U.S. Deficit Would Grow to $1.75 Trillion in Budget Laden with Urgent Measures
To be sure, President Obama inherited a budget deficit. But the budget he is introducing today digs the hole much deeper: to $1.75 trillion. That's nearly four times the current record of $455 billion, and represents about 12% of the U.S. Gross Domestic Product (GDP), a level last seen during World War Two. Obama said this week that deficit spending is needed to repair the damage done by the financial crisis, which he blames on the policies of the Bush administration and Congressional Republicans, and regrettable decision making by both consumers and lenders. The President has pledged to reduce the deficit to $533 billion, about 3% of GDP, by 2013.
While he disagrees with the administration's proposed spending priorities, Wharton finance professor Jeremy J. Siegel suggests that "governments have a very high capacity for debt, and we're not there yet." His bigger concern is about tax hikes included in the spending plan, and what he considers the inadequate use of tax cuts in the economic stimulus plan. "The response has to be big," Siegel says of the various stimulus and rescue plans included in the budget. "I wish the response had been [directed] more toward immediate tax reduction."
Siegel also believes the President may be jumping the gun in proposing a $634 billion fund for universal health care. To help pay for that plan, the administration is calling for additional taxes on the wealthiest 2% of American households. "Health care has to be overhauled," Siegel acknowledges, adding that "Social Security and Medicare are huge budget busters going forward. But I think everything now has to be geared toward getting out of the recession. Other ambitious projects should be put on hold until after we emerge, because we just don't know where we will be."