Ballooning Deficit Could Temper Support for Obama's Spending Plans

By Lori Montgomery
Washington Post Staff Writer
Thursday, January 8, 2009

The nation's budget deficit will soar to an unprecedented $1.2 trillion this year, congressional budget analysts said yesterday, a startling tide of red ink that could dampen enthusiasm on Capitol Hill for some of President-elect Barack Obama's most ambitious priorities.

In the first official estimate of the damage done to the nation's finances by a weakening economy and various financial-sector bailouts, the Congressional Budget Office (CBO) reported that the gap between government spending and available revenue will exceed 8 percent of the overall economy by the end of September, a chasm not seen since the end of World War II.

The news drew a grim reaction from Congress, where the chairman of the Senate Budget Committee, Sen. Kent Conrad (D-N.D.), called the figure "jaw-dropping." While lawmakers said they expect to dig this year's hole even deeper by approving a massive stimulus package aimed at pulling the nation out of recession, Conrad and his House counterpart, Rep. John M. Spratt Jr. (D-S.C.), said they have warned Obama to limit the package to temporary measures that will not add to the deficit in future years.

The two Democratic budget leaders also cautioned Obama to find ways to pay for any other initiatives he pursues after taking office later this month, including expensive promises to expand access to health care for the uninsured, develop new sources of alternative energy and offer a bevy of new tax cuts to middle-class families.

"We should be very skeptical about any policy changes that add to the deficit and the debt that are permanent in nature," Conrad said told reporters. "It is a mistake to do things that add to the deficit and debt beyond the period for economic recovery."

At a news conference in Washington, Obama greeted news of the mounting deficit by vowing to ensure that government dollars -- either in the stimulus package or routine programs -- are not wasted. To that end, he announced the appointment of Nancy Killefer, an assistant secretary of the Treasury in the Clinton administration, to serve as "chief performance officer" in the White House budget office. In the newly created post, Killefer will be tasked with retooling budget practices and slashing unnecessary programs.

"In order to make these investments that we need, we'll have to cut the spending that we don't, and I'll be relying on Nancy to help guide that process," Obama said. He said Killefer, a senior director in the Washington office of McKinsey & Co., "is an expert in streamlining processes and wringing out inefficiencies so that taxpayers and consumers get more for their money."

Obama once again declined to say how he plans to eliminate the growing budget gap, which is projected to narrow somewhat as the economy improves but explode again as the retiring baby boom generation sends the cost of the entitlement programs -- Social Security, Medicaid and Medicare -- skyrocketing. Obama said he will offer "very specific outlines" for addressing short- and long-term deficits when he submits his first budget proposal to Congress next month.

"We are beginning consultations with members of Congress around how we expect to approach the deficit," Obama said. "We expect that discussion around entitlements will be a part, a central part, of those plans."

So far, however, Conrad said Obama's team has been cool to requests to establish a bipartisan task force that would reexamine the entitlement programs, as well as the nation's tax system, and develop a long-term plan for bringing costs and revenue in line.

Meanwhile, Spratt said Obama's team is pressing for a new tax cut for working families in the stimulus package that would be made permanent in Obama's first budget.

"I keep telling them to defer judgment: Don't do anything permanent now," Spratt said. Otherwise, "how do you get rid of a deficit of this magnitude?"

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