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Brooks Wilson's Economics Blog: Obama Administration Concerned About Deficit?

Monday, June 1, 2009

Obama Administration Concerned About Deficit?

Treasury Secretary Timothy Geithner is in China to reassure them that the Obama administration will work hard to close the budget deficit.  Rebecca Christie, "Geithner Tells China U.S. Will Tackle Budget Deficit (Update2)," (Bloomberg, June 1, 2009) describes the trip.
Treasury Secretary Timothy Geithner told China that the U.S. wants to shrink its budget gap as soon as an economic recovery takes hold, reassuring the nation that is the biggest holder of U.S. government debt.

The U.S. goal is a deficit of “roughly 3 percent” of gross domestic product from a projected 12.9 percent this year, Geithner reaffirmed today in a speech in Beijing...

The U.S. will need to phase out the tax cuts and bank rescue programs set up to help the economy recover from a deep recession, Geithner said. Spending cuts also will be needed, along with health care reform and new budget constraints like pay-as-you-go rules.
I have a hard time believing that the Obama administration has come to grips with the size of the deficit or that the deficit is deemed a major problem.  In the third paragraph that I quoted, Geithner refers to health care reform as a method of reducing the deficit.  A good, short Washington Post article, "Health Reform's Savings Myth," May 31, 2009, lists several reasons why it will do just the opposite (HT Mankiw).  I quote just one.
"Health-care reform is entitlement reform" has become a mantra of the Obama administration. The idea is that Congress can add a massive health-care program this year -- covering the uninsured -- and use the same measures that pay for the health reform to fix the broader budget problems. If that sounds too good to be true, there's a reason.

...It's true that Congress doesn't much like all-pain-and-no-gain policies. But the administration's proposal, even before Congress gets to work, is to spend $100 billion more on coverage while finding cost-saving measures worth only about a third as much. Another third would be paid for by tax increases. The last third, so far, isn't paid for at all. That's three times as much sweetener as medicine, in other words -- and Congress will be tempted to jettison some of the savings and all of the tax increases.

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