Congress and The White House have finally reached a budget deal for 2011 - more than 6 months after the fiscal year started. The deal will cut an additional $38 billion from the 2011 budget, in addition to cuts agreed to during negotiations for previous Continuing Resolutions. Overall, the 2011 budget will be $78.5 billion less than Obama's initial request.
On the positive side, Congressional Republicans, who control only 1/2 of one of our three branches of government, were able to secure $78.5 billion worth of "cuts". They have succeeded in changing the national conversation. We are no longer debating whether to make spending cuts or whether to reduce the deficit, it's now a question of how much and where. However, the end result is the government will run an astounding deficit of $1.5 trillion for the year, with no cuts to the items that comprise 86% of the budget. This is not good enough. Much more progress must be made.
Whether this is a good deal will not be known for some time. Realistically no wholesale changes can be made during budget negotiations of the current year. Our first chance at real change comes in the 2012 budget, and every day Congress debated the 2011 budget is one less day they had to get working on the 2012 budget. The federal budget is a neverending list of pages and programs. It takes much time to understand the budget at the level required to make substantive change.
In that regard, it can be a tremendous positive for Congress to get $78.5 billion in spending cuts now and get the 2011 budget behind them. It will be a victory if it means we'll be able to make significant reforms in the 2012 budget.
Economists were concerned about budget deficits during the Bush years, and increasingly worried when it reached a record $458 billion in 2008. If $458 billion is enough to be deeply concerned, we should be petrified that the government ran a $1.4 trillion deficit in 2009, $1.3 trillion in 2010, and will likely reach $1.5 trillion in 2011. In 2010 the government brought in $2.16 trillion, while spending $3.5 trillion.
If this continues, the biggest threat to our country won't be nuclear war or terrorism, it'll be fiscal catastrophe. Annual deficits of $1 trillion and more are unsustainable. When we have to borrow 40% of our expenses, it's only a matter of time before we go the way of Ireland, Greece, and Portugal. Except, when we become beggars to the world, who's going to want to bail us out? Who would even have the resources to do so?
Congress, the White House, and the American people need to get serious about getting our fiscal house in order. Not because it would be a nice or because it would be a good thing, because it's necessary if we want to keep our country as we know it. It's time for everyone to grow up.
- In the coming days, I will dig deeper into the budget and list a number of specific spending cuts and fiscal policies that must be made.
Obama was essentially correct when he said he inherited a budget deficit of $1.3 trillion. Though the budget deficit for 2008 was a then-record $458.6 billion, the CBO issued a projection in January 2009, just days before Obama took office that the budget deficit would reach $1.2 trillion that year, before the cost of any new stimulus plan or other legislation was taken into account.
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