President Barack Obama's top budget official promised Tuesday that the administration will try next year to wrestle the skyrocketing budget deficit under control to avoid higher interest rates and putting the health of the economy in jeopardy.
But it is an illustration of just how dire the nation's fiscal picture has become that a promise to cut the deficit in half by 2013 would produce a deficit about $200 billion higher than ever recorded by former President George W. Bush.
In a speech casting most of the blame for deficits averaging almost $1 trillion a year over the next decade — unless action is taken — on tax cuts and a Medicare drug benefit enacted during Bush's tenure, budget director Peter Orszag said the country faces a "serious" and "unsustainable" deficit problem.
Orszag said the administration would propose to cut the deficit inherited by Obama in half by 2013. Under White House budget office calculations, the deficit goal for 2013 is about $650 billion.
The speech was intended to send a signal that after the ongoing health care overhaul debate, the administration is determined to try to take on the deficit — hardly an easy task in a midterm election year.
Proposals in February
Orszag promised that Obama's budget submission next February will propose solutions to shrink the deficit to sustainable levels. At $650 billion, the 2013 deficit would equal almost 4 percent of the size of the economy, a major improvement from this year's $1.4 trillion deficit, which registered at 10 percent of gross domestic product.
"We are currently considering a number of proposals to put our country back on firm fiscal footing, and to cut the deficit we inherited in half by the end of the President's first term," Orszag said in remarks delivered at New York University.
Orszag, however, gave no details on the higher taxes or spending cuts that will be required to curb the deficit. Obama has endorsed most of Bush's tax cuts except for those only benefitting people making more than $250,000 a year.
But red ink reaching such levels would equal almost 4 percent of the size of the economy, which is greater than Orszag himself says is sustainable. Orszag said deficits in the range of 3 percent of GDP are sustainable.
"As the economy recovers, we must pull together — as a nation — and make the tough decisions to put our country back on a solid fiscal foundation," Orszag said. "None of this will be easy. After all, it took us years to dig ourselves into the current fiscal hole. And, it will take years for us to get out."
It's not clear how much sacrifice the administration will call for, but the steps are sure to be painful and are virtually certain to force Obama to abandon his promise to not raise taxes on families making less than $250,000.
Under the latest administration estimates, the government would run a $775 billion deficit in 2013, the target year for Orszag's promise, meaning that about $125 billion in spending cuts or tax increases would be needed to trim that year's deficit to the promised level.
In using 2009 deficit figures as the yardstick, the White House is starting from a deficit "baseline" inflated by about $250 billion in spending for the Wall St. bailout. The 2009 deficit also reached such heights because of the recession, which caused plummeting revenues and increases for benefit programs such as food stamps and unemployment compensation. Obama's stimulus bill added $185 billion.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a group that advocates for fiscal responsibility, praised the administration for sending a signal "that this is going to be a serious budget."