How Obama’s Budget Affects the Deficit


NEW YORK (MainStreet) — President Obama released his much anticipated budget proposal Monday, calling for sizeable cuts in government spending that are expected to shave $1.1 trillion from the national deficit over the next decade.

It’s certainly an admirable proposal – and a much needed one in the long run – but it may obscure the truly startling statistic in the report: As part of the budget proposal, the Obama administration also predicted that the government’s budget deficit for this year will skyrocket to an all-time high of $1.65 trillion, up from $1.29 trillion for the 2010 fiscal year.

While Congress and the administration will certainly go back and forth this week debating the president’s plans to improve the budget in the future, nothing that ends up in the final plan will impact the deficit figure for this year. So even as legislators work to gradually balance our nation’s checkbook for the years to come, this figure should serve as a wake-up call for Washington and the country as a whole to figure out how we got to this point, and what we need to do to fix it.

For starters, given the depth of our budget deficit this year, it may be difficult to remember that the country was actually debt free throughout most of the 1990s.

“We obviously have a very deep problem facing us with our deficit, but we didn’t always,” said Jack Lew, director of the Office of Management and Budget, in a recent video posted by the White House offering a brief history of our nation’s deficit. “As a government, we were running a surplus not too many years ago.”

In fact, as of 2001, the country operated with a budget surplus of $5.6 trillion. So what happened? The short answer, as any shopaholic surely knows, is that we simply lived beyond our means as a country and refused to pay for the purchases we made during the past decade.

“Some of [the deficit] is a result of the economic downturn, and some are a result of making a number of policy decisions like cutting taxes and increasing spending without paying for it,” Lew said.

This includes everything from the Bush tax cuts extended for all Americans by the Obama administration to increased spending for two wars and a Medicare drug benefit program approved by the Bush administration without adequate funding. Add to this the country’s growing indebtedness to entitlement programs like Social Security as well as Medicare, and you have a recipe for a budget disaster.

The president’s new budget plan will not eliminate the budget deficit, but according to Lew, it will begin the process of taking our country from a deficit that is “unsustainable” to “a place where we can actually pay our bills and have a stable and secure future.”

As Lew notes, the deficit when Obama took office was approaching 10% of our nation’s gross domestic product and this year is hovering near 11%, or what he calls “a huge deficit.” That percentage is already slated to improve in the coming years, as the economy begins to grow and our GDP increases, but the newly proposed budget plan would hasten that improvement, dropping the deficit-to-GDP ratio by more than half in the next two years. Eventually, the deficit would level off at roughly 3% of our nation’s GDP for the second half the decade.

Of course, this still means the country would be living in the red for the foreseeable future, which is why Lew refers to this plan as a “down payment.”

“Like every family, we have to tighten our belts and live within our means, while investing in the things we need to have a strong and secure future,” Lew said.

The goal is that this budget plan will allow for the breathing room to make other tough decisions in the years to come about how to return to a debt-free government. Let’s hope that these tough decisions don’t get put off too much longer.

—For a comprehensive credit report, visit the Credit Center.

Show Comments

Back to Top