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Barack Obama is caught between a rising deficit, stubborn unemployment and political paralysis

Feb 1st 2010 | NEW YORK | From The Economist online

AFP

 

 

A MEETING between Barack Obama and Republican members of the House of Representatives last week proved to be an unusually frank, if polite, affair. The president sought to put the members of the minority party on the spot before the television cameras, allowing them to voice their concerns but also asking them to offer proposals. Both sides were pleased with having a chance to make their rivals squirm. The deficit was an area of particular focus.

 

The Republicans, as well as the amorphous but vigorous “tea party” movement, have managed to put deficit spending on the national agenda like at no time since the early 1990s when Bill Clinton came to office on a wave of anxiety about the economy. During Mr Clinton’s terms the economy boomed and deficits became surpluses. During those of his successor, George Bush, the public let slip its attention on overspending. Two wars, two popular tax cuts, economic ups and downs, and an expensive drug benefit for Medicare (the health system for the elderly) that was supported by both parties, pushed public finances deep into the red.

 

As hard as Mr Obama and his advisers have tried to remind voters of the fiscal situation that he inherited, the president is now seen to “own” the economy and the tide of red ink that America faces. So as he proposes his first full-year budget on Monday February 1st, he is stressing not the goodies the budget will dole out but the programmes he is cutting and consolidating. According to the White House, the new budget cuts 120 programmes, with savings expected to total $20 billion. These include combining 38 education programmes into 11, and cutting money for parks, brownfield development and other areas.

 

Whereas the deficit has become more prominent the White House has its eyes on another concern: jobs. In the early 1980s under Ronald Reagan, and then in the late 1990s under Mr Clinton, the unemployment rate and presidential popularity corresponded eerily closely. Late last week GDP figures for the fourth quarter of 2009 showed the strongest quarterly economic growth since 2003. But the president and his supporters have reacted cautiously, as economic analysts warn that the recovery remains fragile and as job figures and (closely related) consumption numbers remain weak.

 

Can the president get Americans back to work? on Friday he proposed a package of tax incentives for job creation: small businesses would get a $5,000 tax credit for every worker hired. In addition, those who raise pay above inflation for existing workers will get a credit on their Social Security taxes, a payroll tax that adds a good deal to the cost of every worker. Republicans dismiss this as small beer and remind the president that not just Reagan but John Kennedy pushed through economy-wide, broad-based tax cuts to stimulate the economy in a recession.

 

Neither party talks comfortably about the real tax-and-spend issue, entitlements. Last week the Congressional Budget Office said that the national debt is on course to triple in ten years. The three-year discretionary-spending freeze Mr Obama backed at his state-of-the-union address last week would reap only small savings next to the rising costs of Medicare, Social Security and Medicaid, the health-insurance programme for the poor. Mr Obama wants a commission to propose a deficit-reduction plan that would have to pass Congress without amendment. This could be one way to tackle entitlements.

 

But Mr Obama could not get the creation of such a commission through the Senate (and thus has talked of creating one by executive order). Many Republicans want such a commission to focus only on spending cuts and not tax increases, and some Democrats fear entitlement cuts. The Republican refusal to countenance tax increases could make them look irresponsible. But they may gamble that with control of Congress and the presidency, any political pain for deficits, joblessness and the rest will only be felt by the Democrats. The most shameless partisans on both sides glory in trying to make the other look like it will throw the elderly out in the cold if Medicare and Social Security are reformed. Making hard choices is all but impossible when political gamesmanship is at the fore.

 

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