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How does Obama's 2011 projected deficit compare?

The estimated $1.27-trillion deficit in 2011 is down from a record $1.56 trillion this year.

February 01, 2010|By Don Lee
  • President Obama's $3.8-trillion budget proposal forecasts a dip in the nation's deficit, which has been partly affected by the recession, growing Medicare spending and the wars in Iraq and Afghanistan.
President Obama's $3.8-trillion budget proposal forecasts a dip… (Manuel Balce Ceneta / Associated…)

Reporting from Washington — The White House has proposed a $3.8-trillion budget for the fiscal year 2011, which begins Oct. 1. What is the projected deficit, and how does that compare with past years?

The deficit is estimated at $1.27 trillion in 2011 -- down from a record $1.56 trillion in the current year. The deficit -- the gap between budget outlays and tax receipts -- was $1.41 trillion in 2009, more than triple the previous high of $458.6 billion in 2008. Except for four years (1998, 1999, 2000 and 2001), the federal government has run a deficit consistently since 1970.

In the longer run, what are the deficit projections?

In the president's budget forecasts, the deficit would fall to $828 billion in fiscal 2012 and dip further to a decade low of $706 billion in 2014. But then it would start rising, hitting $1 trillion again in 2020.

What's causing the trillion-dollar-plus deficits from fiscal years 2009 to 2011?

Despite widespread perceptions that economic stimulus spending and government bailouts of troubled financial institutions are largely behind the ballooning deficits, those temporary programs actually account for only a fraction of the budget shortfall.

The primary factors are long-standing imbalances between taxes and spending, plus the deep recession that reduced tax revenue and increased outlays for safety net programs such as unemployment insurance and food stamps.

With wars in Iraq and Afghanistan, spending for national defense has surged about 140% since 2000 -- to $722.1 billion projected in 2010. Government spending for Medicare has gone up even faster in the last decade, to $462.1 billion in 2010. At the same time, personal income taxes were cut earlier in the decade under the George W. Bush administration.

Is the deficit too large?

Many economists consider deficits in excess of 3% of a nation's annual economic output (gross domestic product) as unsustainable. The United States' $1.56-trillion deficit this fiscal year is estimated at 10.6% of its GDP. The White House forecasts the deficit to stay above 3% of GDP for the rest of this decade. So by traditional economic measures, the present deficits are much too large to sustain.

Should we worry about the deficit now, or is it a threat primarily down the road?

Most economists say the main concern is for the future. Right now, with the economic recovery still uncertain and the unemployment rate in double digits, many say the focus should be on providing enough government support to ensure GDP keeps growing at a solid pace to start creating enough jobs.

Slashing the federal budget now could tip the country back into recession -- and probably make the deficit problem bigger. At the same time, presenting a budget that is credible and has a realistic plan to reduce future deficits is important for reassuring holders of U.S. government debt.

Failure to do so could heighten fears of rising inflation in the future, which could spark higher interest rates in the short term.

don.lee@latimes.com

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