Obama's Tough Road Ahead
Yesterday Peter Orszag, President Obama’s budget director, acknowledged that earlier federal revenue estimates were too optimistic, and that new ones, forthcoming from the Congressional Budget Office (CBO), would show an even worse budget outlook than the White House expected last month. This about-to-explode political bomb couldn’t come at a worse time for the president -- and once it goes off, Obama might even have to battle with sections of his own party.
It’s here that we opinion writers usually point out that Orszag is trying to lower expectations about the nation's fiscal health. And he is surely doing that. But only, perhaps, so that they reflect dire reality. It’s pretty clear that tax revenues from the end of 2008 were abysmal, as a raft of other indicators from that period have been revised down, too. Meanwhile, the national debt topped $11 trillion on Monday, and that, as Obama’s critics will remind you, is before most of the stimulus spending gets paid out.
So the Treasury is in bad shape. Worse shape than officials claimed to think just a few weeks ago. And so, critically, is the political atmosphere -- more challenging for Obama now than at any time since his swearing in.
Members of Congress will soon finish sucking all the political utility they can out of the AIG bonus flap. The CBO’s new numbers will give Obama’s GOP critics an upsetting story to be outraged about just as the AIG issue retreats from public consciousness. But wait. There’s more. Next week, the Democrats in the House will present their budget outline, which likely will -- to varying degrees -- reflect Obama’s ambitious plans, including his push for health care reform and a cap on carbon emissions.
Perfect. Just after the administration scrambles to explain why it didn’t keep AIG’s derivatives traders from collecting their taxpayer-financed bonuses, and just as huge new deficit projections begin to flash ominously across Americans’ television screens, Obama’s party begins work on how it might spend lots more on a grab bag of expensive Democratic social projects. Eye-popping deficit numbers all but beg Americans to wonder how the country will afford it all. And that’s just what we know about. Jobless claims data are out tomorrow, numbers on mass layoffs the next day, and a new GDP estimate a week later, any of which could kneecap the Dow.
The merits of Obama’s proposals -- and there are many -- will matter less than the terrible atmospherics, and that will translate into policy changes in Congress. Indeed, Sen. Kent Conrad (D-N.D.), chairman of the Finance Committee, said yesterday that “adjustments” will have to be made to Democrats’ spending plans in light of the new CBO estimates. One thing that might go in the Senate -- and provoke a nasty fight with the House -- is the Carbon cap. No wonder, then, that the White House is thinking about using a special procedural shortcut to pass its budget, which would allow Democratic leaders to ram it through with simple majority votes, against the wishes of the party’s conservative wing. That, by the way, doesn’t look good, either.
Unless he works some political magic, Obama is going to have a rough couple of weeks. More and more, it seems that the relevant question is not whether the president will fall far short of the lofty goals he set for himself. It’s whether he badly splits the Democratic majority in the process.
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