Above Chart from the Budget and Economic Outlook 2010-2020. CBO, January 2010.
As we await President's Obama's State of the Union, attention is focusing on huge and problematic budget deficits. The recent past and near future are host to truly jaw dropping levels of Federal spending and paltry tax returns. The Congressional Budget Office (CBO) forecasts a $1.3 trillion budget shortfall in 2010 on the heels of a $1.4 trillion budget deficit in 2009. These are budget deficits with 11 zeros in them. We are and have been spending more than $3.5 billion more than we are taking in per day. America will deficit-spend more than 9% of her GDP in 2010 having deficit-spent almost 10% of GDP in 2009. We are overspending more than at any time since the end of WWII. It is essential to point out that we are also struggling to free our economy from the jaws of the most jobs and prosperity hungry recession since the great depression.
We have spent the last 24 months in the throws of emergency spending and panic to right our financial system and national economy. No expense was spared in saving the commanding heights of our finance system and economy. This proved a multi-trillion dollar undertaking. Likewise, our military activities in Iraq, Afghanistan and beyond are consuming massive resources. We spent well over $680 billion on our defense budget last year. At the present moment the US is responsible for approximately half the world's military spending. Perhaps the budget conscious should consider some cuts in this area?
The CBO is estimating that the unemployment rate will average 10.1% in 2010 and over 9% in 2011. This suggests that the present mass economic suffering will not soon end. We must ask, what is to be done for the bottom 60% of the US income distribution. This majority of Americans have been little helped by the policies to date. Yes, it would have been far worse without extended unemployment benefits and food assistance. No, that is not enough. If Federal spending is now to be wound down, and these folks have not yet been meaningfully helped, will there ever be help for these people? While childcare and eldercare tax credits are a grand idea, these will not move the needle for the suffering. Already, the out of work are caring for children and childcare is unaffordable for many. Likewise, tax credits for retirement savings make sense. Tens of millions of Americans are in too poor economic conditions to make retirement savings a priority regardless of tax treatment.
Congressional Democrats and President Obama are well aware that present levels of spending are not sustainable and that the public is increasingly alarmed. In response, we will see greater debate and discussion regarding spending moving forward. One of the lessons of the Massachusetts Senate election of Republican Scott Brown appears to be fear about spending. The President has signaled that he will seek a 3 year freeze in non-defense discretionary spending. The general increase in prices over time, inflation, means that fixed budgets are in fact time-release budget cuts. There will be no cuts to Social Security, Medicare, Medicaid, Defense, Homeland Security, and Veterans Affairs. At the present time, details are not available. We have been told that some discretionary non defense budgets will be increased. This strongly suggests that some other programs will be cut significantly. Are we to expect cuts at the EPA, Attorney General's Office?
Will we see directed economic stimulus to the 100 million worst off Americans? Focus on fiscal discipline, while welcome, is often a prelude to the closing of the door to new programs for the worst off among us. If this occurs, there will be more anger and disappointment from the mass of Americans. If finance reform, deficit reduction and renewed leadership vigor are what the public wants from The Obama administration, it will be a very challenging 2010.