Budget woes

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For those of you who haven't heard, the deficit is projected to go up.  A lot.

The sluggish U.S. economy and the cost of this year's economic stimulus package will push the federal budget deficit into record territory in fiscal year 2009, the White House said Monday.

The Office of Management and Budget said it expects next year's budget gap to soar to $482 billion, $75 billion higher than its previous estimate. The deficit for the current fiscal year, which ends Sept. 30, is projected to come in at $389 billion, $21 billion lower than the administration's February forecast.

To be sure, the OMB is believed to bias its estimates upward, so that it can have the joy of a downward adjustment at the mid-session budget review.  Nonetheless, this sends a rather clear message:  danger, Will Robinson!

As luck would have it, I was on a conference call with the McCain campaign this morning while they talked about their plans to make American jobs grow.  As such things go, relieving the deadweight loss of income taxes is not a terrible strategy.  The devil, however, is in the details.  Particularly the details about where the money is coming from to pay for the tax cuts.

The majority of the federal budget is spent on a few things:  entitlements, defense, and interest on the national debt.  Which of these, I asked, as so many have before, is McCain going to cut?  Well, erm, none.  Not needed.  We'll get there by attacking wasteful spending.  Then sometime in the comfortably distant future, we'll reform social security and draw down spending in Iraq.  It's all in The Plan. The problem is, they can't find an independant institution to sign off on the coherence of The Plan.

Not that Barack Obama impresses me all that much more--HIS plans rely on some rather heroic assumptions about health care costs.  Either way, we're in for a bumpy ride.  Can America get a second job?



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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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