Obama's Budget Stuck Between a Deficit and a Congress

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You want to know what a budget debate looks like in 2010? Here is it, in a nutshell. Step one: The administration wants to reduce the deficit, but it can't cut spending dramatically without risking a double dip recession and drawing the ire of liberal Democrats. So it's stuck with a $1.6 trillion dollar deficit, and it goes to Congress to sell its budget. This is where the nightmare begins:


The Obama administration knows that a $1.6 trillion deficit figure scares the bejesus of out Americans. So the White House seeks ways to reduce the deficit by either increasing taxes on companies and rich Americans, or eliminating subsidies.

But wait! Congress complains that these tax changes hurt employers and create "uncertainty" among businesses that would otherwise hire. So to offset the tax changes and encourage hiring, the administration wants to put together a jobs bill to offer loans to small businesses and $5000 checks to employers who add workers.

But wait! The administration can't put together a decent jobs bill without violating their self-imposed PAYGO rules, which require one dollar saved for every dollar spent. So they find a loophole: They'll use the $30 billion of bailout money that banks have paid back, and sprinkle those funds among small businesses to make jobs grow.

But wait! Deficit hawks in Congress blast the plan, because the money recouped from TARP was supposed to go into the Treasury's general fund to (of course!) reduce the deficit. And we're back at square one, with everybody being generally concerned about the red ink. We can't cut spending dramatically. So cut federal subsidies, right? But that will kill jobs! And around and around we go.

The Obama administration is stuck between a rock and a hard place. The rock is an immovable Congress and the hard place is a trillion dollar deficit that is as terrifying to contemplate as it is impossible to change. Everybody acknowledges that we need more jobs, but key senators won't vote for the money to incentivize hiring. The White House can't spend the deficit up without expecting more blowback, but Congress won't let them bring the deficit down. This is what a budget debate looks like.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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