Growing Deficit Concerns Are Trumping Spending
Policy + Politics

Growing Deficit Concerns Are Trumping Spending

Here was the arithmetic of deficit politics as it was practiced in Congress last week: Senate Republicans blocked a bill with a net cost of $33 billion that would extend unemployment benefits and help cash-strapped state governments. Estimated deficit savings next year: 2 percent. 

House Democratic leaders called for $7 billion in domestic spending cuts next year beyond what President Obama has proposed. Estimated deficit reduction: five-tenths of a percent. Fiscal discipline has become all the rage in Washington. With annual federal deficits still topping $1 trillion and voters in a sour mood, lawmakers in both parties are rushing to bolster their credentials as fiscal hawks even as the economy continues to sputter.      

But the hawkishness is more rhetorical than real.  At the G-20 meeting of leaders in Canada this weekend, the United States pushed to keep the focus on stimulating growth.  German and British leaders, meanwhile, are already proposing immediate deficit reduction. In the end, leaders smoothed over their differences by calling for “credible, properly phased and growth-friendly plans’’ that were “tailored to national circumstances.” 

Many economists say the U.S. economy and those of many other countries are still too weak to justify fiscal belt-tightening.  But politically, lawmakers and President Obama are under pressure to demonstrate their budget resolve.

House Majority Leader Steny Hoyer, D-Md., talks of “spending fatigue’’ in Congress. 

Freshman Democrats, many of whom won traditionally Republican seats in 2008, face tough re-election fights this fall. And Republicans pound away at every opportunity, arguing -- against the consensus of most economists -- that President Obama’s stimulus package has done little to reduce unemployment. Supporters of programs to cushion the impact of high unemployment, which remains stuck at nearly 10 percent, say the gridlock will do almost nothing to dent the deficit and could make it worse by stalling the economic recovery.

Premature Capitulation?
“I have been particularly astonished and appalled by the debate in the last couple of weeks in the Senate where essential efforts to continue unemployment benefits at a time when the unemployment rate is 9.7 percent are argued against on deficit grounds,” said Robert Greenstein, executive director of  the left-leaning Center on Budget and Policy Priorities.

But recent polls show that voters, who register record levels of distrust toward government, see things differently. They're increasingly worried about deficits, even though they are even more worried about jobs. And a majority of Americans are skeptical that Obama’s $787 billion economic stimulus package passed in 2009 has helped. Voters have expressed the kind of anger toward Washington that Tea Party activists have unleashed.

“In terms of the most important issue facing public, it’s still jobs and the economy,’’ Peter D. Hart, a Democratic pollster, told The Fiscal Times. “But one of the problems is that the public can’t see demonstrated the advantage of the stimulus. Unlike the 1930s, when they could see people being put to work in public works projects, here it’s almost been invisible.”

The Long Tail of the Financial Crisis
The sudden political angst over mounting deficits and public debt has global implications. After a decade of relative prosperity and freewheeling spending, government leaders and policy makers across much of Europe are resorting to draconian program cuts and tax increases to restore order to public finances that were decimated by the 2007 financial crisis. But Leaders of the Group of 20 countries, which met over the weekend in Canada, were at odds over how fast and far countries should cut public spending, and how strict new capital requirements should be for the world's major banks .

The biggest dilemma for many is gauging the right point at which to start belt-tightening. On Capitol Hill, most Democrats have been pushing for additional stimulus spending, but they admit that their position is hard to explain to voters. Senate Republicans, invoking the filibuster, were able to block Democrats from passing a fifth extension of unemployment benefits for millions of workers whose benefits are expiring. 

Even after Senate Democrats pared down their bill, dropping most of the money to prevent at least 100,000 teachers from being laid off, they were unable to coax Republican support.

Though Democrats bitterly accused the GOP of cutting millions of jobless workers from unemployment benefits, some acknowledged that their message was difficult to communicate to voters. “The idea that you can be worried about the long-term deficit, and doing things about that, but spending money right now to stimulate the economy doesn’t make sense to people,’’ said Rep. Dan Maffei, a freshman Democrat whose district includes Syracuse, N.Y.

Maffei, who voted for the economic stimulus as well as for health care reform, tried to bolster his conservative credentials by voting against a bill in February that increased the government’s debt ceiling.

“The reason I voted against raising the debt ceiling was that I didn’t think this administration had given us a long-term strategy, and it would have made my life easier if it had,’’ Maffei said in a recent interview with The Fiscal Times. “I’m concerned about getting your household in order. If you’re going to buy a car in order to find a job, that’s fine. But you ought to have a long-term plan.”

Rep. Rick Boucher, a Democrat who represents the conservative western region of Virginia, has been straddling the fiscal issue as well. Boucher supports additional stimulus spending now, even if it raises short-term deficits. But earlier this year he was among 100 House members proposing a deficit-reduction commission that would be required to come up with measures to balance the budget – a tougher mandate than the one Obama gave to the commission he later created.

Polls Tell a Story
In a poll by the Pew Research Center for the People & the Press earlier this month, 60 percent of those surveyed said the president’s stimulus plan had not helped the economy. Only 33 percent thought the stimulus had helped.

While the economy and jobs remain the public’s top concern, a number of polls over the past year show that Americans have become more worried about the federal deficit, which is expected to hit $1.4 trillion for the second consecutive year and be almost as high next year. In a Wall Street Journal/NBC News poll in May, 20 percent of respondents said that reducing the deficit should be the top priority in Washington. 

Moreover, previous polling by The Wall Street Journal and NBC over the past year found that three-fifths or more of respondents say the president and Congress should worry more about keeping the deficit down, even if that means that it would take longer for the economy to recover.

“We are in a moment of transition, politically and economically,’’ said David Kendall, a fiscal policy analyst for the Third Way,  a Washington think tank. Much of the anxiety among Democratic lawmakers, he said, stemmed from “not knowing exactly when to pivot’’ from stimulus spending to deficit reduction.

In an attempt to square the circle, Hoyer bluntly insisted in a speech last week on the need to keep spending money now but to begin work on a credible long-term fiscal plan. 

Being more specific than either the Obama administration or most other Democratic leaders, Hoyer raised the possibility of higher taxes on middle-income families as well as raising the age at which people qualify for Social Security and Medicare benefits.

 “Overreacting to short-term deficits while we’re still feeling the effects of recession will send our economy back into a tailspin,” Hoyer said in a speech hosted by Third Way.  But, he added, “We’re lying to ourselves and our children, however, if we say we can maintain our current levels of entitlement spending, defense spending and taxation without bankrupting our country.”