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Five years, $5.08 Trillion In Debt
President Barack Obama’s new $3.83 trillion budget — on its way to Congress Monday — anticipates an even worse deficit this year than last and no big improvement until the economy improves and the nation sheds the crushing costs of two wars overseas.
It’s a bleak, nerve-wracking landscape for any White House, but the president is still betting on significant new spending for education and clean energy initiatives, including billions in loan guarantees for the nuclear power industry.
He would hire thousands of new personnel to process veterans’ claims faster, and amid everything else, wants billions to resolve the complaints of soldiers and airmen exposed to Agent Orange in the Vietnam War.
But behind the brave face, Obama’s budget anticipates that Iraq and Afghanistan war funding will hover near $160 billion for both 2010 and 2011— far more than he had hoped when elected and only modestly less than in the last years of the Bush Administration.
The strain shows itself in the new deficit projections, far worse than what the White House forecast in its first budget at this time a year ago.
After a record $1.4 trillion shortfall in 2009, the administration now says the red ink will reach $1.56 trillion this year and be little better, $1.27 trillion in 2011.
In fact, it’s not until 2014 and 2015— when Obama hopes to be in his second term— that he has any hope of deficits approaching a sustainable level. Even then he is banking heavily on a new bipartisan fiscal commission to really finish the job.
The outlook— more pessimistic than Congressional Budget Office deficit estimates last week—adds up to $5.08 trillion in red ink over the next five years. That’s $1.32 trillion or 35% more than the White House predicted 12 months ago; about two-thirds of this deterioration can be traced directly back to lower revenues and the higher cost of the wars.
Obama’s response thus far has been to allow high-end Bush-era tax breaks to expire after 2010 for those earning more than $250,000 and to impose a three-year freeze on domestic spending. A new levy on big banks would help recoup government losses from the Treasury’s financial industry rescue plan, and he is again targeting oil, gas and coal tax preferences worth about $40 billion over 10 years.
In a conference call with reporters late Sunday, White House officials portrayed the budget as pragmatic and leaning neither to the left or right. But the president’s credibility is sure to be tested by the effectiveness of his promised freeze, impacting about $447 billion in annual appropriations.
The Environmental Protection Agency’s new $10 billion budget reflects a cut of about 3% or $278 million, for example. This leaves less money to sustain the very rapid growth seen last year in clean water programs. And annual funding for the Great Lakes restoration initiative — a big priority for Obama’s Chicago friends and House Appropriations Committee Chairman David Obey (D-Wis.) —will be scaled back from $475 million last year to $300 million now.
But on balance, the president’s plan seems less restrictive in many areas than lawmakers had anticipated. With the Senate having just passed a $1.9 trillion debt ceiling increase last week, fiscal moderates in his own party may insist on even tighter limits.
Obama begins with a built-in cushion since about $5 billion in 2010 Census spending won’t have to be repeated in 2011. A big portion of expanded Pell Grant funding for low-income college students is being treated as a mandatory cost outside the freeze covering the Education Department’s discretionary budget. And both Veterans Affairs and Homeland Security are exempted altogether and are expected to get combined spending increases of $5 billion.
In the case of education, a top priority for the president, the department’s appropriations would grow by about $3.5 billion to $49.7 billion, a 7.5% increase. But when Pell Grants are counted, the total increase is closer to $11.4 billion or 16% above current spending.
The Energy Department’s budget would grow by about $1.8 billion or 6.8%. And to stretch these dollars further, Obama is devoting $500 million to a new credit program with the potential to generate up to $36 billion in loan guarantees for the nuclear power industry.
Other departments like Health and Human Services or Labor receive much smaller increases, more in the range of inflation or less. But within these totals, the National Institutes of Health would grow by about $1 billion or 3%. Community health centers and Head Start are also promised increases, and a teen pregnancy program would be expanded from $100 million to almost $180 million.
Mindful of the strain on state and local law enforcement budgets, the administration proposes increased funding for the COP’s program within the Justice Department. And the Homeland Security budget includes $200 million in new grant funding to help cities pay for beefed-up security in the event of a Guantanamo detainee being tried in a local federal court.
The budget’s increased war funding is not entirely surprising given Obama’s decision to add more U.S. forces in Afghanistan. And his early estimates for 2011 in last year’s budget were always suspect and more of a “plug” than real.
Nonetheless, seeing everything in a single budget brings the war costs more into focus. Democrats are increasingly agitated by the pace of withdrawal from Iraq, and the combined costs of the two wars is striking -– especially when measured against the much more hopeful rhetoric of Obama’s campaign.
The president’s 2010 defense budget a year ago requested $130 billion for operations in Afghanistan and Iraq and just $50 billion in 2011. The new budget ramps up 2010 spending to $163 billion and, for 2011, requests $159 billion in overseas contingency funds for the military.
This reverses the drop in war-related spending seen in fiscal 2009, which ended last Sept. 30 and was a transition year of sorts between the two administrations. When compared to the peak war spending of the Bush years, Obama is only about 10% below Bush’s annual average of $176 billion in fiscal years 2007 and 2008—the time of the Iraq war surge.
Core defense spending is also feeling the strain, and the president’s $549 billion request reflects less than 2% real growth over inflation,
At a time when Obama is emphasizing jobs creation, this sets up what could be bitter election-year fights with Democrats over plans to halt airplane and truck production important to employment California and the Midwest.
Indiana, for example, promises to be a tough battleground for Sen. Evan Bayh and fellow Democrats in the House, but the defense budget would terminate Army purchases of HMMWV vehicles built by AM General in the northern portion of the state.
Defense Secretary Robert Gates is expected to redouble his campaign against the C-17 transport plane this year, much as he successfully went after F-22 production last year. And while the Pentagon is committing still more money to the F-35 joint strike fighter, production will slip a year to allow more testing, and Gates seems determined to take on lawmakers again over their insistence that that there be a second manufacturer to produce engines for the fighter.
The 2011 budget debate won’t hit full stride until this spring, but Democrats may move earlier than usual on a supplemental spending bill for the current fiscal year.
The Defense Department is seeking $33 billion in additional war-related funding, on top of which the State Department will also be receiving additional funds for its beefed up operations in Afghanistan. Rep. John Murtha (D—Pa.), chairman of the House defense appropriations panel, wants to include any requests related to Haiti in the same package, and the budget reflects at least two supplemental spending requests for 2010 from domestic departments.
The Homeland Security budget anticipates $3.6 billion in disaster-related funds for FEMA, and the VA may seek another $13.4 billion, much of it in relationship with a fund to resolve health claims related to exposure to Agent Orange.
Sources: Politico, MSNBC
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