Promise to Trim Deficit Is Growing Harder to Keep

President Obama's budget Director Peter R. Orszag

From The New York Times:

President Obama is making final decisions on his budget for next year and is still promising to outline a path to substantially lower federal deficits. But on nearly every front, that goal has gotten harder since his first budget a year ago.

[T]he biggest tool usually employed to chisel away at projected deficits — shaving Medicare payments to health care providers — is already being used to offset the costs of overhauling the health care system.

Not least among the president’s constraints, this is a Congressional election year. His party is on the defensive, and less inclined than usual to take politically risky votes on cutting spending and raising taxes.

Moreover, the party is somewhat split over how aggressively to pursue deficit reduction, with many liberals warning that fiscal contraction could set off a double-dip recession as well as crimp their agenda.

With most Bush tax cuts scheduled to expire at the end of this year, some officials, including Mr. Obama’s budget director, Peter R. Orszag, suggested that instead of permanently extending the cuts for all but the richest Americans — as the president has long promised — Mr. Obama could instead propose to extend them a year or two, arguing that further action would await the recommendations of a bipartisan budget commission that leading Senate Democrats want to create.

Critics countered that Republicans would say Democrats were laying the groundwork to raise taxes on the middle class, violating Mr. Obama’s campaign promise. Mr. Obama has decided to stick with his plan to extend the tax cuts permanently for those making less than $250,000, officials familiar with the deliberations say.

In its August review of the fiscal outlook, the administration acknowledged that without further cuts it would not reduce the deficit to about 3 percent of the size of the economy — the maximum most economists consider prudent — by the end of Mr. Obama’s term, as his first budget projected. Instead, the review of the Office of Management and Budget forecast that the fiscal year 2013 deficit would be 4.6 percent of the gross domestic product.

Mr. Orszag, the budget office’s director, told a group of business leaders in November that he was committed to reaching 3 percent of the gross domestic product by 2015, a formidable challenge since that is nearly a full percentage point below current administration projections for that year. He has since said that goal will require a bipartisan commission to force some policy changes.

The $1.4 trillion deficit for the 2009 fiscal year, which ended Sept. 30, was about 10 percent of the gross domestic product.

Increasingly, even supporters are saying Mr. Obama cannot keep both his promise to bring deficits under control and his vow not to raise taxes on anyone making less than $250,000.