuts will take effect unless a budget deal is reached.
Obama wants to eliminate the income tax cuts for families that make more than $250,000.
Republicans in Congress and Romney have resisted. They argue that with the economy still weak, the government should not be raising anyone's taxes.
Congress may address the budget crisis during a lame-duck session of Congress after the November elections.
"Projected lower deficit could slow any budget deal"
By ANDREW TAYLOR - Associated Press – May 15, 2013
WASHINGTON (AP) — The good news is the budget deficit for the current year is projected to come in well below what was estimated just a few months ago. The bad news for deficit hawks is that the development could further curb the already slowing momentum for a budget pact this year.
A Congressional Budget Office study released Tuesday cites higher tax revenues and better-than-expected payments from government-controlled mortgage giants Fannie Mae and Freddie Mac as the key reasons for this year's improved outlook. The budget office now predicts a 2013 budget deficit of $642 billion, more than $200 billion below its February estimate. This year's shortfall would register at 4 percent of the economy, far less than the 10.1 percent experienced in 2009, when the government ran a record $1.4 trillion deficit.
While the recovering economy is producing greater revenues, the improving deficit picture also reflects the accumulating effects of prior rounds of spending cuts — mostly tamping down day-to-day agency budgets — and January's tax hike on wealthier earners.
Often lost amid Washington's budget battles is that the nation's dysfunctional capital city actually has had success in cutting the deficit — up to $3.9 trillion over the upcoming decade, depending on how one does the math.
Now, the improving picture seems likely to make it more difficult for events to force Washington's exhausted budget combatants closer to a deal. For starters, it means that the deadline for increasing the government's borrowing cap has been postponed until October or November, the CBO said. It had been expected that lawmakers would have had to act this summer to increase the so-called debt limit, which could have been a catalyst for a broader budget deal.
Last year's deficit was $1.1 trillion, capping four consecutive trillion dollar-plus deficits during President Barack Obama's first term. The accumulated federal debt currently exceeds $16 trillion, almost double what is was at the end of 2006.
The deficit picture is expected to continue to improve next year and beyond, with the 2015 deficit now projected at $378 billion, just 2.1 percent of the economy. All told, the budget office predicts deficits over the coming decade of $6.3 trillion, down $618 billion from earlier projections.
The CBO report comes as Washington has again hit budget gridlock after enacting a $600 billion-plus tax increase on upper-bracket earners in January. The report could sap momentum from further deficit-cutting efforts since the shortage will fall below 3 percent of the economy for several years, levels considered by many economists to be sustainable.
The deficit cuts enacted in previous, hard-fought battles between Obama and Republicans have come disproportionately from the category of the federal budget known as "discretionary" spending. That's the money provided annually in congressional appropriations acts. Such funding goes toward the day-to-day operations of government agencies, including the Pentagon and domestic agencies. Examples include federal aid to schools, medical research, the military and operating national parks and the air traffic control system.
The cuts to discretionary programs began in 2011 with two rounds of appropriations bills that have wrung more than $1.5 trillion from projected agency spending over the 2014-2023 time frame. Such savings generally are claimed by taking away much of the inflation increases assumed under Washington's arcane budget rules. There's an additional $300 billion in interest savings because the government has to borrow less money.
And $850 billion in deficit cuts over the coming decade comes from the January tax increase on higher-bracket earners and commensurate interest savings. Added to the cuts to agency budgets, and there's a total of $2.7 trillion in deficit savings
There's disagreement over how to count $1.2 trillion in additional deficit savings over a decade from across-the-board cuts known as sequestration, which result from the failure of a 2011 deficit "supercommittee" to agree on a plan to replace them. The original idea behind the cuts was that they would be so harsh as to drive the supercommittee to strike a deal. A subsequent "fiscal cliff" solution in January only partially repealed the sequester cuts.
Democrats leave the sequester out of their calculations, preferring to replace them in their entirety. But under the rules binding the CBO, the nonpartisan agency that does economic and budget analysis for Congress, they are included in official projections.
If one adds in the sequester savings, the amount of already accomplished deficit reduction — measured over the upcoming 2014-2023 budget window — gets as high as $3.9 trillion.
The White House's math is a little different, but top advisers to Obama say much of the deficit problem is taken care of.
"We have already achieved $2.5 trillion in deficit reduction and believe achieving $1.5 trillion-$1.8 trillion more in a balanced way is the best way to hit that target," White House economic adviser Gene Sperling said in a White House online chat earlier this year. By Sperling's calculations, finding $1.2 trillion in spending cuts or new revenues to eliminate the across-the-board sequester cuts would solve most of the remaining problem.
One of the reasons for the burst of additional income tax revenues, the budget office says, is that upper-income taxpayers claimed more income late last year in order to avoid paying the higher capital gains tax rates enacted in January.
The CBO predicts that publicly held U.S. debt, currently estimated at 75 percent of gross domestic product, will shrink to 71 percent of gross domestic product over 2017-2019 before inching up again at decade's end. As recently as 2007, the budget office notes, federal debt was just 36 percent of GDP.
"Such high and rising debt later in the coming decade would have serious negative consequences," the CBO says, citing longstanding arguments that high deficits and debt reduce national saving and investment and increase the risk of a full-blown fiscal crisis.
"U.S. posts $117 billion budget surplus in June"
Reuters – July 11, 2013
WASHINGTON, July 11, 2013 (Reuters) - The U.S. government posted a budget surplus in June, the latest sign of rapidly improving public finances that could reduce the urgency in Congress to strike a deal to raise the nation's limit on borrowing.
Rising tax revenues, public spending cuts and big payments to the Treasury from state-backed mortgage firms helped the government take in $117 billion more last month than it paidout, the U.S. Treasury said on Thursday.
Analysts polled by Reuters had expected a smaller surplus of $39.5 billion.
June's surplus was the largest for that month on record.
An improving economy and tax hikes enacted earlier in the year led government receipts to rise to $287 billion, up 10 percent from a year earlier.
Also driving the surplus in June, state-backed mortgage companies Fannie Mae and Freddie Mac, which were bailed out by taxpayers in the wake of the financial crisis but have since returned to profitability, poured billion of dollars into public coffers.
Fannie Mae, which said in May it would return $59 billion tothe Treasury in dividends, provided most of the funds.
The improving budget picture has drained away Congress' urgency to negotiate a budget deal that would raise the federal borrowing limit.
Across-the-board budget cuts began March, which also contributed to the surplus. (Reporting by Jason Lange)
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