Barack Obama is pledging to halve the country’s spiralling budget deficit over the course of his first term, betting his credibility, and his re-election, on a major rebound by the struggling economy and his ability to push through tax increases.
The pledge of a return to fiscal discipline, expected to be made this week with the publication of his first budget, will be presented as an olive branch to Republican opponents, as the President of the United States tries to put his strategy of bipartisanship back on the rails. But Mr Obama is also likely to reaffirm his commitment to letting George Bush’s controversial tax cuts for the wealthy to expire by 2010.
With an annual budget deficit already at $1.3 trillion (£900bn), and the $787bn economic stimulus package and trillions more in spending to rescue the country’s banks coming down the line, Mr Obama is under pressure to explain how the US will pay its bills. The events of this week will test the new President’s ability to manage the competing hopes of Republicans, who want a balanced budget achieved without tax rises, Democrats, who may have to give up cherished spending programmes, and the international financial markets’ concerns about a US national debt that now tops $10trn.
In his weekend radio and internet address, Mr Obama said he is determined to “get exploding deficits under control”. He promised a budget request that is “sober in its assessments, honest in its accounting, and lays out in detail my strategy for investing in what we need, cutting what we don’t, and restoring fiscal discipline”. While expanding the deficit to stimulate the economy is vital in the short term, “we can’t generate sustained growth without getting our deficits under control”, he said. Further details are expected today at a White House summit on fiscal policy and when the President makes his first address to Congress tomorrow.
On Thursday, he will publish his budget proposals. It is believed the blueprint will show the deficit peaking at $1.5trn, but will set a goal of cutting it to $533bn by 2013, the last year of his term. Tax rises will be central, involving the closure of loopholes on hedge funds, private equity firms and companies operating overseas.
But the prospects of forging a bipartisan consensus on the budget looked dim. “I don’t think raising taxes is a great idea,” the Senate Republican leader, Mitch McConnell of Kentucky, told CNN yesterday. “And when our good friends on the other side of the aisle say raise the taxes on the wealthy, what they’re really talking about is small business.”