- The Washington Times - Wednesday, January 26, 2011

Last month’s bipartisan tax cuts and spending deal has deepened the federal deficit dramatically this year, putting the government on track for a nearly $1.5 trillion shortfall — the largest in history — the Congressional Budget Office said Wednesday.

The sobering check on the country’s finances was announced a day after President Obama’s address to Congress and underscored the country’s tenuous fiscal standing, which could doom many of Mr. Obama’s initiatives to boost government spending on education, roads and other infrastructure.

The CBO did say the economy appears to be improving, albeit slowly, from a deep recession that drove the unemployment rate to more than 10 percent. The rate is still above 9 percent, despite efforts by Mr. Obama and Congress to pump money into the economy.

“It’s been a slow recovery by the standards of our past. The labor market in particular has been coming back slowly; income has been coming back slowly,” said CBO Director Douglas Elmendorf.

Democrats said the report signaled that the economy is stabilizing and credited their own actions over the past two years. They also warned Republicans against cutting spending too deeply.

“The double-dip recession that many of us feared is not likely to happen. I think it’s pretty clear that’s the result of a lot of measures that have been taken by Congress and the president,” said Rep. Chris Van Hollen, Maryland Democrat.

The CBO said the deficit for fiscal year 2011 will reach $1.48 trillion. That tops 2009’s real-dollar record of $1.42 trillion, thanks to the sluggish recovery and to the bipartisan deal struck last month during the lame-duck session of Congress.

Members of both parties argue that the time has come to tackle deficits, though Democrats also are fighting a rear-guard action to preserve their spending priorities against an onslaught by Republicans, who are proposing both broad and specific cuts.

The first test will come in a few months, when Congress must vote to raise the debt ceiling or else shut down the government. Republican leaders have vowed to attach spending limits to the debt increase, presaging a showdown with the administration.

On Wednesday, a group of 21 Senate Republicans introduced a balanced-budget amendment to the Constitution, arguing that lawmakers will keep increasing the red ink if their hands are not tied.

“Time after time, Washington has promised to bring down the debt, but then kept the spending going — increasing the mountain of debt our kids and grandkids will have to pay for,” said Sen. Orrin G. Hatch, Utah Republican.

Meanwhile, Republicans are fighting off Democrats’ calls for higher taxes to offset spending.

In December, both parties took the path of least resistance: Democrats agreed to more tax cuts and Republicans to more spending.

The CBO’s prediction for the 2011 deficit deepened by nearly $400 billion. The effect of the December tax cuts and spending bill will have an even deeper effect in 2012, with a deficit of more than $400 billion, and will continue through 2013, when it increases the deficit by more than $100 billion.

On Tuesday, Mr. Obama vowed to revisit the tax cuts in two years and insisted that the rates for upper-income taxpayers should rise to pre-2001 levels.

“If we truly care about our deficit, we simply can’t afford a permanent extension of the tax cuts for the wealthiest 2 percent of Americans,” he said in his State of the Union address. “Before we take money away from our schools or scholarships away from our students, we should ask millionaires to give up their tax break.”

Republicans say Democrats have it backward when they blame tax cuts for the deficits.

“You can only believe that the extension of current tax rates for two more years creates a bigger deficit if you believe that all of the money earned by the American people is the government’s money, which the government is kind and charitable enough to let you keep a portion of,” said Sen. John Cornyn, Texas Republican. “What it does is it tells us how much money is going to be coming in the front door. And what we are saying is we need to control how much money goes out, and there needs to be balance there.”

The CBO sounded other warnings.

The nonpartisan agency said debt held by the public, which was less than $6 trillion two years ago, topped $9 trillion at the end of fiscal year 2010, amounting to 62 percent of gross domestic product.

On the positive side, the CBO predicted that inflation will remain low in the short term. It said the economy will grow at an annual rate of about 3 percent in 2011 and 2012, which is lower than in past U.S. recoveries, and unemployment levels will remain high through at least 2016.

• Stephen Dinan can be reached at sdinan@washingtontimes.com.

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