Outside column: Will voters tolerate big deficits?

Posted: Friday, May 15, 2009

President Barack Obama's detailed budget had hardly become public when members of Congress began to criticize specific reductions in funds for their states.

That's par for the course.

But the budget attracted more meaningful criticism from news organizations, columnists and analysts who pointed out its $17 billion in proposed cuts would barely dent the massive deficit.

Indeed, of all of Obama's many initiatives, none has drawn more skepticism than his pledge to curb runaway federal spending and his specific budget proposals.

That's hardly surprising, given the combination of a massive inherited deficit, prospects the current recession will give way to slow short-term growth and the cost of his signature proposals, like health care reform.

Republicans believe this provides a juicy political target for the 2010 and 2012 elections, especially if it forces lawmakers to raise some taxes to pay for the burgeoning costs. But the administration holds some important political cards, too.

By arguing that health care reform holds the key to long-term deficit control, Obama sublimates the short-term deficit problem to one of the most popular issues on his agenda and one where he may score a major breakthrough.

And while there is ample reason to be skeptical of his budgetary claims, history provides reason to be skeptical that he and his party will suffer politically if they fail to do more than narrowly trim a deficit so big this year it can't help but come down.

Even under the administration's projections, the deficit won't fall as low in real dollars over the next decade as in the last full Bush fiscal year before the recession. However, in terms of the percentage of gross domestic product, a yardstick increasingly adopted by both parties, Obama's policies would return the deficit to the pre-recession level of about 3 percent, compared with this year's 12.9 percent of GDP.

Even this goal relies on several questionable assumptions, including:

• Not only will major health care reform be adopted, but it will produce savings that begin to outstrip the additional costs. This week's study by two pro-Democratic Party groups, the Democratic Leadership Council and the Center for American Progress Action Fund, provided data to bolster this contention. But it's far too early to know if various cost-curbing changes will win approval.

• Congress will adopt other Obama ideas, from controversial proposals to collect revenue from companies that emit greenhouse gases to expanding a tax increase for upper-income Americans beyond letting the Bush tax cuts expire for families earning more than $250,000 annually.

• Substantial savings will result from the U.S. withdrawal from Iraq, even though a large contingent of troops probably will remain and others will head for Afghanistan.

• Congress will accept cuts in domestic and defense programs, including Medicare and Medicaid, that previous Congresses resisted. Prior deficit containment programs mainly succeeded when they included some mandatory ceilings.

As for the political fallout, out-of-power Democrats often argued during the Reagan years, as Republicans do now, that the administration was gambling with the country's long-term fiscal future by running large deficits. That issue never seemed to dent Reagan's popularity, although when he left office analysts predicted his inability to curb deficits would damage his legacy.

In the next decade, the deficit vanished, thanks to the economic boom of the 1990s and the joint efforts of the Clinton administration and a Republican-controlled Congress. When Reagan died in 2004, the deficit no longer was regarded as one of his legacies.

The deficit soared again during the Bush years so that now, two decades later, a Democratic administration is pledging to control it. But even if its arguments on the positive impact of health care reform prove correct, the deficit will remain big.

The Obama administration seems to be gambling that it won't hurt the economy and that enacting health care reform, restoring economic growth and modestly improving the long-term picture will satisfy voters enough for them to tolerate a continued big deficit as they did two decades ago.

• Carl P. Leubsdorf is the former Washington bureau chief of the Dallas Morning News.



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