Podcast: Understanding the New Budget Deficit Updates

August 27, 2009

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In this podcast we’ll discuss the budget deficit estimates released by the Congressional Budget Office and the White House’s Office of Management and Budget on August 25. I’m Michelle Bazie and I’m joined by the Center’s Director of Federal Fiscal Policy, Jim Horney.

1. Jim, let’s get right to it. Were there any surprises in the reports?

A: There really was no surprise or news in these reports. The numbers confirm what we have known for at least six months — that the fiscal year 2009 deficit will be the largest deficit relative to the size of the economy since the end of World War II.

2. Why is the deficit so large this year?

A: The deficit is so large this year largely because of the most severe economic downturn in the post-war era, which was fueled by the steep decline in the housing market and a near meltdown of the financial system — and because of the cost of efforts to deal with those problems. But it is important to note that while the deficit would have been smaller if we had not spent hundreds of billions of dollars to shore up the housing market and the financial system and to stimulate the economy, instead of seeming to be on the verge of an economic recovery, as we are today, we would probably be looking at a recession that was getting much deeper and an unemployment rate that would climb well above the 10 percent or so expected in the next few months.

3. Do the large deficits projected for this year and the next few years mean that the President and Congress should take actions to substantially reduce those deficits?

A: No. They need to be very careful about what they do with deficits in the next few years. While the deficit will decline from this year’s historically high level as the economy improves, trying to reduce the deficits in the next few years by too much would undercut the steps taken to stimulate the economy and risk sending the still-fragile economy back into a tailspin.

4. What about reducing the deficits projected for subsequent years?

A: The President and Congress should begin as soon as possible to take steps to ensure that the deficits will come down to reasonable levels over the next five to ten years. And, they should begin to address the very big problem of deficits that will explode in coming decades if no changes are made in current policies — partly because of the aging of the population and inadequate revenues, but largely because of the anticipated rapid growth of per person health care costs.

5. So Jim, what’s the bottom line? What’s the key thing we can take away from these reports?

A: The new reports underscore why it is absolutely crucial to enact health care reform that is 1) fully paid for over the next 10 years, and 2) that makes changes in the health care system will allow us to start taking steps to slow the growth of health care costs in the longer run.

Thank you for joining us, Jim.

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