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Obama budget: White House defends $1.267 trillion federal deficit

Many finance experts say that Obama's basic strategy on the federal deficit is the right one for a fragile economy, but the effort carries economic risks.

By Staff writer / February 1, 2010

Joined by his economic team, President Barack Obama delivers a statement on his budget that he sent to Congress, Monday, in the Grand Foyer of the White House in Washington.

Pablo Martinez Monsivais / AP

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President Obama's budget hinges on a time-honored strategy: Spend now and plan to get Washington's fiscal house in order later.

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And the "later" part, so far, looks like much later.

The federal deficit would be about $1.267 trillion in 2011 under the budget that Mr. Obama submitted to Congress Monday. By 2020, the White House forecasts a smaller deficit, but one that still exceeds $1 trillion.

For the Obama administration, those big deficits are part of a carefully crafted strategy: focusing first on boosting the economy and jobs, then pivoting gradually toward fiscal discipline.

While Washington has long been enamored of deficit spending in good times as well as bad, many finance experts say that Obama's basic strategy is the right one for a nation still mired near the trough of a deep recession.

But the effort carries economic risks. Investors could demand higher interest rates on Treasury debt because of worries that Washington will never act to bring deficits down. The recent debt crisis in Greece is a reminder of the kind of troubles that can arise – and large nations like the United States are not necessarily immune.

The size of federal deficits could also create political challenges for Obama, if Republicans are able to cast themselves as a party of fiscal restraint. Recent polls find that voters are very concerned about big federal deficits, just as they are about jobs.

Against this backdrop, Obama and his aides on Monday sought to make a two-part case for Obama's plan. Their first point is that a sharp reduction in deficits now would be a bad policy. The second is that the president is making serious efforts at spending restraint – even with the context of high deficits – and is committed to fixing America's fiscal problems for the long term.

"We’re trying to find this balanced approach in which we have a smooth glide path" toward fiscal sustainability, Budget Director Peter Orszag said Monday in a media briefing. "We don’t want to act too rapidly to bring down the deficit."

Obama's plans already make headway on taming deficits, he said. But finishing the job “requires a bipartisan process, and that’s what we’re pursuing," he added.

Treasury Secretary Timothy Geithner has outlined the goal of bringing annual budget deficits down to 3 percent of US gross domestic product. By hitting that target, the national debt would remain constant as long as GDP grows by 3 percent.

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