Obama Makes No Promises on a Balanced Budget

Facing a mounting federal deficit that could top $1 trillion, President-elect Barack Obama called budget reform "a necessity" Tuesday and vowed to find new ways to restore fiscal discipline.

But one thing Obama didn't promise was a balanced budget. Even if he scrubs the budget of all waste, fraud and abuse, he's unlikely to make a significant dent in the super-sized deficit.

"There's no way that he's going to be able to balance the budget in his first term. No one could," said Isabel Sawhill, a budget expert at the Brookings Institution. "It's simply not feasible."

While no one likes running massive deficits, Obama's aides argue that increased government spending is necessary to keep the economy from falling into a deeper recession. The new administration is working on the details of a massive recovery plan to create, or save, 2.5 million jobs. The economic stimulus package is expected to cost several hundred billion dollars and not be offset by the tax increases on wealthy families that Obama promised during the campaign.

"In the short run, we're facing a very large deficit, but it's one that we have to incur," Obama economic adviser Austin Goolsbee said Monday on MSNBC. "If you try to reduce the deficit or balance the budget in the face of the stiffest recession in decades, you threaten to repeat the mistake that caused the Great Depression."

Even deficit hawks see no contradiction in Obama talking about fiscal restraint and new spending, given the seriousness of the economic situation.

"Both of these messages are necessary to restore everyone's confidence in the American economy and the U.S. federal government,' said Diane Lim Rogers, chief economist for the Concord Coalition, a group that advocates for balanced budgets.

As recently as seven years ago, the government ran a surplus. But the Sept. 11 terrorist attacks, the wars in Iraq and Afghanistan and two rounds of tax cuts swelled the deficit to a record $455 billion for the fiscal 2008 year.

That number will more than double next year, say economists, once the government counts the billions of dollars spent by the Treasury and Federal Reserve to help jump-start the economy and the reduced tax revenues brought in as a result of the slowed economic growth.

"Right now the government is bailing out the private sector, but who's going to bail out the U.S. government?" asked Sawhill. "A huge deficit would have such disastrous consequences that we shouldn’t take the chance of it happening."

To get out of the current financial hole, budget experts say that the government must spend on large-scale infrastructure and other projects that will stimulate the economy. And that means accepting a higher deficit, at least in the short term.

"If there are some symbolic spending cuts, I could see the psychic value of that, that political value, but you don't want to have a net reduction of federal spending right now because that would be anti-stimulative," said Stan Collender, a former congressional budget aide.

In the long term, though, high deficits could have serious negative consequences. Running massive debts could cause foreign governments to curtail lending to the United States, funds that the country desperately needs given its weak economy. And mounting interest payments would suck up increasing amounts of government funds.

Once the economy recovers, however, scrubbing the budget of waste and fraud won't be enough to get the deficit under control, budget experts say.

To balance the budget, Obama will have to find ways to cut massive spending on health care and Social Security — entitlement programs that will balloon in size as Baby Boomers age. He'll also have to find ways to raise more revenue, either by slashing spending or raising taxes.

But until the economy starts down the road to recovery, Collender advises budget hawks to "take a chill pill."

"Fixing the economy requires an attitude adjustment, he said. “Blue Dogs, deficit hawks — and I'm one of them — have to understand that the deficit is just not the biggest priority right now, and continuing to harp about it will cause a lot of people to lose a lot of credibility."

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