Federal deficit hits $1.3 trillion, stirs outcry from GOP

Voter anger over spending may affect elections

By Martin Crutsinger and Andrew Taylor
Associated Press / October 16, 2010

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WASHINGTON — The Obama administration said yesterday that the federal deficit hit a near-record $1.3 trillion for the just-completed budget year.

That means the government had to borrow 37 cents out of every dollar it spent as tax revenues continued to lag while spending on food stamps and unemployment benefits went up as joblessness neared double-digit levels in a struggling economy.

Although expected, the eye-popping deficit numbers provide Republican critics of President Obama’s fiscal stewardship with fresh ammunition less than three weeks ahead of the midterm congressional elections. The deficit was $122 billion less than last year, a modest improvement.

Voter anger over deficits and spending is a big problem for Democrats this election year. Republicans are slamming Democrats, who may face big losses in November, for votes on Obama’s $814 billion economic stimulus last year and on former President George W. Bush’s $700 billion bailout of Wall Street.

Democrats say the recession would have been worse if the government hadn’t stepped in with those programs and note that most of the bailout, which began during the previous administration and was supported by many Republicans, has been repaid.

Outside of the bailout, the federal budget went up by 9 percent in the 2010 budget year to $3.5 trillion. Food stamp payments rose 27 percent as record numbers of people took advantage of the programs, while unemployment benefits rose 34 percent as Congress extended benefits for the long-term jobless.

The administration is projecting that the deficit for the 2011 budget year, which began Oct. 1, will climb to $1.4 trillion. Over the next decade, it will total $8.47 trillion. Deficits of that size will constrain the administration’s agenda over the next two years and will certainly be an issue in the 2012 presidential race.

“Since the Democrat majority has taken control of the nation’s checkbook, deficits have risen to staggering levels and will average $1 trillion annually for the next decade under the president’s policies,’’ said Senator Judd Gregg, Republican of New Hampshire. “These abrupt and shocking changes in our fiscal situation cannot be dismissed as ‘inherited’ problems when the tally of the majority’s spending spree has climbed into the trillions.’’

Obama’s bipartisan deficit commission is supposed to report a deficit-cutting plan Dec. 1, but panel members are unsure at best whether they will be able to agree on anything approaching Obama’s goal of cutting the deficit to about 3 percent of the size of gross domestic product. The recommendations need the backing of 14 of 18 members to trigger a congressional vote. Building that level of consensus will be difficult. Republicans are strongly opposed to a plan that includes tax increases to chip away at the deficit. Democrats are less inclined to move a package that relies solely on spending cuts.

So far, the huge deficits have not been a threat to the country. That’s because interest rates have been so low coming out of the recession and the United States has been seen as a safe haven for foreign investors willing to keep buying US Treasury bonds.

But the situation could change once the economy gains more momentum, analysts warn.

“If we get to 2013 and policymakers don’t look like they have a credible plan to deal with the deficit, then interest rates are likely to rise significantly and that will jeopardize the recovery we have underway at that time,’’ said Mark Zandi, chief economist at Moody’s Analytics.