Actually, as this report last night from the Associated Press points out, the leak from the administration says the 2009 deficit will be less than $1.6 trillion — $1.58 trillion to be exact.
Several things to keep in mind as the debate on this plays out over the next few days leading up to the release next Tuesday of both the Office of Management and Budget and Congressional Budget Office mid-session reviews.
1. This lower-than-previously-projected deficit could end up being even lower when the final numbers are released in just about eight weeks. The reason: It’s not yet clear whether the mid-session is completely taking into account that the $250 billion the administration included in its original budget for additional help for Wall Street this year won’t be provided. It is entirely possible that only part of that has been taken out of the deficit calculation in the mid-session.
2. This lower deficit number won’t change the politics of the debate very much. Republicans will still complain loudly that it’s the largest deficit in U.S. history, which it will be. The White House, meanwhile, will say that the deficit is far less than it was expected to be, which will also be true.
3. Deficit hawks will say that $1.6 trillion is a disaster. For example, my friend Bob Bixby, who heads up the Concord Coalition, says in the AP story noted above, “Whether it’s $1.6 trillion or $1.8 trillion, it’s pretty bad.” But many others will say that Bob and others are missing the point: a deficit of this magnitude is the appropriate fiscal policy given the state of the economy and the limits on monetary policy. Some will say that they wish it was even higher.
4. What few will say is that the 2009 deficit for which the Obama adminsitration will take the blame and credit would have been just about the same had George W. Bush remained in office or John McCain been elected. It would have gotten there differently, but the bottom line would have been the same.
With this fiscal year almost in the books, the budget question that we all should start to focus on is the deficit for 2010 and beyond, with the beyond being relatively more important. My guess at this point is that the 2010 deficit will soon be projected to be close to or even a little below $1.1 trillion and that the baseline deficit for 2011 will be around $900 billion.
Question: Will a $1.1 trillion 2010 deficit be called the second largest in U.S. history, or the largest one-year drop in the deficit ever recorded?