President Barack Obama should not be blamed for the soaring federal deficit, now expected this year to be the highest as a share of the overall economy since World War II. He inherited most of it from the policies of former President George W. Bush and the economic recession, which was well under way before he took office. But now the long-term deficit is Obama's problem, and the president and Congress have to devote more energy more quickly to get it under control.
The administration recognizes the deficit cannot be ignored as it pushes for a new direction on energy and health care, and it senses the growing discomfort at home and abroad. Treasury Secretary Timothy Geithner traveled to Beijing last week to reassure America's largest creditor, although it must have stung when Chinese students laughed after Geithner said China's investments in the United States were "very safe." And Federal Reserve Chairman Ben Bernanke told Congress that "maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance.''
It was prudent to increase the federal deficit in the short run to pass the stimulus package and cope with a deep recession that now shows faint signs of easing. In the long run, huge deficits could suffocate the very economic growth Washington is trying to create. Obama's initial efforts to reduce spending, including May's proposed $17 billion in cuts, have not been aggressive enough. Congressional Republicans have thrown around bigger cuts but with few details. And while the president's pitch to revive the 1990s "pay as you go'' law to require tax cuts or new entitlement spending to be offset by budget cuts or tax increases is welcome, it is too full of loopholes to be particularly effective.
As the debate heats up over health care reform, it will be especially important to pin down the financing. Reining in health care costs and providing universal coverage is one of the keys to the nation's long-term financial health. But the numbers have to add up, and estimated savings through greater efficiency are often squishy. While Democrats are developing a consensus on an outline for health care legislation, there is no clear plan yet on how to pay for it. The bill is expected to exceed $1.5 trillion over 10 years. Some of Obama's suggestions for covering the cost — including caps on itemized deductions such as mortgage interest and charitable contributions for the wealthiest taxpayers — already have been rejected by Congress.
While the administration turns its attention toward health care reform, the financial health of Medicare and Social Security is deteriorating at an accelerated rate. Medicare is expected to run out of money by 2017, two years earlier than expected just a year ago. The Social Security trust fund would be emptied by 2037, four years earlier than anticipated. The longer the president and Congress wait to tackle these problems, the more unappealing and expensive the options will be to solve them.
Republicans will continue to accuse Obama of recklessly escalating the deficit. The Democrat in the White House will remind Americans that he inherited much of the red ink from his Republican predecessor. The reality is that the situation is growing more urgent, and the president and Congress have to address it. There are decisions to be made about setting priorities, cutting programs and raising revenue, and Americans have to be prepared for some hard choices.