Stephen Foley: Audacious spending plan leaves President on a fiscal tightrope

Related Topics

If he hadn't already put one book out with the title, the budget plan published by Barack Obama yesterday should have been called The Audacity of Hope.

It has taken a heroic set of assumptions about the sustainability and strength of the US economic recovery even to reach predictions for deficit reduction that look as modest as this. One slip by the economy, then this budget – and perhaps this presidency – will be off the rails.

President Obama is already having to fudge the promises he made to halve the deficit he inherited by 2013, and the picture beyond that is grim, too.

While Obama talked of tough choices and partial budget freezes, the most significant contributor to the falling deficit he envisions from 2011 is the economic recovery. With more business activity and more jobs, the government can expect more tax revenues and will have to spend less on unemployment benefits.

From 11 per cent of GDP now, the annual budget deficit is projected to fall to about 4 per cent by 2013. Without the spending freeze, the projection would still have been 5 per cent, such is the power of economic recovery to lift government receipts. The trouble is that the White House projection is based on a rosy view of the economy.

Although the US economy is growing again, it remains plagued by unemployment and a lack of business confidence. Add to that some real questions about what happens to the US housing market when tax credits for first-time buyers expire in the spring, and there is still no certainty that the recovery can be sustained.

But the White House doesn't just dismiss the prospect of a double-dip recession – in which case all bets would be off. It also dismisses the likelihood of below-par economic activity for a long time to come. With the national debt weighing on government spending and the baby boomer generation retiring, most economists predict a pretty miserable-feeling decade – not the numbers which are in the fine print of the Obama budget, and which show growth often above the long-term trend.

Even the ambition to agree structural changes to social security and government-run health insurance programmes would not bring down the deficit to the 3 per cent of GDP that is typically seen as healthy.

So here is the dilemma. If it looks as if the US government cannot afford more spending, it cannot afford not to spend. Pulling back on plans to stimulate the economy with more government programmes and tax cuts only makes those audacious economic forecasts harder to achieve.

It was clear on Inauguration Day that the new President would be walking a tightrope between the need to boost spending to keep the economy moving and the need to keep US government finances from spiralling out of control. The new budget shows that tightrope getting thinner, and Mr Obama wobbling.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Guru Careers: Software Developer

£35 - 40k + Benefits: Guru Careers: We are seeking a Software Developer (JavaS...

SThree: Trainee Recruitment Consultant / Resourcer

£18000 - £23000 per annum + Commission: SThree: As a Trainee Recruitment Consu...

Ashdown Group: UI Developer - (UI, HTML, CSS, JavaScript, AngularJS)

£25000 - £40000 per annum: Ashdown Group: UI Developer - (UI, JavaScript, HTML...

Day In a Page

Read Next
An Indian bookseller waits for customers at a roadside stall on World Book and Copyright Day in Mumbai  

Novel translation lets us know what is really happening in the world

Boyd Tonkin

Nature Studies: The decline and fall of the nightingale, poetry’s most famous bird

Michael McCarthy
Abuse - and the hell that came afterwards

Abuse - and the hell that follows

James Rhodes on the extraordinary legal battle to publish his memoir
Why we need a 'tranquility map' of England, according to campaigners

It's oh so quiet!

The case for a 'tranquility map' of England
'Timeless fashion': It may be a paradox, but the industry loves it

'Timeless fashion'

It may be a paradox, but the industry loves it
If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

Could have done with Osama bin Laden staying alive?

Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
New exhibition celebrates the evolution of swimwear

Evolution of swimwear

From bathing dresses in the twenties to modern bikinis
Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine