Surging Spending in a Receding Economy

J.T. Young writes about what is likely to be the biggest political issue of the next few election cycles: The deficit and government spending.

America's emerging policy issue is the federal budget deficit. According to the 7/2 released CNN/Opinion Research Corp. poll of 1,026 adults (conducted 6/26-28 with a 3.1% +/- margin of error), the federal budget deficit ranked second only to the economy as "the most important issue facing the U.S. today." That's ahead of health care, the wars in Iraq and Afghanistan, and energy policy.

The public's concern is not surprising. While the U.S. economy has been shrinking, the U.S. government has been anything but. The recession's effect on the federal spending and the deficit can be painted in a few bold strokes. Even using the Congressional Budget Office's March estimates -- which do not include the effect of recent spending legislation -- it's not a pretty picture.

Federal outlays, the true measure of the government's size, are estimated by CBO to be $3.853 trillion this year. This is greater than the entire U.S. economy was in 1984. The federal government now consumes more than America produced just a generation ago.

Those federal outlays now account for 27.4 percent of all America produces today. Less than three-fourths -- 72.6 percent -- is left for all the nation's other uses. This ratio of spending to the total economy is higher than at any point since WWII.

As a result of this spending, the deficit is 11.9 percent of the economy. The deficit too is higher than at any time since WWII and would pay for two-thirds of all America's health care spending.

So, while Barack Obama pushes his Obamacare takeover of our health care system by complaining that Americans could spend as much as 5 percent of their total income on health care ten to twenty years from now, he creates a situation in which most working Americans could spend upwards of 60% on taxes and increased prices directly due to taxes, and we still will not put a dent in the deficit mess that he did not inherit.

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Budget Deficit Will Be Higher than Obama Wants to Admit

President Obama's $3.55-trillion budget has stumbled into a series of economic and political pitfalls that threaten to undercut his grandest ambitions.

The chairman of the Senate Budget Committee on Thursday projected deficits far higher than the Obama administration had calculated, possibly as much as $1.6 trillion higher over the next 10 years. The nonpartisan Congressional Budget Office is expected to issue a similar assessment today.

That bad news, combined with other recent developments, portends a rocky road for the Obama budget, which was initially hailed by congressional Democrats for promoting such liberal priorities as expanded access to health insurance and curbs on global warming.

In the three weeks since the budget was unveiled, fiscally conservative Democrats have raised concerns about proposed spending increases. Leaders of the House and Senate tax-writing committees have criticized some of Obama's proposed tax increases on wealthier Americans. And influential Democrats are backing away from using a legislative shortcut that may be Obama's best hope for passing his far-reaching health and energy policies.

An additional multibillion-dollar bailout for banks and other financial institutions, which the administration will soon propose, is expected to add more pressure to the federal government's finances.

Into that tinderbox, a lit match has come from new deficit estimates.

Where Obama's budget foresees rolling up $7 trillion in cumulative deficits over the next 10 years, Sen. Kent Conrad (D-N.D.) on Thursday pegged the deficits at $1.6 trillion higher over that period.

Conrad, chairman of the Senate Budget Committee, said the figure was calculated by his panel's Democratic staff members.

The Congressional Budget Office report today is expected to reflect a worsening deficit outlook in part because economic conditions have deteriorated in the two months since the administration set its budget assumptions. The office is expected to project lower revenue and higher spending than what Obama's budget assumed.

Sen. Ben Nelson (D-Neb.), one of about 15 moderate Democrats concerned about Obama's spending levels, said the White House might have to reassess its priorities in light of the new estimates.

"That will influence what we might think is the appropriate level of spending -- what might be put off to another budget, what we can pursue incrementally," said Nelson, a member of the budget panel.

"I think this budget is in for some tough sledding," said Sen. Lindsey Graham (R-S.C.). "Some components of his budget are going over like a lead balloon."

But House Speaker Nancy Pelosi (D-San Francisco) won't let facts and projections get in the way of her liberal agenda.

"Our priorities are the same," Pelosi said. "You can't say we are going to do less because those numbers are pessimistic."

The White House also said the projections would not force a change in the socialization of America.

"It's not productive to constantly be chasing your tail and, as things change every day, revise your numbers," was the spin from Kenneth Baer of Obama's budget office.

In other words, "Bush spent too much money and had huge deficits.  This is all his fault.  In order to get us out of this mess, we're going to have to spend even more money and have even bigger deficits!"

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