Scot Lehigh

A dose of fiscal reality for Obama

By Scot Lehigh
April 3, 2009
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PRESIDENT OBAMA has Icarus issues.

Having escaped from exile in Crete, the exuberant mythological lad flew too close to the sun, thereby melting the wax that held together his make-shift wings. The result: one precipitous plunge.

Having led the Democrats out of Oval Office exile, Obama is also soaring - but worries about the cost of his ambitious plans have started to warm the wax of Democratic cohesion. Catalyzing that concern is the Congressional Budget Office's prediction that the president's program will be significantly more expensive than advertised.

The Budget Office foresees a 10-year cumulative deficit of $9.3 trillion - which is $2.3 trillion higher than the administration's estimate. The government will spend an average of 23.7 percent of GDP yearly while taking in 18.4 percent of GDP in revenue during that period, it says.

The bottom line: yearly federal deficits averaging 5.3 percent of GDP - and a budget gap of about $1.2 trillion in 2019.

Although the government needs to run large deficits now to inject some demand into a cratering economy, once the recovery comes, we'll have to reduce the huge fiscal imbalances.

Take it from the president himself. This is what he said in February about the $1.3 trillion deficit he inherited: "We cannot and will not sustain deficits like these without end."

But that's where Obama's plans would lead, according to CBO.

Now some Democrats are digging in their heels.

Senator Kent Conrad, chairman of the Senate Budget Committee, has expressed skepticism about rendering permanent the president's "Making Work Pay" tax break supposedly targeted at lower and middle earners. That tax benefit, which phases out at family incomes of $190,000 or more, carries a 10-year cost of $537 billion. Obama is also calling for at least another $234 billion in individual and $100 billion in business breaks atop that.

There's an obvious tension between the president's ambitious agenda and his political desire to avoid being labeled a reflexive tax-raiser. The latter explains why the administration regularly notes that the two top income-tax rates will merely be reverting to their Clinton levels and that his proposed limitations on itemized deductions would only return things to the Reagan era.

Obama, of course, frames his major initiatives as absolute imperatives if we want a robust recovery.

But surveying the president's ambitious agenda, which also includes healthcare expansion, new spending on clean energy and education, and a cap-and-trade system to combat global warming, others are left wondering.

"I think the reality is going to settle in that we are going to have to pull back on something," says US Representative Richard Neal, Democrat of Massachusetts, a longtime member of the House Ways and Means Committee.

Here's another unwelcome reality: Over the longer term, the federal government is going to need more revenue than Obama is proposing.

"Anybody who has looked at the problem and doesn't have ideological blinders on reaches that conclusion," says James Horney, director of federal fiscal policy at the Center on Budget and Policy Priorities, a progressive think tank.

The administration has nodded in that direction, announcing that former Fed chairman Paul Volcker will head a commission exploring ways to bring in more owed but uncollected taxes, close tax loopholes, and reduce corporate welfare.

Still, budgetary experts see much tougher decisions ahead.

"The unvarnished truth is that as we move forward over the next five to 10 years, we are going to have to raise taxes across the board or significantly cut back programs which affect the middle class and the lower class," says Robert Reischauer, former director of the Congressional Budget Office.

"Taxes are going to have to go up at some point," says Bob Bixby, executive director of the Concord Coalition. "One of the mistakes Obama is making is saying nobody under $250,000 is going to be affected. The deficit is just too big, and you can't get it all from families earning more than $250,000."

That's a reality policy-makers will have to confront when the economy recovers. And it's another reason why a president embarked on an Icarus arc needs to find a more realistic flight plan.

Scot Lehigh can be reached at

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