Obama's promises face a rough road ahead

A government mired in debt combined with a recession will make the path to recovery difficult for the president-elect.

By David R. Francis

posted November 06, 2008 at 2:30 p.m. EST

President-elect Barack Obama warned in his Chicago victory speech that the "road ahead will be long." His goals, he said, may not be reached "in one year or even one term."

Budget experts say, "Amen."

A deeply troubled economy, they hold, won't allow Mr. Obama to raise taxes in 2009 to start paying for his ambitious plans to improve healthcare, education, infrastructure, and other areas.

"No one will raise taxes in times of an economic downturn," notes Stan Collender, a veteran fiscal analyst with Qorvis Communications in Washington. He doubts that a tax hike will even be talked about much in 2009.

"It's politically difficult to raise taxes at any time," adds Brian Riedl, a budget expert at the Heritage Foundation, a conservative think tank in Washington.

The Concord Coalition, a Washington group pushing for responsible budgets, cautions: "Campaign promises will bump up against reality."

Without 60 votes in the Senate to override a filibuster, Obama may not even get Congress to quickly pass his campaign proposal to raise taxes on the rich. His goal of spreading wealth around a bit may have to await until the Bush tax cuts expire at the end of 2010.

Congress will almost certainly approve, either this year or early next year, an expensive stimulus package. With the economy in recession, budget experts figure Congress will ignore the prospect of a $1 trillion federal deficit in the current fiscal year ending next Sept. 30, even though the national debt clock is already ticking away at the $10.6 trillion level.

During the Great Depression, after the 1932 election, Franklin D. Roosevelt refused President Herbert Hoover's offer to be involved in economic policymaking before Inauguration Day, apparently for political reasons. In those days, inauguration wasn't until March 4.

But Mr. Collender expects Obama to be involved in budget affairs, maybe even other economic matters, before being sworn into office Jan. 20. Obama won't want to "appear weak, indecisive, and unwilling to govern," he notes. Second, the turmoil in global financial markets "will virtually demand" the president-elect to be very visible. And, third, Collender argues, the Democratic majorities in Congress will want to know Obama's views on an economic rescue package. After all, many Democrats owe their re-election or election to Obama's popularity.

"[Obama] will and should get involved in fiscal-stimulus negotiations" in Congress this year, says Robert Bixby, executive director of the Concord Coalition. He also should have "some input" on the $700 billion financial-rescue package being implemented by the Bush Administration. "You can't have two presidents at once," Mr. Bixby notes. But he considers the unprecedented involvement of the government in finance through the "troubled asset relief program" (TARP) as justifying Obama's inclusion in some degree.

Peter Morici, an economist at the University of Maryland's business school in College Park, urges Obama to make a "quick selection" of a Treasury Secretary to work with current secretary Henry Paulson on the banking crisis and House Speaker Nancy Pelosi on a stimulus package.

Getting the federal budget into better balance is seen as a longer-term goal.

At the moment, Mr. Riedl sees a "base" deficit of $500 billion in fiscal 2009. Add to this $250 billion in immediate outlays under TARP, a $250 billion drop in revenues because of the recession, and a second stimulus package that could cost $250 billion, and you get a deficit of $1 trillion to $1.5 trillion. So finding money to pay for an Obama program won't be easy.

Obama talks of going through the budget line-by-line to eliminate programs that are not working. Budget experts aren't hopeful he will find big money.

Obama promised a 16-month withdrawal of troops from Iraq, a war costing the United States at least $150 billion a year. But Riedl notes that savings will be less than that sum, since some troops returning home will continue to be paid for and housed by Uncle Sam in the US. Also, some may be sent to Afghanistan.

The US currently spends more on defense than every other nation in the world combined, by some measures. And Rep. Barney Frank (D) of Mass­achusetts, chairman of the powerful Financial Services Committee, has suggested slashing defense spending by a quarter. That would be big money. But Riedl sees it as "unrealistic."

Nonetheless, Eugene Steuerle, vice president of the Peter G. Peterson Foundation, says tough economic times have historically been periods when "the most important and best government reforms are passed." So he hopes the current turmoil will lead Obama and Congress to find ways to tackle some of unfunded promises in the area of healthcare and retirement and thereby get control of the budget mess.

Maybe, he says, Obama can get "something done" in his honeymoon period in Washington.