Deficit reduction to be gradual
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Tess Vigeland: With a nod to our friends at Sesame Street, today’s top story is brought to you by the number 3.8 because it made a twin appearance today. In the first instance it’s accompanied by the word trillion, as in the $3.8 trillion federal budget proposed by the White House today. And you’ll find the second mention in that same document, where the budget assumes the economy will grow 3.8 percent next year.
Of course, numbers like that do not come without controversy. Marketplace’s John Dimsdale reports on the highlights of budget day in Washington.
JOHN DIMSDALE: The budget forecasts a record $1.5 trillion deficit this year, over 10 percent of the entire economy. President Obama is still promising to cut that percentage in half by the end of his first term and get it down to 3 percent of the economy by 2015. But not right away.
PRESIDENT OBAMA: We won’t be able to bring down this deficit overnight, given that the recovery is still taking hold and families across the country still need help.
The proposed budget takes a small whack at deficits by capping spending on everything except national security, Social Security, and Medicare. Tax cuts for the wealthy will be allowed to expire.
Josh Gordon at the Concord Coalition, which advocates for lower deficits, says Obama is doing the right thing by not cutting too much now. But:
JOSH GORDON: The real key is setting up the country for the even more difficult choices and austerity that we’ll need in the longer term.
To bring the deficit under control, the budget depends on economic growth of 3.8 percent next year and above 4 percent for the following three years. But that depends on consumer spending.
Professor Steve Hanke at John Hopkins University says the rate of government spending has scared consumers into shutting their wallets instead.
STEVE HANKE: The stimulus program is a drag program. People are very worried about government expenditures and whether they’re going to pay for them today or in a few years when they ultimately have to pay down the debt.
He says deficit reduction should begin right away.
In Washington, I’m John Dimsdale for Marketplace.
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