As Stimulus Grows, So Does Task of Closing Whopping Deficit

From Washingtonpost.com

Economists may debate whether the $787 billion stimulus bill Congress sent to the president last night is big enough to lift the nation out of recession. But one thing is certain: It will blast another big hole in an already tattered federal budget.

"You can't tax your way out of this," said Brian Riedl, a budget analyst at the conservative Heritage Foundation. "You'd have to raise taxes by $8,500 per household in order to close a trillion-[dollar] deficit through tax increases alone."

Riedl noted that federal spending will rise to more than 26 percent of the nation's overall economy this year, driven by the $700 billion rescue of the U.S. financial system and the government's seizure of mortgage giants Fannie Mae and Freddie Mac, as well as the stimulus package. Tax revenues, meanwhile, are forecast to drop to about 16 percent of the overall economy, in part because the recession is reducing earnings and cutting people's tax bills.

Obama has pledged to close the chronic gap between the government's income and its spending, starting with a summit on fiscal responsibility planned for Feb. 23, the day before he addresses a joint session of Congress. Obama has said he wants to tackle the toughest issues in Washington: making a Byzantine tax code simpler and fairer, reducing the skyrocketing rate of growth in Medicare and Medicaid, and assuring that Social Security will survive for future generations.

White House officials have declined to say exactly what is on the summit agenda. But with the stimulus package out of the way, lawmakers and budget analysts said Obama needs to get specific about how he plans to go about the painful work of bringing taxes and spending back into line.

"They have a few more weeks to get away with all this great talk, but sooner or later there's got to be a real budget," MacGuineas said. "They need to put budget reform on a level playing field with reviving the economy if they're going to be taken seriously."