Tuesday, February 2, 2010

Should Obama Be Blamed For The Record Deficit?

Glenn Hall from The Street argues that the blame for the record budget deficit of $1.56 trillion in 2010 should fall to both the democrats and republicans. While Obama will shoulder a lot of the blame for the record deficit, much of the spending is an extension of actions were initiated before he took office. See the following post from The Street.

President Barack Obama sent his proposed $3.83 trillion budget to Congress today, showing deficit spending that goes well beyond the levels set by the previous administration of President George W. Bush.

The Obama budget shows the government spending $1.56 trillion more than it earns from taxes, an increase from $1.4 trillion in 2009. The new deficit projection would be 10.6% of GDP -- almost double the level during the Reagan years.

This will stoke a lot of heated debate about policy choices, stimulus spending, banking bailouts and pork-barrel politics. In large measure, the blame will fall on Obama. This is already being labeled as Obama's deficit (just like it was Bush's deficit before).

The reality is that this is everyone's deficit.

The budget will include billions of dollars to fund the ongoing war efforts in Afghanistan and Iraq -- wars that were started by the previous administration and gladly financed by the Republicans in Congress during their period of control. It will also include the costs of the banking bailout, also initiated under the previous regime but expanded by Obama. And the budget includes stimulus spending that both parties of Congress quickly passed amid the panic of the financial collapse and economic downturn when Obama took office a year ago.

While I'm not inclined to be Obama's apologist, I think we have to recognize that he's only been in office for one year and it took much longer than that for this deficit to grow to this historic level.

That said, Obama's new-found religion about reining in government excess is just words at this point. He's starting to preach but is he practicing? In the state of the union address, Obama said belt-tightening will be needed - just not this year because of the need to create jobs and nurture an economic recovery that remains tentative.

Obama didn't mention the mid-term elections coming up, but it must be on his mind. He can't afford to lose any more Democratic allies in Congress after Republican Scott Brown broke the Democrat's filibuster-proof majority in the Senate when he won the special election to replace the late Democratic icon Ted Kennedy.

We've seen Obama embracing the populist rhetoric with his vilification of the big banks and the big bonuses paid out by the likes of Goldman Sachs (GS Quote), JPMorgan Chase (JPM Quote) and yes, even Citigroup (C Quote). Tapping into that anger may help overcome the growing Republican focus on the deficit as the election rallying point for their party -- at least as far as the tea party faction is concerned.

It will be easy to pan the Obama budget, but the inconvenient truth is that this is more than Obama's problem - it is our nation's problem and both Republicans and Democrats share in the blame and the responsibility for fixing it.

This post has been republished from The Street.

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